Six straight quarters of double-digit S&P earnings growth. In dollars — yes. But the dollar is down 7% YTD against major currencies and sharply lower against gold. Nominal growth in a depreciating unit looks like real growth. It isn't. When the measuring stick shrinks, everything measures bigger. The mechanism isn't the earnings — it's the denominator.
Bond vigilantes are real. But most people misunderstand the mechanism. It's not about selling Treasuries — it's about what happens at the auction. Thread:
The Fed raised rates to slow the economy and kill inflation.
The federal government now pays over $1 trillion a year in interest — more than Medicaid, more than defense.
That money flows to bond holders, who spend it. At scale, it's a fiscal transfer.
Contrarian question: Is rate hiking still disinflationary when the debt load is this large?
Michigan's 1-year inflation expectations jumped to 4.8% this month — up from 3.8% in March. Biggest single-month spike in a year.
The Fed controls inflation partly by managing what people expect inflation to be. When households price in 4.8%, wages and contracts follow. Expected inflation becomes actual inflation before the Fed acts.
Now the Fed faces a trap: expectations too high to cut, growth too slow to hike.
In 1979, Iran's revolution removed ~5% of global oil supply. Energy prices doubled. A US economy already running hot from deficit spending hit a supply shock — and produced three years of stagflation. Today: Hormuz partially closed, tariff costs embedded, inflation expectations at 4.8% and rising. Consumer sentiment just hit its lowest in 74 years of recorded history. The trap isn't panic. It's arithmetic.
Tariffs are a domestic cost mechanism wearing a foreign policy label.
The exporter prices to market. The US importer pays the duty at the border, then chooses: raise prices, compress margin, or cancel orders. All three paths distribute cost inside the US economy.
Who pays tariffs? Domestic consumers, shareholders, or workers. In that order.
The deeper version — sources, full argument — is in this week's Hard Money Report. Link in bio.
US PMI beat estimates today. Services improved. Manufacturing held. The headline reads 'resilient economy.' But PMI is a diffusion index — it measures direction of change, not level. In a tariff front-loading environment, that distinction matters.
The Fed raised rates to slow dollar creation. But most dollars don't exist inside the US — they're created by foreign banks in the Eurodollar market, outside Fed jurisdiction. If the Fed can't reach the majority of dollar credit in the global system... what exactly was it tightening?
The deeper version — sources, full argument — is in this week's Hard Money Report. Link in bio.
Everyone's watching Q1 earnings beats as proof the economy is holding. About 41% of S&P revenue is earned overseas. The dollar is down 7% YTD.
A weaker dollar mechanically inflates foreign earnings when translated back. How much of the 'beat' is the business, and how much is the exchange rate?
Initial claims rose to 214k, and the headline says labor is fine. But claims measure firing, not hiring. In a low-hire/low-fire regime, weakness shows up first in hiring velocity and wage bargaining power, long before layoffs spike. Are we using a lagging gauge as our primary labor signal?
Markets are testing patience this week.
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30-year Treasury: 4.93%. Fed funds: 3.5–3.75%. The ~1.4% spread is the term premium — what bond markets charge for duration risk and credibility uncertainty. Presidential pressure on the Fed doesn't show up in the short rate. It shows up here. Mortgage rates, corporate borrowing, debt refinancing — all priced off the long end. That's what Warsh's confirmation actually trades.
The Plaza Accord (1985): G5 nations agreed to weaken the dollar together. Result — 40% decline over two years, orderly. It worked because the mechanism was cooperative.
Today's approach targets the same goal: weaker dollar, narrower deficits. Trump's CEA chair calls it a 'new Plaza Accord.'
The mechanism is inverted. Plaza was coordinated leverage. Tariffs are unilateral pressure. Voluntary adjustment and coerced adjustment produce different endpoints.
The Fed monitors banks for systemic risk. That made sense when banks were doing the lending.
Private credit — Apollo, Blackstone, Ares — now runs ~$1.5T in direct corporate loans. Floating-rate. Illiquid. Not mark-to-market.
The Fed has no real-time visibility into it. No direct policy lever for it.
The next credit shock won't announce itself through bank balance sheets. It'll materialize in a market the stability framework wasn't built to see.
On August 15, 1971, Nixon announced the US would no longer exchange dollars for gold. The gold window closed. Every dollar became, overnight, a promise backed by confidence in the US government — nothing more. That moment reshaped global finance. Here is the mechanism.
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The Fed isn't 'behind the curve.' It's structurally trapped.
Tariff inflation is a supply-side shock. Rate hikes cool demand — they don't fix supply chains. Rate cuts support jobs — but accelerate the prices they can't source-fix.
The dual mandate assumes inflation and unemployment move together. Supply shocks put them in opposition. The Fed has no good move. That's arithmetic, not politics.
