JD Straight Up - 12May25 - Art of the Deal

Art of the Deal

Drulard Family Capital Fund

Fortnightly Macro View

JD Straight Up:

S&P 500 at 5794 – up 5% from 5529 two weeks ago

VIX at 19 – down 24% from 25 two weeks ago

10yr Treasury yielding 4.44% (up 4% from 4.27% two weeks ago)

Agg (US Aggregate Bond Index) at 97.55 – down 1% from 98.87 two weeks ago

Gold at 3241 per oz (down 4% from 3361 two weeks ago)

Crude Oil (WTI) at 63 per barrel (up 2% from 62 two weeks ago)

Bitcoin at 103k (up 9% from 94k two weeks ago)

JPM shares at 259 (up 7% from 243 two weeks ago)

Deutsche Bank shares at 27.23 (up 11% from 25.74 two weeks ago)

Truist shares at 41.00 (up 7% from 38.34 two weeks ago)

Blackstone shares at 147.55 (up 11% from 133.58 two weeks ago)

Magnificent 7 Index at 315 (up 5% from 299.91 two weeks ago)

US unemployment: at 228,000 in latest claims – up 3% from 222,000 two weeks ago

EUR at 1.11 USD (down 3% from 1.14 two weeks ago)

GBP at 1.32 USD (down 2% from 1.34 two weeks ago)

Macro Environment

Inflation in US continues at 2.4% and at 2.2% in EU with a target of 2% on both.  Expectations are for increases in inflation resulting from tariffs to appear imminently.  Israel and Russia continue in wars with Hamas and Ukraine, respectively, with no sign of abatement.  US growth is expected at 2% while China growth is expected to remain below 5%.  Tariff and trade negotiations between the US and its major trading partners continue with a near term focus on UK and China.  US national debt nears $37trn versus GDP of $30trn while China national debt exceeds $16trn on GDP nearing $19trn.  US budget deficit continues at 6% with a 3% target.  Oil trades at $62/Bbl, down from a high of $120/Bbl three years ago.  Yield on the 10yr Treasury nears 4.5%.  US Fed holds target rates steady at 4.25% to 4.5%.

Macro View

The US administration is on a mission to reset global trade relations through negotiations.  Believers argue that this reset is overdue and the administration is exercising its dealmaking prowess to level the playing field for the US.  This manifestation of 'the art of the deal' is being executed through tariff threats, soft diplomacy, bullying, and any other means necessary.  Markets reacted to the change negatively but recovered with every inkling of evidence that the approach could be working.  The ever-cynical bond market has refused to budge.  10yr treasuries still yield nearly 4.5%.  Debate on market direction considers whether the current rally is a bear market dead cat bounce or the early spark of another historic rally.

Relevance

Traditional trading patterns and balance have not been evident in the recent volatility and abrupt movement.  There is no firm evidence of capital shifting from risk assets like Mag7, bitcoin, and small caps into safety positions like treasuries and gold.  Instead, many assets are moving in correlation with widespread buying or selling in waves.  Everything up and everything down minimizes the efficacy of traditional hedging.  The rollercoaster is compounded by the story line in traditional media suggesting apocalyptic results from unhinged and unbridled activity in the executive branch of the US countered by a completely divergent narrative in new era digital sources cheering the change.  The uncertainty of direction of travel will lead to additional volatility.

The focus has to be on core values.  Are the actions leading to enhanced growth and confidence?  Is inflation under control?  Is employment remaining strong?  Is the deficit under control?  Is the cost of financing the government declining?  The constant revision of statistics does not make it easy to answer these questions despite ongoing efforts.  Hence, volatility.

Head Scratchers

1 - Is bitcoin an asset?  A speculative instrument?  A store of value?  What is its ultimate purpose beyond the dark web and transactional anonymity?

2 - Does the treasury have the means to manipulate the yield on key treasury rates downward?  Through pressure on buyers like foreign governments, endowments, or the Fed?

Drulard Family Capital Fund

Drulard Family Charitable Fund

www.drulardfund.com

#17- 12May25