The Failed Market Bailout is getting WORSE.
Overall Thesis
Treasury Secretary Bessent's failed intervention to control long-term yields signals credibility loss for US government-Fed coordination, suggesting investors should short risk assets, leveraged tech stocks, private credit, and cyclicals ahead of midterms.
Narratives
Kevin expects short-term volatility and further downside into Jackson Hole as Treasury Secretary Bessent's yield-suppression efforts fail, but turns bullish for the period after the midterm elections. He flags the upcoming Anthropic IPO as a potential catalyst that could expose cracks in AI-related spending and trigger a broader pullback.
Key Arguments
- Bessent's intervention to push the 30-year yield down has failed, with yields snapping back higher (a 'Band-Aid on a hole in the Titanic')
- Bank of America's bull/bear indicator is near record extreme bullishness (9.5), a contrarian warning sign
- JPMorgan data shows the market is historically green a very high percentage of the time in the months following midterm elections
- S&P Global Flash PMI showed strong services/manufacturing growth and improving job growth, supporting the economy
Kevin relays Bank of America's argument that a failed Bessent yield-suppression effort would lead to further dollar debasement, but he personally pushes back on the premise, arguing Bessent isn't injecting new stimulus but merely reshuffling existing debt. He does not commit to his own directional call on the dollar.
Key Arguments
- Bank of America frames Bessent's actions as comparable to stimulus that could fail and weaken the dollar
- Kevin disagrees that this is stimulus, saying it's simply debt reshuffling rather than new money creation
- Failed credibility of coordination between Treasury and the Fed is cited by multiple banks as a risk factor
Kevin describes how Treasury Secretary Bessent's intervention to push the 30-year yield below 5% has visibly failed, with yields snapping back up ('V-shaped') despite CNBC jawboning about bigger buybacks. He frames this as a credibility problem for Treasury-Fed coordination, which multiple banks warn could trigger broader instability, though he stops short of giving his own explicit yield or price target.
Key Arguments
- 30-year yield formed a V-shape, fully erasing Bessent's intervention gains
- Yields rose further even after Bessent's CNBC comments about bigger buybacks
- Deutsche Bank, JPMorgan, and Goldman Sachs all flagged rising credibility risk and potential for a 'faster, harsher, more nonlinear collapse' if intervention keeps failing
Hedges & Caveats
- Host acknowledges the setup is 'messy' and complex
- Suggests market conditions could become 'really bullish' after midterms
- Host disagrees with Bank of America's characterization of actions as stimulus
- Predictions are contingent on Bessent's operation twist continuing to fail