| Swan Dive — July 17, 2025 The Bond Market Intervenes In Real Time Andrew Packer So far this week, nothing has quite gone to plan…
A vote in the House to move forward on cryptocurrency legislation – as we explored on Tuesday – failed on its first vote. But a similar vote passed yesterday.
The result? Yo-yo-ing prices for bitcoin, cryptocurrencies, and companies that heavily trade in those cryptos.
As we explored yesterday, President Trump was pushing to fire Federal Reserve Chairman Jerome Powell.
In real time Wednesday, as the President floated the idea, markets collapsed, especially the bond market.
The 30-year bond yield jumped to 5.1%. Deutsche Bank released a report that firing Powell would lead to a collapse in confidence in the U.S. bond market.
Remember, strong confidence matters. It’s a factor that keeps buyers coming and keeps yields down.
So, Trump did another TACO trade and quickly stated that there were no plans to fire Powell. Stocks levitated higher to close the day.
But Powell may not want to rest easy quite yet.
If the economy takes a tumble in the next year, Trump can always blame Powell’s stubbornness to lower interest rates. Given the choice between being a scapegoat or a martyr, Powell may have been hoping to preserve his legacy by getting fired.
The important thing amid all this needless Apprentice-style drama? It’s tradeable.  Markets tanked as Powell’s odds of getting fired spiked higher, then recovered Who Needs Rate Cuts Anyway? In the meantime, the real question is, should the central bank even cut rates?
Inflation is still above trend. Producer Price Inflation, which came in yesterday, came in on the cooler side.
It turns out tariffs aren’t inflationary, at least as long as foreign producers are eating the higher costs.
The labor market? It’s steady, but will slow down more meaningfully as furloughed government employees run out of their severance pay.
The private sector is showing some job growth. And this morning’s retail sales data showed a greater-than-expected 0.6% increase in June – hardly a sign that consumers, the bulk of the economy, are getting defensive yet. (Although, yes, they are racking up credit card balances.)
All in all, this doesn’t point to an economy that needs to be helped with interest rate cuts. If anything, an economy that can chug along at relatively high interest rates is a strong one – a talking point Trump would be talking up, if he wasn’t trying to talk interest rates down.
Of course, even with a strong economy, there’s a lot of money sloshing around financial markets.
The only real sign of trouble in the economy right now? The vigilant bond market.
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The Cautious Money Runs Scared As mentioned, the prospect of firing Jerome Powell gave bond markets a bigger shock than the stock market yesterday.
Bonds are where investors go to preserve their wealth rather than grow it. It’s where the cautious money stays, piling up, as Gordon Gekko says in Wall Street, “...interest on interest, accumulating to widows and idiot sons.”
Call it caution or not, but interest rates have been trending higher since 2020. Bond investors may just be having their moment. They’ve even managed to push rates higher following the Fed’s interest rate cuts.
Who can blame the resurgent bond vigilantes? Debt levels are soaring, and America’s debt-to-GDP ratio is over 120%. Historically, a move over 130% means a structural “game over” event – where nations face historically slower levels of real economic growth.
The good news? Debt-to-GDP has come down slightly from its Covid-era peak. The bad news? It’s trending up again.  America’s debt load stands near its highest in 249 years. Today’s debt load is far worse than the Civil War or World War I. Only World War II saw higher debt levels.
Those levels came down as the Federal Reserve held interest rates artificially low into the 1950s. And as both of America’s political parties cut back on spending after the war. Even the Korean War didn’t slow down that decline.
But that cycle changed, and now we’re back near highs. The next few years could truly mark a make-or-break point for markets.
And the bipartisan support for keeping America’s finances healthy has been replaced with support for kicking the spending can down the road – and we’re running out of road. Your Choices Today: Better than You Think Despite the challenges we face in the next few years, the stock market is near all-time highs. Gold is looking to break higher after consolidating the past few months. And bitcoin is pushing higher. Technologies like AI could make fortunes – and you’ll need it if technological changes impact the labor market significantly.
For now, none of these factors represent the sign of a sagging economy that needs lower interest rates to support.
Even better, investors have choices today. You can buy the uptrend in gold and the uptrend in bitcoin – and should do a little both. You can take advantage of commodities, which are rising but largely off their highs.
You can take profits in your tech stocks that have had a good run. And when you do cash out, you can park your cash or short-term bonds earning over 4% interest rates.
That’s not a bad environment at all – although it does feel more like 1998 or 2007 – a perfect late-summer day before the autumn. Enjoy it while it lasts, but be mindful of stormy weather.
~ Andrew P.S. In a few hours, I’ll be sharing an interview with paid-up members of the Grey Swan Investment Fraternity. I recently spoke with the management team at DeFi Technologies (DEFT), a Canada-based cryptocurrency platform that’s working to create investment solutions across the crypto space.
Stay tuned for the email once that’s posted – and we’ll be back to our regular Grey Swan Live! format next week when Addison is back from vacation.
Your thoughts? Please send them here: addison@greyswanfraternity.com
How did we get here? Find out in these riveting reads: Demise of the Dollar, Financial Reckoning Day, and Empire of Debt — all three books are now available in their third post-pandemic editions. You might enjoy one or all three. 
(Or… simply pre-order Empire of Debt: We Came, We Saw, We Borrowed, now available at Amazon and Barnes & Noble or if you prefer one of these sites: Bookshop.org, Books-A-Million or Target.)
Please send your comments, reactions, opprobrium, vitriol and praise to: feedback@greyswanfraternity.com |
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