- We’re in a new bull market…
- “The bond market is fighting Trump”…
- Jim Rickards warns about a NEW kind of market crash…
Dear Reader,
Hark! The S&P 500 has vaulted into a fresh bull market — up 20% from its April trough.
Thus there is additional joy in Heaven.
CNN’s “Fear & Greed” Index indicates that “Greed” once again animates investors.
“Extreme Greed” has yet to seize them.
Yet like bombarded soldiers who have heard the “all clear” signal… investors have emerged from their foxholes.
And they have charged past the “Fear” that besieged them in April.
I am confident, fully, that they will barrel into “Extreme Greed” before long.
Cooling Inflation
Meantime, we learned yesterday that April inflation was more subdued than expected.
Reports USA Today:
- Overall consumer prices increased 2.3% from a year earlier, down from 2.4% rise the previous month, according to the Labor Department’s consumer price index, a measure of average changes in goods and services costs.
- That’s the lowest annual increase since February 2021…
The lowest annual increase since February 2021? Handsome!
Yet were not the president’s tariffs expected to set inflation rampaging?
I sense in mainstream media the sting of disappointment.
They had pined for a stronger inflationary impulse.
That is because they believed it would embarrass the president.
Don’t Worry, Inflation Will Come Back
Yet Vox takes heart. It believes tariff-induced inflation will soon roar:
- Over the course of April, President Donald Trump imposed large tariffs on goods from every country in the world, pushing America’s average levy on imports to its highest level in roughly a century.
- And inflation slowed… Why didn’t April’s tariffs translate into higher inflation?
- The primary explanation is that US companies stocked up on foreign goods and inputs earlier this year, in anticipation of Trump’s tariffs. So, they’ve been able to keep prices low by drawing down on those inventories…
- But companies will eventually exhaust their pre-trade war inventories. And when they do, prices will rise… higher prices are all-but certain.
I suspect Vox may be correct in broad outline.
So — evidently — does the bond market.
The Wise Owls of the Bond Market
As I have written before:
The flighty birds of the moment congregate in the stock market.
Yet the owls — the wise owls — nest in the bond market.
The bond market will point you where the economy is heading, they say.
It is not so easily foxed by the Federal Reserve’s garish and gaudy tricks.
New York Times economics reporter Neil Irwin:
- Savvy economic analysts have always known the bond market is the place to look for a real sense of where the economy is going, or at least where the smart money thinks it is going.
And I believe the smart money — the bond market — presently foresees inflation.
Let us review, briefly, bond dynamics.
Inflation Is a Termite
Longer-dated Treasury notes telegraph inflation’s direction of travel.
If they wire an inflationary message, bond prices will fall. And bond yields will rise.
(Bonds operate as seesaws operate. When bond prices rise, bond yields fall. When bond prices fall, bond yields rise).
Under inflation a bond is a sawdust asset.
Bond yields rise under inflation because inflation eats into the bond’s value… as the termite eats into wood.
Bond holders thus demand a higher yield to compensate them for inflation’s savage appetites.
Do you follow along?
The Termites Are Active
Regardless, the inflationary termites are active in the Treasury market.
The bellwether 10-year Treasury note presently yields 4.49%.
Its yield has increased some 35 basis points this month alone. And the ides of May have not yet even arrived.
Surging 10-year yields are a source of frustration for the president. As a construction man, he dislikes termites.
Mr. Robert Arnott, kingpin of Research Affiliates:
“Trump cares more the about the 10-year Treasury than about the stock market.”
Trump’s Obsessed With 10-Year Yields
- Fortune magazine, by way of elaboration:
- [Trump] is obsessed with rates on 10-year Treasury bonds. To him, this is the measure that matters because so many things are tied to that benchmark: It’s a big factor in setting car loans, mortgage rates, credit card rates, and also determines the “base rate” that companies pay on their crucial long-term borrowings.
Adds the Kobeissi Letter:
- The bond market is fighting Trump:
- Despite countless efforts to calm yields, they keep rising.
- The 10Y Note Yield is now up +35 bps in May alone, back at 4.50%…
- We believe the bond market is Trump’s top economic priority here.
- Rates are nearly 100 bps ABOVE pre-Fed pivot levels.
Trump Demands That “Too Late Powell” Lower Rates
The Federal Reserve does not determine long-term interest rates.
It may nudge them somewhat, it may influence them somewhat. Yet it cannot control them.
And the further out in time — 10 years for example — the lesser the Federal Reserve’s gravitational influence.
Yet the president is furious with “Too Late Powell” for holding rates steady.
Yesterday he thundered that:
- No Inflation, and Prices of Gasoline, Energy, Groceries, and practically everything else, are DOWN!!! THE FED must lower the RATE, like Europe and China have done. What is wrong with Too Late Powell? Not fair to America, which is ready to blossom? Just let it all happen, it will be a beautiful thing!
The Bond Market Is Trump’s Jury
Yet this week the United States and China declared a 90-day trade truce.
Additional trade agreements are in prospect.
Thus Mr. Powell and mates are less likely to reduce rates.
And so they will likely invite future presidential rantings and wraths.
Regardless… the bond market will render ultimate verdict upon the president’s economic policies.
At present the weight of evidence runs against him.
Yet he will need to sway the jury before the 2026 midterm elections.
Democrats are banking on a guilty verdict.
Brian Maher
for Freedom Financial News
