One of Us! One of Us!

As much as I may feel like a freak or outcast over the last many years worrying about a bond market crash, I have maintained my conviction all along in the long-term view. Specifically, a bond market crash would be at the epicenter of the next bear market in equities and, indeed, the next big crisis at-large.

The Fed, Congress, and several administrations in the White House have all been getting away unscathed for a good while thanks to a slumbering bond market, meaning they could enact dovish monetary and fiscal policies without a reckoning. 

However, that is changing now, as the long end for the curve is unperturbed by The Fed's actions on the front end (even if they did cut rates again). Further, the notion that "Yield Curve Control" is a solution if rates spiral out of control seems a bit too goldilocks. 

President Trump's beautiful Tax Bill may seem appealing on the surface due to several issues. However, in the context of our current deficit it is tough to see how it does not spawn higher rates on the long end, particularly with the President backing off his initially hard-nosed stance on tariffs. 

Simply put, the only way rates on the long end (10-Year out to the 30-Year) are going lower is if we see genuine demand destruction and plundering financial assets. Stocks and home prices likely need to go down significantly from here--Well below the April lows for equities, for example.

We also need to see the jobs market implode in order to fully crush demand and get prices well below whether they are and where they are headed. 

If it sounds like a crummy situation that is because, well, it is. Trying to sugarcoat it or argue, as Treasury Secretary Bessent has recently, that we can organically grow our GDP out of the debt is both absurd and nonsensical. All it will do is lead to higher rates and an even bigger crisis. 

The White House should take the pain now, upfront, especially with the midterms still some time away. Talk down the markets and economy and try to induce money back into bonds on the long end. Otherwise, expect rates on the 10-Year to hit not just 5%, but 6% at a much faster pace than anyone seems prepared to withstand,