JD Straight Up - 31Aug26 - Bond Bully
Bond Bully
Drulard Family Capital Fund
Fortnightly Macro View
JD Straight Up:
S&P 500 at 7680 – down 1% from 7777 two weeks ago
VIX at 15 – flat from 15 two weeks ago
10yr Treasury yielding 4.75% (up 1% from 4.71% two weeks ago)
Agg (US Aggregate Bond Index) at 97.32 – flat from 97.40 two weeks ago
Gold at 4484 per oz (up 1% from 4443 two weeks ago)
Silver at 67.19 per ounce (up 3% from 65.49 two weeks ago)
Crude Oil (WTI) at 86 per barrel (up 4% from 83 two weeks ago)
Bitcoin at 78k (up 18% from 64k two weeks ago)
JPM shares at 356 (down 3% from 365 two weeks ago)
Deutsche Bank shares at 40.15 (up 5% from 38.21 two weeks ago)
Truist shares at 50.03 (down 7% from 53.26 two weeks ago)
Blackstone shares at 142.76 (up 1% from 141.66 two weeks ago)
Magnificent 7 Index at 442.44 (up 1% from 436.88 two weeks ago)
US unemployment: at 203,000 in latest claims – down 3% from 209,000 two weeks ago
EUR at 1.16 USD (flat from 1.16 two weeks ago)
GBP at 1.35 USD (flat from 1.36 two weeks ago)
Macro Environment
US inflation is at 3.4% and GDP growth at 1.5%. EU inflation is 2.9% and GDP growth is 0.4%. Energy is the key contributor to both US and EU inflation. The last five years have seen US inflation of 23% and EU inflation of 26%. War continues in Ukraine and uncertain ceasefires in Iran and Gaza are holding. US instituted trade war with Canada. US engaged in 100-year oil partnership with Venezuela.
Macro View
It is becoming more clear that the key drivers of direction economically will be inflation, rates, and AI. Underlying inflation is the flood of excess capital created by stimulus and artificially low rates over many years in addition to more recent energy pressures from war and AI buildout and implementation. Rates are merely responding to belief (or lack thereof) in deficit control and debt levels. AI remains the great hope for productivity but requires massive investment and faith and will also require political and social acceptance. In the meantime, every increase in rates adds to the interest bill and further distances any progress on debt levels.
Relevance
Nobody pushes the bond market around. It is the ultimate school yard bully. It has no conscience. It just reflects what it sees. It sees 40trn in debt and rising deficits, so yields go up. Why? Rational investors demand greater compensation for greater risk. There is no end in sight for increasing deficits, the interest tab is one of the highest annual expenditures of the government, overall sovereign, corporate and consumer debt continues to compound ever higher. Without AI circular spending, the US is likely in recession. Inflation remains untamed. Inequality and income gaps continue to mount. All of this sets off alarms in investor models and thereby triggers demand for greater compensation in the form of greater yields.
US Treasury Secretary Bessent can try to bully the bond yields back down, but the biggest bully in the school yard is the bond market itself. It does not care what a well-meaning manipulator has in mind. It just reacts. Without thought. Without fear. Without care. It is unemotional and pure in its reactions.
Unless there is a commitment to greater safety in the form of controlled spending, intelligent revenue growth, and a clear, articulate and reasonable plan for reducing deficit and debt, the pressure will continue.
Head Scratchers
1 - What is bitcoin now? A hedge against a declining reserve currency? A non-corelated asset? A means of hiding assets anonymously? A quasi or digital gold?
2 - Are things any more certain now than two years ago? This is update #50 so I have been doing this for two years now. I think I know even less now than I thought I knew when I started. Maybe after 50 more I will be certain I know absolutely nothing and will be content to stop writing. Thanks for the ongoing feedback anyway.
Drulard Family Capital Fund
Drulard Family Charitable Fund
#50 - 31Aug26
Comments