🗞 This is The World Now

WHILE YOU POUR THE JOE… ☕️
Love Letters

We all got to enjoy the drama between Elon and Trump last week, it was awesome.

But, here’s what I really took away from it…

Likely this was all staged out ahead of the Trump-Xi call on Friday, somehow helping us land the rare earth metals deal for automotive companies. Gaming this out, I can see Xi coming in confident, thinking that Trump was in an agitated state of mind.

Then it all unfolded into a new deal, which might not be as big as an overall tariff resolution, but it’s still a win no matter which way you see it.

Another benefit of this potentially staged fallout? Now vandalism might finally stop for Tesla cars, and that’s a good thing.

Speaking of setting the stage, let’s get on with today’s email 📧…

FLOW CHARTS
What’s in The Fridge?

I was having a conversation with one of our WhatsApp group members this weekend, and the subject of bonds, rates, and a new norm came about.

Seeing that most of you probably have this question as well, I decided to stay true to the “Quality over Quantity” theme for this newsletter. So after a few days of no posts, here’s something hot. ⬇️ 

Real Rates Matter

Benchmarks and ratios typically drive the markets, spreads so to speak. It doesn’t matter what you’re looking at, every market is connected to represent one big flow chart showing you where capital is flowing in and out of.

And as those in our Sovereign Trader Program know, money markets drive everything, especially when considering how cheap/expensive that money is.

What you see above is the biggest measure of them all, real interest rates.

The United States 10yr yield is typically seen as the benchmark, a live quote of the cost of money today, and then you have inflation (its counterpart).

You see, seeing the 10yr at 4.4% tells you very little about money’s value, since you need to keep costs into account, and that’s where inflation comes into play.

So in today’s world, a 4.4% yield needs to be adjusted. Considering the six-month PCE median is 0.47%, this yields a roughly 5% annualized PCE rate for now.

So let’s just call it -0.5% on real rates, alright? ✅ 

Of course, if PCE keeps reading within 0.20% and 0.25% as it did last month, then we will likely have positive real rates again.

So what does it really mean if we have negative real rates in the economy?

Well, look at the record recovery in the S&P 500 since the 20% decline on Liberation Day, the Bitcoin all-time highs, and especially that near 10% rally in silver last week.

The reason is that markets are noticing the value of money contract in real time, where you literally will lose 0.5% of your money each year by holding money market funds or even bonds right now.

Now I know what you’ll say..

“But G, weren’t you telling us to buy $TLT since December???” 👀 

I was, and I still am saying we should all consider getting behind bonds right now.

Forward-Looking Markets

The reason is that this reflects today’s state of the market, not tomorrow’s.

Look at that 0.23% PCE monthly reading, that’s not a standalone reading right now, it likely will keep repeating and bring the odds deeper in favor of higher real rates in the future.

What this means is capital needs to rotate away from risk assets and into yield, carry, safety and all that. 📈 

Don’t believe so?

Imports on the manufacturing PMI declined by record levels to reach readings not seen since 2009.

Now some might say this is a one-month phenomenon due to tariffs, and while that has some logic to it, I don’t think it’ll stop after this month.

And it’s not just manufacturing, services are also starting to see the weakness shape up in that regard.

This is even more important, since services represent over 80% of the US economy. Weakening currency themes (such as negative rates) are only going to keep making this worse

What’s Powell to Do?

Powell hasn’t cut rates yet, despite unemployment growing to concerning levels, and with inflation now falling to acceptable rates.

However, the risk is still too large to act unless we do get three consecutive months of PCE readings within that 0.20-0.25% range.

That would allow the Fed to cut rates and still somewhat maintain positive real rates, placing a solid cap on speculative asset prices in real estate and stocks.

What This Means For You

I do expect that if this happens, just the opposite of what you think might take place.

No, stocks won’t rally, Bitcoin won’t go to a million, and home prices will not be saved.

Just the opposite… 🤷‍♂️ 

Stay tuned, I will send you a tariff game plan for August 12th (90-day truce ends) with a professional long/short equity idea you can steal from me.

Until then,

G. 🫰 

GO AND MAKE IT HAPPEN
Do Yourself a Favor

The universe is perfect because God made it so.

And the only language that we know of, that even gets close to this perfection is mathematics. Game theory is the mathematical representation of probable outcomes under variable changes (which is life).

Today’s book recommendation 📖 is a great way to delve into this world.

To your success,

G. 🥃