Jeff Clark’s brilliant purple warning flag… the reversal of bond yields’ multi-decade course… three main penalties… on a bear market’s doorstep?… the way to commerce volatility
Sir John Templeton as soon as stated:
The 4 most harmful phrases in investing are: “This time it’s completely different.”
Maybe.
However grasp dealer Jeff Clark provided a visible of why immediately is “completely different” in comparison with the final 40 years – and the takeaway means that traders ought to be cautious.
Right here’s Jeff:
Most folk beneath 50 years previous do not know what’s coming subsequent. They’ve by no means skilled a rising rate of interest setting.
Take a look at this chart of 30-year rates of interest…
Supply: StockCharts.com
Long-term interest rates peaked in 1982, with the 30-year Treasury Bond yielding 14%.
Rates then declined for the next 40 years – hitting as low as 0.4% during the COVID crisis in 2020.
But look at what has happened in the last three years. The 30-year Treasury yield broke out above a 40-year declining resistance line.
This is a tectonic shift in the market
This reversal in the direction of treasury yields has three primary consequences:
- Tighter economic conditions for Main Street
- Tougher investment conditions for Wall Street
- Heavier debt burdens on Uncle Sam
Beginning with “Main Street,” Jeff notes that Interest rates are up 60% since 2022 – and 1,100% higher than their 2020 lows. Borrowing money now costs 11 times more than it did five years ago.
Here’s Jeff with the significance:
Most folks manage their debt by taking out new loans to pay off older debt as it matures. And, for the past 40 years we’ve been able to do this at perpetually lower interest rates. This allowed us to borrow even more money without incurring larger debt payments…
There were no consequences to borrowing money. Deficits didn’t matter.
Now though, with long-term interest rates recently hitting the highest level in 20 years, it costs more to borrow money. Any maturing debt must be refinanced at higher rates.
Nobody is refinancing their mortgage anymore and taking out a pile of cash to spend on their lavish lifestyles.
Now, you might recall that in yesterday’s Digest, we profiled the recent resilience of the U.S. consumer. But that resilience doesn’t mean that there aren’t risks today.
To explain, let’s jump to our hypergrowth expert Luke Lango. In his Innovation Investor Each day Notes from final week, he dove into the “fairly ugly” second revision of U.S. Q1 GDP, then turned to the patron:
The more-important private consumption quantity was revised considerably decrease from +1.8% to +1.2%. That’s a very low progress quantity for private consumption.
Going again to 1995, the typical private consumption progress fee has hovered round 3%. We’re at 1/3 of that immediately.
The U.S. financial system is just not in an excellent place proper now.
More durable funding situations for Wall Avenue
Again in 2023, I wrote a Digest that instructed the financial and funding situations that helped Child Boomers and Era X generate wealth have been fading.
Sure, these generations confronted bear market and recessions, however total, “purchase the dip” was a profitable technique. I instructed one main motive for his or her success…
The gradual, regular decline of the 10-year Treasury yield.
It created an ideal setting for inventory traders.
I wasn’t the one one who had arrived at this conclusion. Right here was the “Bond King” Invoice Gross, co-founder of PIMCO, from again in 2013:
All of us, even the previous guys like [Warren] Buffett, [George] Soros, [Dan] Fuss, yeah – me too, have minimize our enamel throughout maybe a most advantageous time frame, probably the most engaging epoch, that an investor may expertise.
Because the early Nineteen Seventies when the greenback was launched from gold and credit score started its unimaginable, liquefying, whole return journey to the current day, an investor that took marginal danger, levered it correctly and was conveniently sheltered from periodic bouts of deleveraging or asset withdrawals may, and in some circumstances, was rewarded with the crown of “greatness.”
Maybe, nevertheless, it was the epoch that made the person versus the person that made the epoch…
We’re not in that epoch.
For instance, in our 2023 Digest, we confirmed a really related chart to the one Jeff highlighted above, besides we selected the 10-year Treasury, not the 30-year.
Supply: MacroTrends.web
Our bottom-line mirrored Jeff’s…
This time is different…at least in the bond market.
To be clear, this doesn’t mean life-changing stock returns aren’t possible (we’re looking at you, AI/robotics/humanoids). But it does suggest that if this bond direction continues, it will be a headwind to stock returns that we haven’t faced in about 45 years.
Heavier debt burdens on Uncle Sam
Let’s return to Jeff:
The U.S. government – with $9 trillion of its $36 trillion national debt due to mature in 2025 – for lack of a better word… is screwed.
All of that debt will be refinanced at higher interest rates.
Stepping back for context, our government is already paying through the teeth on interest expense.
The U.S. Treasury’s annual interest expense passed $1.117 trillion last year, making it the second-largest government expense on record.
Source: Bloomberg / Joe Consorti
But the spending that’s on the way dwarfs this…
Here’s the Peter G. Peterson Foundation, a non-partisan thinktank:
Over the next decade, the U.S. government’s interest payments on the national debt are now projected to total $13.8 trillion — the highest dollar amount for interest in any historical 10-year period and nearly double the total spent over the past two decades after adjusting for inflation.
The government has two options to finance this hefty price tag: raise taxes or issue more debt.
We’re not raising taxes. As we’ve profiled in the Digest, the Trump Administration’s “big, beautiful bill” (which Elon Musk calls “a disgusting abomination”) has passed the House and is now in the Senate.
It aims to make the tax cuts from the “2017 Tax Cuts and Jobs Act” (TCJA) permanent, including provisions like the higher standard deduction and lower tax brackets.
It also includes new tax relief measures, such as no taxes on tips, a deduction for auto loan interest, and tax relief for seniors.
So, that leaves “issuing more debt” – which is what we’ve been doing for the last handful of years.
As you can see below, we’ve had an explosion of treasury issuance since 2020.
Source: MacroMicro
When new treasury issuance floods the market, the oversupply results in lower prices to entice buyers. And since bond prices and yields are inversely correlated, this means bond yields rise.
That’s not good for stocks or for the federal government’s debt service (and eventually, the value of your savings in dollars).
Back to Jeff:
Some of us wrinkled, gray-haired, old folks remember what it was like living in the 1970s.
We’ve seen how financial assets perform in a rising interest rate environment.
So, what do we do?
First, while we won’t dive into it today, we’ve been pounding the table for months: We invest in AI, robotics, and humanoids.
These stocks may face volatility and go through significant drawdowns, but the long-term upside is massive given the seismic tech shifts ahead.
Second, prepare for volatility. As we’ve covered in the Digest, Jeff believes a bear market is at our doorstep, with a potential bottom around 4,150 on the S&P this fall.
Most importantly, we seek out opportunity regardless of the market environment.
Even in bear markets, Jeff has shown how explosive rallies can deliver double- or triple-digit gains in days. And of course, there are also big profits in betting on downside moves.
Bottom line: double- and even triple digit returns – as the market moves up or down – are in play over very short timeframes. But let me show you.
Here are five of Jeff’s most recent trades in his service Delta Report, each lengthy and quick. Discover how shortly Jeff is out and in of those trades, in addition to their returns:
- OSCR lengthy commerce on 05/06/2025, closed on 05/07/2025 for a revenue of 97.10%
- WGMI lengthy commerce on 04/15/2025, closed on 04/24/2025 for a revenue of 81.13%
- DELL quick commerce on 04/09/2025, closed on 04/11/2025 for a revenue of 89.79%
- C quick commerce on 04/04/2025, closed on 04/09/2025 for a revenue of 76.39%
- MRVL quick commerce on 04/04/2025, closed on 04/09/2025 for a revenue of 90.72%
Now greater than ever, it is best to take into account including this sort of shorter-term, bi-directional buying and selling to your toolkit. In case you’d wish to be taught extra about how, mark your calendar for subsequent week, Wednesday, June 11 at 10 am ET for Jeff’s Countdown to Chaos event.
Jeff will dive into the small print of how he trades. Briefly, it’s a “reversion-to-the-mean” buying and selling technique. Mainly, when he sees {that a} inventory or an index will get stretched too far in a single course or the opposite, he bets on the proverbial rubber-band snapping again.
Right here’s Jeff:
We glance to purchase shares which are deeply oversold, and we glance to promote/quick shares which have pushed too far into overbought territory.
Next Wednesday, I’ll walk you through more details, as well as exactly what’s coming next… and how one can place your self not simply to outlive however to revenue in spades.
I’ll reveal 10 compelling alternatives flashing proper now, in addition to the highly effective new software I’ve constructed with TradeSmith to search out them each day.
In case you’ve ever wished to show volatility into your largest benefit, be part of us for the Countdown to Chaos.
Stepping again, “this time it’s completely different” is usually a harmful assumption…until it truly is completely different
So, it’s completely different immediately?
Again to Jeff to reply and take us out:
“Deficits don’t matter,” the youthful people shout at us older merchants. “The nationwide debt has grown from lower than $1 trillion in 1982 to virtually $37 trillion immediately, and nothing unhealthy has occurred.”
They ask, “What’s completely different this time?”
Take one other have a look at the chart above…
This time, you’ll see the distinction.
Have a very good night,
Jeff Remsburg
