Treasury Bailout Failure: Full Breakdown & Transcript

[00:02] that argues you should get out of risk assets if Scott Besson's operation twist ends up being a failure. In fact, they literally say markets have gotten so

[00:14] accustomed to quote extraordinary monetary stimulus over the past 20 years monetary stimulus over the past 20 years that if this version of QE, which isn't really QE, but if this sort of Bessant failure continues where Treasury

[00:31] Secretary Besson cannot get the 30-year yield below 5%, you should end up expecting the dollar to fall more due to dollar debasement. You should short risk assets. You should short leveraged hyperscalers and private credit and you

[00:47] should short cyclicals like financials going into midterms. Now, what happens going into midterms. Now, what happens after midterms might be really bullish and so that might seem like a really messy setup for a topic and that's

[01:01] because it is. [laughter] I'm going to break it all down for you. Okay, so first things first, Bank of America is basically comparing what Treasury Secretary Besson is doing to stimulus. Now, I disagree with that. I don't think

[01:17] they're really doing anything other than reshuffling the debt. They're not any kind of new money into the economy, but what they are doing is they are embarrassing themselves in terms of credibility. If you look at the 30-year

[01:30] Treasury yield, despite the fact that Treasury Secretary Bessett intervened in the market to drive yields down, you see this V-shaped right here, yields have just gone right back up, which was a slap in the face to Treasury Secretary

[01:43] Besset. But not only that, yesterday morning, Besset ended up going on CNBC for like 20 minutes to yap about, oh, we might actually do bigger policy and more intervention. We're going to get these yields down. And what happened today?

[01:57] the situation actually got worse. Yields went up even more. They didn't get better. They ended up going up even more. Here is the intervention. Here's Besson talking. And then they went up even more. [laughter]

[02:12] So in other words, markets don't buy Bessen's intervention at all. That this is a complete failure, which Bank of America makes the argument that, oh, this is bad. This actually affects the long-term credibility of the

[02:28] government and the Federal Reserve, which in fairness, it's not just Bank of this. This is a Deutsche Bank piece right here that says, "Yesterday's rise

[02:41] Secretary Bessence's attempts to ameliate the market situation in an interview on CNBC, suggesting that buybacks could be bigger. Yet, ironically, yields on the 10-year and 30-year either fully reversed or mostly

[02:55] reversed. This band-aid, which is exactly what I called it yesterday. Yesterday, I called it a Spongebob Squarepants bandage on a giant hole in the side of the Titanic, which now everybody's looking at the giant hole in

[03:08] the Titanic because they're trying to rearrange the toxic debt the United everybody's talking about how much debt the United States has and how much of an inflation problem there is. And really what you probably have is Donald Trump

[03:22] what you probably have is Donald Trump yelling going, "Wait, we put Kevin Worsh in the Fed to lower rates and he's not lowering rates." Scott, do something. lowering rates." Scott, do something. Get rates down. Fine. I'll uh raise

[03:35] money in the short term to buy long-term debt down and rearrange some of our toxic debt. And I'll go jawbone on CNBC. And the market's just like, "Double middle finger. You suck. It ain't working." So, it's no surprise that this

[03:49] Operation D-Day that we were supposed to get this week on economic pain that which even JD Vance has come out and said, "Oh, well, you know, it's actually a better strategy not to bomb them. It's just better to use the economy." Yeah,

[04:04] that that'll work better. Okay. Now they're delaying D-Day to Monday because the Treasury market has been doing exactly the opposite of what they want, which isn't great because there's another potential negative catalyst of

[04:19] nervousness that's created. NASDAQ 100 just lost 715, for example. In fact, Jackson Hole is so important that we ended up making a coupon code called join us over at meetke.com. A lot of folks say you could write this off on

[04:34] your taxes to get that lifetime access. Large price increase coming after a JHole. And we'll be rejiggering the pricing and what's included in the getting in before Jhole. All nine courses, every private liveream, every

[04:46] alpha report, every trade alert. Uh we've been pretty uh pretty on it in the I'd love for you to be there. But anyway, let's focus more on this right here. This is very interesting because Deutsche Bank and Bank of America are

[04:59] basically saying if the government and the Fed together lose credibility then the Fed together lose credibility then your intervention fails and that is bearish. You basically should expect the dollar debasement to continue, gold to

[05:15] go up, the dollar to go down, therefore risk assets to go down, AI infrastructure down and financials down. Now JP Morgan then ends up coming out and says Bessant now has even more of a credibility risk with this bailout

[05:28] failure. Goldman Sachs comes in and says the pressure that Besson is trying to relieve on yields will just end up showing up somewhere else and when visible intervention fails you could end up seeing a faster harsher and more long

[05:45] nonlinear collapse. Okay, that's bad. That obviously means certain parts of collapse and then it could kind of drag everything down. In other words, it's bad. It's really good for the economy to feel like the Fed and the government has

[06:00] out and whatever they do is going to work. But then when we see them actually try to do stuff and it's not working, it kind of makes you feel like they're just clowns swimming naked. You know, as they say when the tide goes out, you see

[06:13] who's been swimming naked? They're like literally standing up in the water with their pants off and everybody's going, "Ooh, that is that is a really really little pee peey [laughter] little little pricing power. Uh, that's

[06:27] little little pricing power. Uh, that's not good." So anyway, the institutions are freaking out about this. Now, should you freak out about this? Well, my actually happening in the underlying economy, not what's happening with these

[06:43] suits. And I have to say this morning's S&P Global Flash PMI was actually really good. Now, I'm not here to like talk a book or whatever. I just want to be

[06:55] book or whatever. I just want to be frank. This was a really good services and manufacturing flash PMI report. Let me just read it to you. The US US business is booming with firms reporting the fastest output growth for four years

[07:09] so far in the third quarter as the expansion picked up further momentum in August. Okay, that sounds really good. In fact, midterms are coming up. And what's kind of crazy is right here JP Morgan actually says that post midterm

[07:24] Morgan actually says that post midterm the S&P 500 usually goes up. RSP just hit another all-time high. RSP is an ETF that tracks the equal weight S&P 500. Really valuable when the equal weight goes up because it expands the benefit

[07:38] of this broadening wealth effect where more people make more money and the stock market at least. If you chart what JP Morgan says, which I have this in the Meet Kevin app, which you can download for free in the Apple and

[07:53] Android app store, this chart is there and you could see that in the 3 months following midterms, you are green 78% of the time starting from 1990. You are green 89% of the time starting from 1950. We're less than

[08:09] three months away from midterms. After midterms, 6 months later, 9 months later, and 12 months later, the market, whether you measure from 1950 or from

[08:21] 1990, has a 100% positive win rate. It is green 100% of the time, really bullish. So, in other words, historically, midterms are

[08:33] actually bullish once they come and go. So, maybe you have some pain going into Bezant can't do anything with treasuries. Not so great in the very treasuries. Not so great in the very short term, but statistically bullish

[08:46] afterwards. Now, let's go back to that S&P report because what else is in there that's really critical for our underlying economy? Anything about jobs? Spoiler alert, yes. Take a look at this. Annualized growth is approaching 3%

[09:01] currently, up from 1.5%. That was a little depressed in the prior read. Job growth has also shown a welcomed revival in August with employers gaining confidence as concerns fade over negative over the negative economic

[09:15] impacts of tariffs and the conflict in the Middle East. However, the latter is uh latter in particular remains a key area of concern for businesses especially via the impact on supply uh and energy prices. So in other words,

[09:30] the Middle East situation, Hormuz is still kind of an issue on what's going on with pricing and we are seeing a little bit of a decline in pricing power, which isn't great. If you come over here, you could see that right

[09:43] here. Price pressures moderated, especially in terms of selling price inflation, but input cost inflation remained elevated. Okay, in English, make stuff, but we're not able to sell it for that much more because our PPS

[09:58] pricing power is shrinking. Nobody likes shrinkage. It's not good. shrinkage. It's not good. But employment up and manufacturing to services growth momentum has shifted it shifted from manufacturing to services

[10:13] between the second and third quarter which is bullish because you're seeing this stock building in manufacturing moving to a broadening in the economy. Our US economy is mostly services which is hopefully contributing to jobs

[10:26] growth. Now we do have another jobs catalyst coming up on Tuesday. we'll get our first full week of August weekly payrolls data from ADP. So that'll be really important. We'll be covering that. But I have to say this is bullish.

[10:39] I also have to say this JP Morgan argument about the 100% win rate that is bullish. Treasury Secretary Bessant being a knucklehead and the Bank of America bull bear scale being at like you know one of the highest levels ever

[10:55] is not that great. You know, those call for short-term pain. See, the Bank of America bull bear scale has gone up to a 9.5 from 9.3, which indicates extreme bullishness in the market right now. JP Morgan also had a piece where they were

[11:09] talking about retail flows releveraging going into the end of June, which probably helped contribute to that big sell-off we had in July. And so, it's possible that leading up to midterms and after the anthropic AP uh IPO, you have

[11:24] a little bit of pain. But post midterms and in the long term things are looking pretty decent. The big risk of everything continues to be as even JP everything continues to be as even JP Morgan argues. Will there be enough AI

[11:39] related spending by enterprises to justify the investments we're seeing? We'll see. Anthropic IPO will definitely provide a lot of color on that. So this is my overall bottom line near-term between now and Jackson Hole. certainly

[11:54] between now and Jackson Hole. certainly expect volatility. Uh we have been uh since 735 on the cues in our alpha reports calling for a 7:15 test. We hit the 715 test. We lost 715 now two days in a row. I think we could actually get

[12:11] as low as like 685 to 675 by Jackson Hole if this nervousness continues. We'll see. It depends on what catalyst we get between now and then, especially with this economic D-Day that they keep delaying because it's going to make

[12:26] things worse in the short term. Uh post midterms though, you know, Q4, so end of November, December, January, February, I'm pretty bullish. I'm having a hard time seeing red flags yet in the actual AI trades. though Anthropics IPO could

[12:44] expose a lot of potential pain, especially with how much debt is being built up. As soon as that Anthropic IPO hits and we start seeing the data roll over, that's when it could all come crashing down. [laughter]

[12:57] So, it's sort of like near-term volatility, volatility, cautiously optimistic after that, and if anthropic hits the fan, it's your signal to get the hell out. [laughter]

[13:09] Hopefully that is as clear as we could possibly make it. Now I'm going to finish this Luigi mug of tea. You know it's green tea with my green watch and my green mug. [laughter]

[13:23] much for being here. We'll see you all on the next one. Goodbye and good luck. >> Why not advertise these things that you told us here? I feel like nobody else see how it goes. >> Congratulations, man. You have done so

[13:36] much. People love you. People look up to you. Kevin Praath there, financial analyst and YouTuber, Meet Kevin. [music] Always great to get your take.