Trump lashes out at Powell … who’s behind bond market chaos … the eye-opening statistics on government debt … what is the real fear? Editor’s Note: Our InvestorPlace offices are closed tomorrow for Good Friday. If you need assistance from our Customer Service team, they’ll be happy to assist you when we re-open Monday. Have a wonderful Easter Weekend! Jerome Powell, dead man walking? Earlier today, President Trump took to Truth Social, posting: The ECB is expected to cut interest rates for the 7th time, and yet, ‘Too Late’ Jerome Powell of the Fed, who is always TOO LATE AND WRONG, yesterday issued a report which was another, and typical, complete ‘mess!’ Oil prices are down, groceries (even eggs!) are down, and the USA is getting RICH ON TARIFFS. Too Late should have lowered Interest Rates, like the ECB, long ago, but he should certainly lower them now. Powell’s termination cannot come fast enough! As we’ve detailed here in the Digest, Trump really wants lower interest rates. Perhaps it’s due to the trillions of dollars’ worth of government debt that are rolling over in the next 18 months… maybe he wants to provide a tailwind to the economy… perhaps he wants to give the wobbly stock market a boost… The problem is that even if Powell gives Trump the lower rates he wants, that doesn’t mean Trump’s desired outcomes will come to pass. You see, the Federal Reserve only controls the federal funds rate – a short-term lending rate. The “Big Dog” that impacts mortgage rates, the economy, the stock market, and so on, is the 10-year Treasury yield. But for that, the market is the master puppeteer. And according to legendary investor Louis Navellier, there’s one group within the market that’s in control today… Meet the Bond Vigilantes To make sure we’re all on the same page, Louis’ favorite economist Ed Yardeni popularized the term "Bond Vigilantes" in the 1980s. It refers to bond investors who sell off Treasurys in response to what they perceive as irresponsible fiscal or monetary policies, like excessive government spending or inflationary policies. By dumping bonds, they drive up yields, effectively punishing governments with higher borrowing costs. These investors act like “vigilantes” in the market, enforcing financial discipline when policymakers stray. Now, April has brought an historic move in the 10-year Treasury yield from these Bond Vigilantes. Last week, they stampeded out of the 10-year Treasury, causing its yield to soar from less than 4.00% to about 4.50% – the largest weekly gain in over a decade. You can see the bounce in the chart below. 
Here’s Louis from yesterday’s Special Market Podcast in Growth Investor: Last week’s events were stunning. The main takeaway is the Bond Vigilantes are in charge – these big institutional Treasury investors. The U.S. dollar is now down almost 10% for the year, and Treasury yields rose because apparently the Bond Vigilantes decided to sell some of our Treasuries… That means President Trump isn’t in charge; the Bond Vigilantes are… When the Bond Vigilantes started to avoid our Treasuries, President Trump had no choice but to respond and put a 90-day suspension on reciprocal tariffs. | Recommended Link | | | | If you’re interested in turning quick market-swings into double-digit wins… And doing it over and over again, no matter which way the market is headed… Then click here to check out Jeff Clark’s brand-new research service. It incorporates a powerful trading phenomenon he’s used for 40 years to nail wins big enough to turn $1,000 into $6,000 in a month’s time. And if you move fast, you can give it a full-service test-drive for just $19 a month. |  | | So, what are the Bond Vigilantes worried about? The better question is “what aren’t they worried about?” There’s the U.S. budget deficit that grew to $1.83 trillion last year. That’s equivalent to 6.4% of U.S. economic output, marking the highest reading other than the COVID-19 pandemic. So far in fiscal year 2025 (covering the first half of the fiscal year), the deficit has climbed to more than $1.3 trillion. This is the second-highest six-month deficit on record (second only to Covid). Then there’s the overall national debt, which is ballooning – and accelerating. It’s now nearly $37 trillion, growing at more than $1 trillion about every 100 days. The current debt-to-GDP ratio clocks in at 123%. Long term, this is unsustainable. It will result in either an economic or currency collapse. Next up is the size of our government’s interest payments that are based on the size of our debt and today’s elevated interest rates. Here’s the non-partisan thinktank Peter G. Peterson Foundation: The Congressional Budget Office (CBO) projects that interest payments will total $952 billion in fiscal year 2025 and rise rapidly throughout the next decade… Relative to the size of the economy, interest costs in 2026 would exceed the post-World War II high of 3.2 percent… The federal government already spends more on interest than on budget areas such as: - Defense
- Medicaid
- Federal spending on children
- Income security programs, which include programs targeted to lower-income Americans such as the Supplemental Nutrition Assistance Program; earned income, child, and other tax credits
- Veterans’ benefits
In fact, interest payments will exceed the amount that the federal government spends on Medicare (net of offsetting receipts) this year, leaving Social Security the only program larger than net interest. Then we have President Trump’s tax plan. To set the stage for why Bond Vigilantes have a problem with this, remember that governments only have two main means of funding their spending: taxes and debt (via issuing Treasurys). If President Trump’s tax plans make it through Congress, tax revenues will fall. The Committee for a Responsible Federal Budget estimates that the tax cuts would add $7.75 trillion to the U.S. national debt over the next decade. This would mean the government would have to rely more on debt issuance to meet all its spending obligations. And this leaves debt (Treasurys) in the spotlight…which brings us full circle to the bond vigilantes who are punishing perceived economic bad behavior by driving Treasury yields higher. The case for foreign bond vigilantes adding to the selling pressure To be clear, monthly Treasury data comes with a lag. So, we don’t know exactly who sold bonds last week. But there are suspicions – and culprits aren’t limited to U.S. sellers. The two biggest foreign holders of U.S. debt are China and Japan. China clearly has a motivation for dumping our debt, and some analysts believe they’re holding the smoking gun. Here’s CNBC: “I think China is actually weaponizing the Treasury holding already,” said Chen Zhao, chief global strategist at Alpine Macro. “They sell U.S. Treasurys and convert the proceeds into Euros or German bunds. That’s actually very consistent with what happened over the last couple of weeks,” he added. Germany’s bunds had bucked a wider sell-off in long-dated Treasurys last week, with its 10-year yields sliding. Now, there’s pushback against this theory. After all, if China sells U.S. bonds, it means capital flows back to China in the yuan, therein strengthening the yuan. This isn’t what China wants – Beijing is trying to offset the impact of Trump’s tariffs. As for Japan, last week, Japanese Finance Minister Katsunobu Kato said Japan won’t use its accumulation of Treasurys as a bargaining chip against Trump: We manage our U.S. Treasury holdings from the standpoint of preparing for in case we need to conduct exchange-rate intervention in the future. But apparently, Japanese insurer Nippon Life owns a tremendous amount of Treasurys, and they could be behind the recent selling. Here’s CNBC: “It’s all very well for the Japanese government to say, we’re not going to sell U.S. Treasurys, but it’s not the Japanese government that owns them. It’s Nippon Life,” [BCA Research’s Garry Evans] added. If these insurers are worried about U.S. policy flip-flopping and want to reduce exposure, there’s “not a lot the government can do.” Clearly, “bond vigilantes” don’t exist only in the U.S. Now, regardless of who is behind the selloff, the bottom line remains: big players have been bailing on the 10-year. What’s the worst case that these Bond Vigilantes fear? Imagine your brother-in-law comes to you, lamenting that things are a little tight; he needs to borrow some cash. You give him a loan, only to watch him go spend extravagantly, far beyond his income. It’s not long before he’s back at your door, requesting more money. You agree…he spends recklessly once again. Now, say this pattern repeats another half a dozen times. Eventually, what are you going to do? Either 1) ask for a higher return on your loans, or 2) just stop lending. While the Bond Vigilantes have been engaged in something like the “higher return” strategy, billionaire hedge fund founder Ray Dalio is worried about the second possibility – people not wanting to lend our government money anymore. From Fortune: [Speaking at CONVERGE LIVE in Singapore, Dalio said that] at some point, the U.S. will have to “sell a quantity of debt that the world is not going to want to buy.” This is an “imminent” scenario of “paramount importance,” Dalio said. Fortune went on to quote Wharton Business School finance professor Joao Gomes: The most important thing about debt for people to keep in mind is you need somebody to buy it. We used to be able to count on China, Japanese investors, the Fed to [buy the debt]. All those players are slowly going away and are actually now selling. If at some moment these folks that have so far been happy to buy government debt from major economies decide, “You know what, I’m not too sure if this is a good investment anymore. I’m going to ask for a higher interest rate to be persuaded to hold this,” then we could have a real accident on our hands. Dalio went on to predict that when the world runs low on buyers for U.S. Treasurys, we’ll see “shocking developments in terms of how [debt] is going to be dealt with.” What would that mean? Dalio points toward restructurings of debt, pressure from Washington on countries to buy the debt, and even monetization of debt. Though Dalio didn’t explicitly say this, a study of global economic history shows that monetization of debt risks hyperinflation. So, what do you do? First, despite Dalio’s reference to an “imminent” crisis, it’s unlikely that some sort of economic A-bomb is right around the corner. While we respect Dalio’s analysis, he’s been preaching similar doom-and-gloom for years at this point. Eventually, he’ll be right, but if there’s one thing our government excels at, it’s sticking fingers in dikes and kicking cans down roads. Second, focus on what you can control rather than fearing what’s beyond your control. While understanding and recognizing these big-picture macro movements can help inform your market choices, they shouldn’t paralyze them. Circling back to Louis, you’re better served focusing on what he calls the “iron law” of the stock market: Stock price trends can diverge from earnings trends for a while, but over the long term, if a company grows and grows the amount of cash it takes in, its share price is sure to head higher. This is why Louis remains bullish during this earnings season that just began. When you limit your buying to fundamentally superior stocks that have earnings power, earnings season usually brings welcomed gains. For the latest fundamentally superior stocks that Louis likes, click here to learn about joining him at Growth Investor. Meanwhile, don’t forget the power of AI to help you navigate today’s tricky market Last night, Keith Kaplan, the CEO of our corporate partner TradeSmith, went live at this AI Predictive Power Event. It was a fantastic evening with thousands of attendees learning about TradeSmith’s AI-powered algorithm “An-E” (short for Analytical Engine). This AI-fueled technology forecasts the share price of thousands of stocks, funds, and ETFs one month into the future along with the conviction level of that prediction. It’s equally powerful in both bull and bear markets. To watch a free replay of the event, including examples of back-tests, just click here. Keith even gives away five of An-E’s most bearish forecasts. These are stocks that the AI platform projects will drop hard in the coming weeks. Coming full circle… Last September, the Fed began cutting rates (as Trump wants). Did it result in the 10-year Treasury yield falling? Nope. As you can see below, the two yields diverged, and the 10-year surged… 
Bottom line: Trump can focus on Powell all he wants, but Louis is right… The Bond Vigilantes are running the show. Have a good evening, Jeff Remsburg | 
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