while WE slept: USTs soft (following Bunds into ECB); HIMCo, "Tariffs - A Race to the Bottom, Why Take the Risks" (still bullish); money supply accelerating (so, rate cuts?); MARG debt (-DB)
Good morning … Equity futures are MIXED and bonds are soft (tech earnings and DJT to visit Marriner S. Eccles bldg, ECB to pass after couple hundred basis points of cuts) … and none of this matters (IMO) as …
The latest HIMCo has arrived … I’ll lead with his (bullish bonds, tariff inflation transitory, debt / deficits gonna be a problem) conclusion …
… While inflation will likely rise over the near term it will be temporary. The far more critical consideration is the coming contraction in global economic activity. This environment is very attractive for long horizon investors in long-term Treasury bonds.
… and if that isn’t enough of a teaser to get you to point and click, dunno what else he could say … He takes us on a journey into and through concept of net foreign investment (the capital account of international account) which is simply the inverse of the current account …
… noting basically that tariffs reduce current account deficit and so, LIQUIDITY will dry up.
This, in turn, will reduce flow of $$ into US equities, USTs and the like…
… If the Federal Reserve does not lower the Fed Funds Rate, this could lead to what is known as Kindleberger's Spiral. This concept originated in Charles P. Kindleberger's book, The World in Depression (initially published in 1973 and with a 40th-anniversary edition updated by highly recognized economists Bradford DeLong and Barry Eichengreen in 2013). Kindleberger's book, Manias, Panics, and Crashes (1978), is world-renowned. International Economics (1953, followed by five more editions) was the dominant graduate-level text in its field for nearly half a century.
When beggar-thy-neighbor policies are widespread, Kindleberger showed that the central bank of the world's reserve currency must provide liquidity to offset the loss caused by the sharp contraction in capital flows. If the Fed doesn't step quickly into this leadership role, the risk of a Kindleberger Spiral increases significantly. In the 1920s and 1930s, the Bank of England was no longer capable of being the reserve currency because World War I had severely damaged the economic power of the British Empire, and the Federal Reserve did not fill the void that it had the capability of doing. The Powell Fed is currently on the sidelines watching this process unfold. Other leading central banks are lowering rates, but they don't represent the world's reserve currency…
… Did I mention the ECB up next and after couple hundred basis points of EASING, they are likely gonna hit PAUSE.
HIMCo goes on to describe / detail the impact of the OBBBA and it’s impact on global economies and notes distinction between short-term impacts (fiscal stimmy of $30bb / year, 300bb SURPLUS … should it occur, would be small potatoes) and the longer-run effect (debt / deficits problems to get measurably WORSE and so, a dramatic DRAG on economies).
The debt and deficits to accrue and work against economy along with Kindleberger Spiral combined and are why Dr. Hunt sees need for Fed to move quickly to CUT RATES.
THIS ONE is, as all are, worth a read. Maybe a couple…
I’ll move along and note whatever concession was given TO the bond market yesterday thanks largely to Trump and the Japanese deal announcement (risk ON funded by USTs) was used as a dipORtunity, at least in as far as the LIQUIDITY EVENT (aka 20yr auction) yesterday …
ZH: Stellar 20Y Auction Stops Through With Best Metrics Of 2025
… The bid to cover was als impressive, shooting up to 2.79 from 2.68 in June, and the highest since April 2024 (clearly, it was well above the six-auction average of 2.62) …
… Overall, this was a stellar 20Y reopening auction, and easily one of the best coupon auctions of the summer, yet one wouldn't know it by the secondary market because even though 10Y yields dipped after news of the auction hit the tape, yields across the curve have since resumed their gradual melt up higher.
… #Got20s?
Now, making up some of the price action (arguably, though, funDUHmentals and data a smaller part than headlines as dog days of summer evidenced in average volumes) … a look at the data, which is crucial to the rates outlook for the Fed — housing — was released and, as usual, can be read however it is your PnL tells you it should …
ZH: US Existing Home Sales Dip Back Near 15 Year Low In June As Prices Hit Record High
After a small bounce in May (off 15 year lows), expectations are for existing home sales to fall once again in June as mortgage rates ticked up.
The analysts were right as sales dropped 2.7% MoM (vs -0.7% MoM expected), leaving existing home sales unchanged year-over-year...
…Economists at Goldman Sachs said in a recent note that 87% of mortgage holders have rates below current rates, and two-thirds have borrowing costs 2 percentage points below current rates, “strongly disincentivizing them from moving.”
…In a sign that buyers are balking at high asking prices, 21% of the homes sold were above list price, down from 28% in May.
… sales down (ie economy is cratering — it isn’t) and / OR prices hit record high (inflationary — rents may have to reflect this, still) hitting record high …
I’ll quit while I’m behind but offer a look at an interesting (to me) chart which would seem to me to be one worth putting front-and-center given triangulation levels are close at hand …
7yy: 4.10 is middle of (4.70 / 3.50) range …
… we are here now, the middle’ish, with momentum (stochastics) a non-starter (ie NO signal) and TLINE support / resistance appears to be clearly defined … prepare for tests / breaks (go with?) …
… AND I’ll move right on along but first … here is a snapshot OF USTs as of 650a:
… for somewhat MORE of the news you might be able to use … a few more curated links for your dining and dancing pleasure …
NEWSQUAWK US Market Open: European stocks bid on EU trade reports, GOOGL +3%, TSLA -6% post-earnings; ECB due … Bunds are under pressure into the ECB … USTs are also in the red, but to a much lesser extent. Directionally in-fitting with EGBs but holding around the 111-00 mark after a brief blip to a 110-28+ low in the European morning. In contrast to Bunds, the current low is clear of Monday’s 110-24 WTD base. Trade aside, the Fed remains in focus as Trump himself will be visiting the Fed this evening. Currently, it is unclear if he will be meeting with Chair Powell or not during this visit. Docket ahead will include US Jobless Claims, PMIs and the US 2, 5, 7, 2yr FRN Refunding Announcement.
…The Fed's own modeling suggests that its policy is still moderately "restrictive" relative to where long-run neutral rates should be, mainly because inflation is still above target, the jobless rate is near historic lows and real economic growth has rebounded from a first-quarter hiccup.
However, the Chicago Fed's national index of broad financial conditions in the U.S. economy has fallen to its lowest level in more than three years, suggesting financing in the economy is more than ample.
US financial conditions loosest in three years
The index captures a blizzard of financial inputs from short- and long-term interest rates to equity and energy prices.
The likely culprits for its decline include the rebound in U.S. stock markets from April lows back to record highs, the dollar's plunge this year and crude oil prices running at a year-on-year decline of some 20% since April.
There are many other indexes of financial conditions, of course, but they mostly tell a similar story. Goldman Sachs' U.S. equivalent is back down to where it was late last year, just a whisker from its three-year low.
One takeaway from these readings is that despite trade uncertainty and sticky borrowing costs, the overall economy is doing just fine and has enough financial oxygen to continue chugging along, perhaps even a bit too much given the above-target inflation rate.
And, if so, the Fed's current policy stance may be less restrictive than it appears on the surface, even before slashing rates further as demanded daily by President Donald Trump…
… Foreign demand for US Treasuries holds off bond vigilantes
So much for the bond vigilantes.
The U.S. bond market has been remarkably calm lately, despite fears that inflation, tariffs, eroding Fed independence, and Washington's ballooning debt load will push up Treasury yields. What explains the resilience?
The above concerns remain valid, of course, as any one of them could eventually cast a long shadow over the world's largest and most important market.
But that doesn't seem to be on the immediate horizon. The so-called bond vigilantes - those investors determined to bring profligate governments into line by forcing up their borrowing costs - might have been driving bond prices lower earlier this year, but they are taking a back seat now.
The 10-year Treasury yield on Tuesday closed at 4.34%. That's below the year-to-date average of 4.40%, and less than 10 basis points above the one- and two-year averages.
Perhaps even more surprising, implied Treasury market volatility is hovering at its lowest levels in three-and-a-half years, further evidence that investors have little fear of an imminent spike in borrowing costs…
Yield Hunting Daily Note | July 23, 2025 | Japan Deal And Exposure, FSCO Premium, HYI Tender
Finviz (for everything else I might have overlooked …)
Moving from some of the news to some of THE VIEWS you might be able to use… here’s some of what Global Wall St is sayin’ …
Housing. Interest rates. The two are inseparable. Can LOWER interest rates solve the equation? Unanswered, but a few other thoughts from across the pond…
Existing home sales declined 2.7% m/m in June, to 4.04mn, after declining in the prior month. Affordability remains a leading factor behind the weak sales compared with pre-pandemic trends, as highlighted by continued gains in sales prices recently.
…The median home price registered an increase on an NSA basis in June, and was 2.0% higher than a year ago. The median price of an existing unit strengthened to $435,300 in June (+2.7% m/m) on a non-seasonally adjusted basis. The median existing home price remains historically high, despite multiple months of easing from June to September, putting financial strain on new buyers. However, the median home price measure depends heavily on the composition of homes sold, so it can be volatile and not fully representative of the overall market. The May S&P Case-Shiller and FHFA price indices, to be released next week, which control for composition and are therefore more representative, should provide a clearer picture of housing prices as a whole.
Same British shop discussing that monster trade deal helping be the rising tide lifting all boats — the SS Stonks, to be specific …
In our view, Japan traded a lower tariff rate on autos for a higher reciprocal tariff. In the end, it's largely a wash. Average tariff rate on Japan remains approximately 15%…
…For now, Japan has avoided the worse case outcome, and for that reason, markets rejoiced. In our view, the most interesting part of the deal is the US's softening (more generously than we had expected) of the auto tariffs on a large autos exporter. Could it foreshadow a pivot from the administration to make material deals on other sectoral tariffs where to date very few, if any, exclusions or exemptions have been granted? That would be a significant pivot, in our view.
… so, basically it was a nothin’ burger?
Pursuit of excellence and a great trade. Settle for clarity even if, imperfect?
… Perhaps even more relevant to the outlook for the balance of 2025 is the fact that passing the August 1 deadline doesn’t cement the reciprocal tariff levels, meaning that deals made after the cutoff could also result in lower levies and, ultimately, less inflationary pressure for US consumers. June’s inflation data made it clear that a portion of the new import tax will be passed along to end-users; the full extent of the pass-through is the lingering unknown. Nothing revealed by the end of the month will provide a comprehensive roadmap to reflation, imperfect clarity is the best one might hope for. There certainly won’t be enough information for the FOMC to resume normalization, which will leave the summer months in an increasingly familiar state of limbo …
Remind me again, money growth is DISINFLATIONARY, right? Rate CUT’ish?
In this report, we offer thoughts on five key themes on global monetary and credit conditions: (i) the credit signal for the near-term growth outlook in Europe and the US; (ii) what does the credit cycle say about the restrictiveness of monetary policy; (iii) the likely trends in saving behaviour; (iv) the outlook for central bank balance sheet policy, and (v) the state of China's credit cycle.
The euro area is in the midst of a positive credit cycle, with strong transmission of the ECB's rate cuts supporting the domestic economies' resilience. The currently strong credit impulse is likely to see some slowing in H2 but a gradual decline of elevated savings may offer a tailwind to growth. Positive near-term credit dynamics justify a pause by the ECB, in our view, but with credit and money growth still to the weaker side of neutral and inflation set to slightly undershoot in the coming quarters, the final rate cut(s) in the ECB's easing cycle could be more delayed than currently priced, a risk we also alluded to in the July ECB preview.
In the US, credit dynamics have been less supportive of growth than in Europe. However, the credit impulse looks to have again turned positive in Q2 and the run rate of money supply growth is already back up to its long-term trend. We see evidence of a two-speed US economy, with rate-sensitive segments lagging but aggregate monetary conditions suggesting that the policy stance is no more than modestly restrictive. Putting together the Europe and US views, we find it hard to square their respective monetary cycle phases with the wide gap in market pricing – of c.30bps of additional easing by the ECB versus c.125bps in by the Fed.
Differing trends in central bank balance sheets – with the now slower pace of QT in US than in Europe – are relatively more supportive of monetary conditions in the US. This also raises the prospect that QT will slow in the UK and possibly in the euro area.
…So what is the latest signal from the credit and monetary cycle when it comes to restrictiveness of the central banks' policy stance?
…Meanwhile, the run rate of money supply growth has now recovered back to its long-run trend in the US, while in the euro area it has seen a bit of slowing recently, albeit to still clearly positive levels (Figure 8). While a detailed assessment of money supply drivers is beyond the scope of this note, we see recent differences in QT trends – with an acceleration at the start of 2025 in the euro area but a slowing in the US – as contributing to this emergent gap (see Section 4 for more on QT).
…Complicating the assessment in the US (and the Fed's job) is the more two-speed nature of its economy. There is clear evidence of rates weighing on the highly rate sensitive sectors, as visible in the differing credit growth across sectors in Figure 9. Housing activity has been slow as new 30yr mortgage rates remain some 3pp above current average mortgage costs. The impact of higher rates is also visible in the rise in defaults for more rate-exposed corporate lending2 as well as gradually rising consumer delinquencies.
However, there is so far little evidence of these headwinds turning into systemic risks and weighing on the broader economy. So while the most rates-sensitive segments of the economy are lagging, aggregate monetary conditions suggest that the Fed's policy stance is no more than modestly restrictive. This is consistent with the point made by our US economics and rates strategy colleagues that the neutral rate in the US is likely higher than estimated by common models…
Same shop with a fan favorite read esp early in the morning … the rally in stocks yesterday thanks largely to Japan trade deal and, to a lesser degree, HOPE a deal with EU is close (are we bringing forward this news into the price? buy the rumor and sell the …) …
… The risk-on tone has continued over the last 24 hours, with the S&P 500 (+0.78%) at a fresh record thanks to growing optimism that more trade deals would be reached before August 1. The initial catalyst was the US-Japan deal we woke up to this time yesterday, with both European and US risk assets rallying as they caught up to the news. But around the time that European markets were going home, an FT headline said that the EU and the US were closing in on a similar deal that would also put 15% tariffs in place. So that would be the same rate as the Japan deal, and only half the 30% rate that Trump had threatened in his previous letter. Indeed, if a 15% total rate inclusive of existing tariffs is agreed as suggested, this would mark only a marginal increase compared to the 10% additional tariffs that EU exports to the US have faced since Liberation Day but with certainty about the future.
This optimism was clear on several fronts yesterday, and aside from the press reports, the noises from the negotiators were sounding much more positive. For instance, Treasury Secretary Bessent had said earlier that “We are making good progress with the EU.” Later on, Trump said the US is in “serious negotiations” with the EU and that ““we will let them pay a lower tariff” if the EU opens up to American businesses. Meanwhile on China, Bessent said that “we’re in a very good place with China” ahead of the two sides meeting next week. And on the 90-day tariff reduction that expires on August 12, he said “I think that we could roll it forward, maybe in a 90-day increment.” So when it comes to the major economies, there’s now a deal with Japan, headlines pointing to one with the EU, and Bessent signalling a roll-over of the tariff reduction with China. And Trump announced a deal with Indonesia as well yesterday…
…US equities also had a strong day thanks to the trade headlines, with the S&P 500 (+0.78%) up to a fresh record. But whilst it was trade that drove the gains, after the close we then heard from Tesla and Alphabet, who are the first of the Mag 7 to report this quarter. Alphabet’s shares gained in after-hours trading as the company delivered a decent revenue beat, which it said was boosted by demand for AI products. The search giant also boosted its 2025 capex plan from $75bn to $85bn to meet AI-related cloud demand. This spending increase initially worried investors and shared dipped after the results but ultimately bounced back in the after hours trading period…
…Whilst equities were rallying, sovereign bonds put in a weaker performance given the risk-on tone. For example, Treasury yields moved higher across the curve, with the 2yr yield up +4.7bps to 3.88%, whilst the 10yr yield was up +3.7bps to 4.38%. The losses for Treasuries largely held despite a solid $13bn 20yr auction. We also had a fresh bout of criticism at Fed Chair Powell from President Trump, who said that “Housing in our Country is lagging because Jerome “Too Late” Powell refuses to lower Interest Rates.” He also called for rates to be “three points lower”, so that kept up the drumbeat of pressure from the administration, although markets have mostly taken out the extra risk premium they assigned to Powell’s removal last week. Trump is visiting the Fed today at 4pm local time so there's possibilities for extra headlines from that visit.
This next note from same large German institution caught my eyes not for the title (ok, maybe that made me slow down and look) but for the visual of NYSE MARGIN DEBT …
24 July 2025 DB: IG & HY Strategy The hottest euphoria since '99 & '07?
… First, why do we say market euphoria could still rise further? Conceptually, one should never doubt the ability for animal spirits to surprise on the upside over a shorter time horizon. But empirically, Figure 2 highlights the trend in NYSE margin debt from a longer-term perspective. Our weighted 1 Y/Y trend of US margin debt is still showing frothy conditions historically, but it does admittedly trail the blow-off tops seen during the US tech bubble, the mid-2007 equity rally, and the late 2020 rally prompted by the successful testing of COVID vaccines. There is still room for more US household leverage to be deployed into US stocks, with further tariff rate reductions (beyond what has already been announced), a more dovish Fed on July 30 and/or a September Fed rate cut as the most obvious catalysts. As a reminder, we do not expect this to materialize, with most US tariff deals with key trading partners now almost fully priced by the market, and the DB base case suggesting a Fed in data dependent mode and only delivering its first rate cut in December…
… what could possibly go wrong …
Its slow. Many are away. Here’s a thoughtful piece laying out some themes for H2 (and beyond) and I’ll bring forward a single one of the themes as it’s is relevant to any / all here (as you are likely here for the rates / macro of others NOT for my views and bad jokes and links) … Jamie Dimons group says …
23 July 2025 JPM: 10 Strategic Themes for 2H25 and Beyond America First—US remains indispensable, if not exceptional, in the new world disorder
… 10) Shift towards fixed income has further to play out as the era of easy money comes to an end.
The case remains strong for increasing fixed income allocations. Our Long-term Strategy team forecasts a 10-year return on the S&P 500 of around 4.5% over the next decade, comparable to their forecasts for nominal 10Y UST yields a bit above 4.5%, while US high grade offers a 5.3% yield. The US is likely to remain at the high end of the spectrum of DM rates over the long term, reflecting its large current account deficit, fiscal debt accumulation and the likelihood of faster growth than much of the rest of DM. Our US rates strategists see the potential for a further 40-50bp increase in term premium over time, but do not anticipate another explosive move in markets as observed earlier this year. They maintain their forecast that 2- and 10-year yields will end the year at 3.50% and 4.35%, respectively. However, the change in the supply/ demand dynamic at the long end of the curve requires a larger term premium, resulting in higher long-end yields for the same level of policy rate. Long-end yields have retraced to their cycle highs earlier this spring, against the backdrop of easier monetary policy, and is consistent with rising term premium. Indeed, widely followed measures of term premium have risen by 175bp since mid-2023: they are close to average levels observed in the decade prior to the GFC (see Credit Watch: Some Things To Focus On In 2H25, Stephen Dulake et al., 18 Jun).
Our European rates strategists stay long 10Y German Bunds as they expect fiscal term premia to moderate, with ongoing macro uncertainty and long-term demand for EGBs from de-dollarization. Our strategists are more cautious on the UK and Japan as the autumn budget approaches in the UK and the uncertainty on fiscal discipline persists in Japan (see J.P. Morgan View: Investors Short Macro Volatility: Risk Assets Frown Amidst Growth and Inflation Scares, Fabio Bassi, 11 Jul)…
CPI swaps are pricing in a peak in inflation May 2026 which looks attractive to fade as the impact of tariffs is expected to be transitory. 10 year beta-weighted breakevens and 5y5y breakevens forward is trading near range highs and can tighten from here.
Key takeaways
Based on 2018-19 tariff episode, assuming the inflationary impact of tariffs to be transitory, the peak in CPI fixings in May should go lower from here
We recommend selling 10-year TIPS breakevens, as beta-weighted breakevens are near the top of their recent range and tend to mean-revert.
Should growth concerns tied to US administration policies resurface—as projected in our economists' scenarios—1y1y CPI swaps may trend lower.
A recent survey of our equity strategists indicates that companies are reporting only a 30–40% pass-through of tariffs on average.
The sustained decline in airfares, hotel rates, and transportation services over the past four months points to a broader trend of weakening travel demand.
… After the June CPI report, the market pricing of July CPI fixing decreased as core CPI surprised to the downside for the 5th time in a row. On the other hand, after the announcement of new tariffs, CPI fixings for months in the first half of 2026 increased (Exhibit 3). We can observe this trend for what's priced in month end fixings - May'26 and Oct'25 usually move together, but May'26 has rallied in July (Exhibit 4).
We got stopped out of 2s10s CPI swap steepener trade as front-end inflation swaps rallied because of tariff announcements, which was one of the risks that we had highlighted.
Currently CPI fixings are pricing in core CPI for July at 29bp M/M indicating lesser tariff pass-through than expected. A survey of our equity strategists show an average of 30-40% tariff pass-through reported by companies which is less than consensus assumption…
US Commerce Secretary Lutnick suggested US rates should be cut now, and Federal Reserve Chair Powell should resign or be fired. Do investors want to live in a world where Fed independence is compromised and Lutnick influences policy? To judge from the dollar’s reaction, the answer is “no”.
Two problems emerge from casting the Fed as a scapegoat for coming economic problems. Fed attacks mean supporting rate cuts (for legitimate economic reasons) might create the perception of being a political puppet. Even if the Fed remains independent, its reputation for independence is undermined—and reputations take years to rebuild. An independent central bank is not an absolute requirement for reserve currency status, but it helps—and the US is now suffering on this category.
The ECB’s independence has not been questioned lately, but it is not expected to cut rates today. Uncertainty about taxing US consumers of EU products and possible retaliation by the EU is likely to delay the rate cut. Nonetheless, global disinflation forces (outside the US) argue for a later rate cut.
US initial and continuing jobless claims attract justified attention, as the US labor market is looking fragile. European business sentiment polls attract unjustified attention—as their ties to economic reality may be compromised.
More on housing given we know to think it matters as far as rates (cuts) outlook …
July 23, 2025 Wells Fargo: Existing Home Sales Pull Back in June Affordability Challenges Remain a Significant Constraint on Home Sales
Summary Elevated Mortgage Rates Continue to Weigh on the Housing Sector
High interest rates remain a significant constraint on home sales. Total existing home sales fell 2.7% in June, bringing the pace of resales to a 10-month low of 3.93 million-units. The persistently weak pace of sales has allowed supply to increase recently, which has led to a moderation in home price appreciation. That noted, for-sale inventory remains low enough to keep upward pressure on prices. During June, the existing median home price climbed to $435K, a record high. The increase is a reminder that, in addition to financing costs, elevated home prices are also a significant limitation for home buyers.
…Mortgage Rates Remain a Substantial Burden
Elevated treasury yields have kept the average 30-year fixed mortgage rate close to 7.0% for the entirety of this year. The Freddie Mac mortgage rate was bounded between 6.8% and 6.9% for most of April and May, putting a damper on deal closings in June.
Persistently high mortgage rates on top of rising prices have upped the financial burden facing households. NAR estimates that the principal & interest payment required for the median-priced single-family home rose to $2,250 in May, more than double the $1,087 payment required in May 2019.
… And from the Global Wall Street inbox TO the intertubes, a few curated links …
In addition TO latest from HIMCo, this next note helps and is additive …
July 24, 2025 Apollo: Quantifying the Impact of Higher Government Debt on Long Rates
Academic papers quantifying the impact on 10-year interest rates of a one percentage point increase in US government debt-to-GDP find an effect of 3 basis points, see chart below.
The CBO forecasts that US government debt-to-GDP over the coming decade will increase by roughly 20 percentage points, and the estimates below imply that this will permanently increase 10-year interest rates by 60 basis points.
Source: Apollo Chief Economist and James Thomas
‘Bout that there monster Japanese trade deal … what IF they all of a sudden need less USTs …
Bloomberg: The World Is Likely To See Less Japanese Capital After US Deal
Japan won’t need to purchase as many Treasuries and other foreign bonds and stocks over the longer term after its trade deal with the US.
Japan’s deal of 15% tariffs with the US, along with the promise of direct investment into the country, has been taken by the market as a win, with Japanese stocks ebullient and generously in the green today.
However, over a longer time frame, it likely means less demand for foreign assets.
Even though shorter-term yields are higher today, there is belief from some carry traders that political uncertainty will deter the BOJ from hiking.
But it’s the much larger volume of capital that flows out of Japan which is generally more consequential for global FX and asset markets.
We can see that Japanese purchase of foreign securities (stocks and bonds) over the last 20 years is almost triple foreigner purchase of Japanese securities.
That wedge is in fact even larger in valuation terms, as foreign securities have risen more than Japanese ones over that period.
While the 15% tariff rate for Japan is not as bad as feared, it’s still considerably more than the roughly 1.5% average rate that prevailed beforehand. Some of that may get eaten by consumers, importers and exporters, but it’s likely going to result in Japan having a smaller trade surplus with the US, and probably overall too, given the US is such a huge market and non-trivial to replace.
That would mean Japan has less capital to recycle abroad.
This comes as the country has already cooled in its fervour for Treasuries. Despite the fact that 10-year Treasuries have become more attractive to Japanese buyers after hedging out the FX, purchases have not picked up.
The carry trade can facilitate rising prices in higher-yielding non-Japanese assets, but the fast-money element of it, ie hedge funds borrowing in yen, is much smaller in size and, again, much smaller than Japanese capital flows.
So the carry trade has some shorter-term impact on the yen and carry assets, but how much capital Japan has - which will likely be affected by its trade deal - and what it chooses to do with this capital, is more consequential over the longer term.
Thoughts from the beach — thinking long term — and you would too if you were in it to win it over the longer haul … and if you had his money you’d likely burn yers …
Wednesday, July 23, 2025 Calafia Beach Pundit: Over the long haul, S&P 500 returns have been impressive
Today the S&P 500 set yet another all-time high of 6,359.
As the chart below shows, since 1950 the S&P 500 index has increased by slightly more than 8% per year, from 16.79 to 6359. Add reinvested dividends to this and you get a total return of 11.6% per year, according to Bloomberg. If this price performance continues, and given that the current dividend yield on this index is only 1.2% a year, one could expect an investment in the S&P 500 to produce an annualized total return of almost 9.5% per year going forward. Subject, of course, to violent swings along the way, as the chart makes clear.
Since 1950, the Consumer Price Index has increased by about 3.5% annualized. This means that the total, inflation-adjusted return of the S&P 500 has been 7.8% annualized over the past 75+ years.
Money supply accelerating … thats disinflationary and cause for rate cuts, right?
23 JUL 2025 Trahan: Money Supply Accelerating …. Just As It Should Be!
The financial media is mostly focused on trade policy and whether the rates outlined in the so-called "tariff letters" will stick come August 1st. It's hard to know with any degree of confidence, but there are other things taking place that overshadow the tariff story.
It feels like it's been forgotten at this point, but the Fed did cut official rates by 100 basis points last Fall. Now, some feel like the Fed should be cutting further, which is debatable. That said, this monetary stimulus already in the pipeline is clearly influencing markets. This chart shows that money supply recovered on cue with its historical relationship with the FFR.
M2 is up 4.4% year-on-year and MZM over 5%. All of this is happening with a steepening yield curve, which is another good sign. Now, none of this implies that there is no risk to the story, but it does tell us that barring some sort of major speedbump, the U.S. is staring at an economic recovery (so is the rest of the rest of the world). In all likelihood, this one will feel a little different than what we've been accustomed. By different, I mean that it will likely be an inflationary recovery.
Irrespective, today's stimulus guides tomorrow's economic path. I am not sure how this translates for the S&P 500 as a whole given its Growth bias, but cyclical factors are adding alpha so the markets are clearly being influenced by this stimulus. Time to think "Risk-On" ... at least when it comes to stock selection and sector positioning.
We shall see. Beautiful sunny day here in the Northeast. I wish all of you a great Wednesday. FT
Activate to view larger image,
Housing. Wolf of Wall weighs in …
Jul 23, 2025 WolfST: Single-Family Home Sales Drop Below 1995, Supply Highest since 2016. Condo Sales at Low in the Data, Supply at Housing Bust Level
It boils down to this: In terms of single-family homes, sales that closed in June fell further, to approach the lows set in the prior two years, the lowest since 1995, seasonally adjusted; and supply spiked to the highest level since 2016, according to data from the National Association of Realtors today.
In terms of condos, sales remained at the low point in the data, along with May, and Lockdown May 2020, seasonally adjusted; supply ticked down a hair from the spike in May, but remained at the highest level since the Housing Bust.
Sales of single-family homes fell further in June, to a seasonally adjusted annual rate of 3.57 million homes, hobbling along the lowest levels since 1995. They were roughly flat with June 2024 – with the year 2024 having been the worst year since 1995. Sales were down by 25% from June 2019, by 28% from June 2022, and by 32% from June 2021 (historical data from YCharts):
In closing today, remember how it is the best things in life are FREE. Today’s note from HIMCo is one of those things …
… follow me for more pro cooking tips!
While this ‘Stack is ALSO free, I’m reminded of that other saying whereby, you get what you pay for :) … THAT is all for now. Off to the day job…
