Savvy Trades and Investments

[jwbstock]

My theories on rising bond rates

1) Many investors are recalibrating their future expectations on inflation--tariffs are inflationary, and so inflation will likely rise. Bond owners want extra compensation in these conditions. But I don't think this is the major factor.

2) Undoubtedly margin calls and bond shop blow-ups are causing the unwind of some big bond positions, causing upward pressure on rates. In short, this odd move smells of liquidation to me. This can explain some of the transients lately. But I think there is a much bigger factor at play now.

2) Here is the bigger trend, which is only just getting underway. Foreigners currently have an estimated $17 - $24 trillion (yes, that's trillion with a "T") invested in U.S. capital markets. You are starting to see the repatriation of this money. Foreign countries (and their large money investors) who are not happy with their treatment under the current administration see no reason to keep their money in U.S. markets. Moreover, it is now clear that the U.S. economy will slow down at best, and will likely slip into recession. Why keep your money in a declining market, and get verbally abused on top of that? Besides, Europe and Asia have many domestic needs for this money. Europe in particular must fund a rapid military increase, given that Trump/Vance are abandoning them to Putin.

In fact, Jeffry Gundlach (who manages more bond money that anyone else on Earth) predicted yesterday that interest rates will actually go up in the next recession due to this repatriation effect:

It's not just the Chinese. There is significantly more European money in the U.S. markets than Chinese government money. This money is starting to move, and its movement will induce large effects over time.

Our stable genius and his lackey minions didn't think about this effect when choosing their current course of action. I'm predicting that a rude awakening will set in later this year. Cem Carson, who has made many good market calls, believes 10 year bond rates are on a path to 6%, even with a slowing economy. I'm increasingly inclined to agree.

JWB