"Insanity"

Here's popular macro-thinker Kevin Muir on current and go-forward conditions, and recent (increased treasury buybacks) events.

"It is insanity to think the US economy can run at a nominal GDP of 6.5% with AI borrowing and spending exploding at the largest pace since the railroad boom, while the US government runs petal to the metal fiscal policy -- all the while geopolitical developments force other nations to also run expansionary fiscal policies -- yet not expect bond yields to rise.  Increasing liquidity support buybacks does little to change this dynamic.  

The bond market has rightfully concluded that this will not be enough.  And not only that, the gold, fx, and crypto markets have correctly sniffed out that attempts to keep bond yields down could well be inflationary.  You can't have a booming global economy and lower interest rates.  And if you try too hard it risks letting inflation run away to the upside.  The era of ultra-low bond yields is over.  

Markets and governments need to accept this new reality and adjust accordingly."

In a nutshell, and as I keep expressing, the go-forward/structural macro setup is vastly different than what you and I have grown accustomed to over the past several decades... I've articulated herein the nature of two broad regimes that course throughout history, each possessing notably different inflation dynamics, and, therefore, inspiring policy decisions that would've been -- in the opposing regime -- entirely unintuitive, often to the extreme.

And, make no mistake, each demanding a notably different investment approach as well... Something I fear is, alas, presently lost on too many investors, and advisors alike.

I have much to add to this top, but this'll suffice for the moment... I feel a video coming on 😎.

In the meantime, here's today's macro and market rundown*:

A Softer Consumer, a Harder Floor Under Yields*

The tape at mid-afternoon is doing very little on the surface and something mildly interesting underneath. The Dow is off roughly a quarter percent, the S&P is essentially unchanged, the Nasdaq is a shade higher, and the equal-weighted S&P is up about a fifth of a percent. That last one is the tell: the average stock is outperforming the index, which is the opposite of what we've grown used to. The chip complex is heavy into this evening's marquee earnings report from the world's largest company — released after the close, and the single biggest read-through we'll get on whether the hyperscalers' capital spending plans are still accelerating.

This morning's data was the main event until tonight. July's personal consumption expenditures price index rose 0.2% on the month against expectations of 0.1%, putting the annual headline rate at 3.7% versus a 3.6% forecast. The core measure rose 0.2% monthly and 3.3% annually, both in line and unchanged from June. Second-quarter GDP was confirmed at 1.5%, and durable goods orders rose 1.1% in July against expectations of 0.5%. Inflation-adjusted consumer spending, however, was flat on the month — following Tuesday's Conference Board reading, which fell to a seven-month low of 89.4. Firm business investment, sticky prices, and a consumer that has stopped moving.

The bond market's response is where I'd focus your attention, and where our read diverges from the consensus. Money markets moved today to fully price a Federal Reserve rate hike by December, even as the odds of a hike at the September meeting have fallen to roughly 38% from 72% at the end of July. The market is not removing the hike. It is moving it later.

We don't think it arrives at all this year. The case rests on the demand side. Real consumer spending was flat in July, confidence sits at a seven-month low, and payrolls fell outright last month. Energy prices have come off their recent highs, which takes some pressure off the headline inflation figure at the margin — though crude remains well above year-ago levels and is unlikely to do the Fed's work for it. A committee looking at a stalling consumer has ample room to keep waiting, and this Chair has structured his communications to preserve exactly that room. Having removed forward guidance entirely, he never has to pre-commit to a move he'd later need to walk back.

I'll be honest about the other side, because it isn't trivial. Three policymakers voted to raise rates at the July meeting. Core inflation has now spent five consecutive years above the two percent target. And if energy prices do continue to ease, the growth argument for patience weakens at the same moment the inflation argument does. We hold this view with conviction, not certainty.

But here is the more important point, and the one I'd ask you to carry away: whether the Fed hikes in December is not what's setting long-term interest rates right now. Ten-year and thirty-year yields sit near 4.66% and 5.18% — the long end recently touching its highest level since 2007. Last week the Treasury announced it would at least double its purchases of ten- to thirty-year securities to relieve the pressure. The thirty-year initially fell as much as nine basis points on the news, then reversed the entire move within a single session, climbing seven basis points the following day back to pre-announcement levels. One day. Stanley Druckenmiller has since argued publicly that the program undermines the Treasury market's credibility and squanders an opportunity for genuine debt reform.

That is the floor under yields, and it has nothing to do with the policy rate. It is deficits, supply, and an enormous private capital spending cycle competing for the same pool of savings. Which is why we can hold a patient-Fed view and a higher-for-longer-yields view simultaneously without contradiction — they operate at different ends of the curve, driven by different forces. The dollar has behaved accordingly, sitting near 99 on the index, close to a three-month low on concern that the buyback plan patches a symptom rather than a cause.

Energy has been the week's largest mover, though it settled down today. The domestic benchmark sits near $82, little changed on the session after two sharp declines, with the global benchmark in the upper $80s — both well off last Thursday's highs. Washington's latest measures against Iran stopped short of secondary sanctions on trading partners, landing softer than markets expected. More significantly, Iran and Oman are reportedly working toward negotiating a permanent route within thirty to sixty days to resume shipping through the Strait of Hormuz. That is the first concrete framework aimed at the physical chokepoint rather than at the shooting. A negotiating window is not a reopened strait — we've watched that distinction matter all year — but it deserves real weight. Gold gave back about six-tenths of a percent to roughly $4,610, which is precisely how it should behave on a day the front end reprices hawkishly. It trades as a real-rate asset, not a fear asset.

Looking ahead: the Jackson Hole symposium opens tomorrow, with the Chair's keynote Friday morning — his first since taking office in May, landing nineteen days before the September policy decision. Expect him to say considerably less than markets want. That is a feature of how he has chosen to run the institution, not an oversight, and we'd caution against reading either hawkish or dovish intent into a speech engineered to avoid signaling either. Separately, Canada begins charging its own importers 15%, 25% and 50% on roughly 700 lines of American goods on September 8 — a slow-burn input cost story not yet in anyone's models.

Tie it together. Nominal growth is running hot, fiscal policy is wide open, capital spending is exploding, and the government's attempt to lean on the long end was reversed inside twenty-four hours — while the consumer stalls and confidence sags. That combination is not the setup that produced the last four decades of investment returns, and it will not reward the instincts those decades taught. The portfolio is built for the regime we're actually in.

This commentary is provided for informational and educational purposes only and does not constitute an offer to sell, a solicitation of an offer to buy, or a recommendation regarding any security, sector, or investment strategy. The views expressed reflect the opinions of Private Wealth Advisors as of the date written and are subject to change without notice. Information has been obtained from sources believed to be reliable, but its accuracy and completeness are not guaranteed. Past performance is not indicative of future results, and all investing involves risk, including the possible loss of principal. Nothing contained herein should be construed as personalized investment, tax, or legal advice.

*The section titled "A Softer Consumer, a Harder Floor Under Yields" was drafted with the assistance of artificial intelligence tools under the direction and editorial review of Marty Mazorra, Chief Investment Officer of Private Wealth Advisors. All analysis, conclusions, and final content are his own.