06/28/2025 | Unsubscribe

Good Morning!

In our new installment newsletter, we will be looking at key interviews from the past week that caught our attention and provide very prescient insight for you to consider.

Bond Market Warning: US Exceptionalism at Risk

Podcast: Maggie Lake Talking Markets with Julian Brigden of MI2 Partners

This podcast episode explores the recent turmoil in the U.S. bond market, focusing on whether central banks—especially the Federal Reserve—are losing control amid rising yields and waning foreign investor confidence. Featuring Julian Brigden of MI2 Partners, the discussion unpacks structural issues like growing fiscal deficits, global geopolitical realignments, and the weakening U.S. dollar, emphasizing the risk of a long-term bond bear market and the broader implications for global capital flows and asset valuations.

We have highlighted only some of the bigger points from this podcast and encourage you to listen to the full episode yourself. In addition we provide some alternative perspectives and insights to consider.

🎧 Key Points from the Podcast

1. Bond Market Mayhem and Central Bank Control

• Long-dated U.S. Treasury yields are spiking (e.g., 10-year above 5.4%), raising concerns about central banks' ability to control the bond market.

• Foreign investors appear to be losing confidence in U.S. assets, selling bonds and/or hedging dollar exposure.

2. Geopolitical Realignments Affecting Market Confidence

• The U.S. has alienated key allies and funding partners (e.g., China, Europe), weakening global faith in U.S. financial leadership.

• There's growing chatter among global investors about the U.S. becoming unreliable, even questioning the rule of law.

3. Shift in Presidential Strategy & Fiscal Policy

• The current administration appears to have pivoted from structural reforms (reducing deficits, re-shoring jobs) to prioritizing asset prices, especially equities.

• Fiscal irresponsibility and rising spending without meaningful deficit control are creating systemic risks.

4. Global Bond Bear Market

• Julian asserts we’re in a structural, long-term bear market for bonds, fueled by demographics, global debt, and central bank inaction.

• Japan is also showing signs of bond market stress, with long-end yield spikes and ineffective policy responses.

5. Capital Flight and Currency Risks

• Foreign investors hold significant unhedged U.S. assets. A declining dollar exposes them to major FX losses, prompting reallocation.

• The U.S. has a -$26 trillion net international investment position, further complicating things.

6. Stock Market Resilience is Technical, Not Fundamental

• Recent equity market strength is driven by systematic (quant) trading and retail investor optimism—not strong fundamentals.

• Price/Earnings multiple expansion has masked deeper structural problems.

7. Gold, Bitcoin & Safe Havens

• While gold may rise in relative terms, all assets—including gold—can be vulnerable in a broad deleveraging cycle.

• Julian is skeptical of Bitcoin as a true safe haven, though he acknowledges its resilience.

8. Implications for Mortgages and Housing

• Rising yields threaten the viability of 30-year fixed-rate mortgages in the U.S., potentially forcing a shift toward shorter-duration funding models similar to Europe.

9. Diversification and Investment Strategy

• Investors heavily concentrated in U.S. equities and dollars should diversify geographically.

• Julian recommends a relative strategy: long international assets (Spain, Mexico, Korea) vs. short U.S. equities.

10. Long-Term Outlook: Optimism with a Caveat

• While the longer-term objectives (e.g., re-shoring, middle-class revival) are positive, the execution risks are massive.

• Even transformative technologies like AI won't buffer portfolios if valuations are too high at entry.

💡 Investor Takeaways & Additional Insights

What This Means for You as an Investor

1. Rethink Home Bias:
   If you’re over-allocated to U.S. stocks and in U.S. dollars, your portfolio may be at risk from currency depreciation and capital outflows. Diversify internationally, especially into markets with undervalued currencies and stable fiscal environments.

2. Beware Duration Risk:
   Avoid long-duration bonds unless yields offer compelling compensation. Focus on short-duration fixed income to reduce exposure to rising rates and inflation shocks.

3. Equities Aren’t Bulletproof:
   U.S. equity markets could either stagnate or decline over the medium term. Relative trades or thematic opportunities in foreign markets may outperform.

4. Prepare for Structural Change:
   The traditional U.S. 30-year fixed mortgage model may not survive. If you're in real estate, understand how financing norms may shift.

5. Don’t Chase Hype (AI/BTC):
   AI and crypto have transformative potential but buying at inflated prices could result in long drawdowns. Use these thematically, not as core holdings.

Alternative Perspectives to Consider

• Bullish Case for Equities: Some argue that U.S. equities could remain strong due to innovation (AI), resilient corporate earnings, and global capital still viewing the U.S. as the safest large market.

• Reversion to Yield Control: Central banks (especially the Fed) may eventually reassert control through yield curve control or other interventions, softening the bond market shock.

• Dollar Strength Can Persist: Despite policy missteps, the dollar might stay strong due to lack of alternatives, especially during global stress.

• Stagflation Risk: Investors should prepare not just for recession or inflation but a hybrid "stagflationary" scenario that challenges both stocks and bonds.

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