Opinion - Bond auction shows Trump's economic house of cards may soon collapse

[Dulcinea]

(The Hill) Spectacle often substitutes for substance, and nowhere is this more evident than in the latest tremors shaking Wall Street.

On May 21, a lackluster 20-year U.S. Treasury bond auction delivered what can only be described as a resounding vote of no confidence in Washington’s economic stewardship. The numbers were as stark as they were symbolic: a bid-to-cover ratio of 2.46 and a yield of 5.047 percent — the highest in five years.

The markets responded as they usually do to bad news in the Capitol Hill core: stocks tumbled, bond yields soared and the dollar retreated. Now, with Moody’s recent downgrade of the U.S. credit rating, concerns about fiscal instability have deepened, reinforcing investor skepticism about the sustainability of Washington’s approach. One could almost hear the groan of a global economy growing weary of underwriting President Trump’s illusions.

https://www.yahoo.com/news/opinion-bond-auction-shows-trump-200000066.html

[BoRaGard]

1. "Ha ha. Suckers. Ha ha." - Krasnov (R-Felon) & Kronies

[Blues Heron]

2. TACO is crashing the country. The money guys wont put up with it like the MAGA guys do.

[Lovie777]

3. I've been told to watch the bond market...............

I've always looked at the Dow.

I'm looking at the strength of the dollar as well.

[Bernardo de La Paz]

7. Yes, bonds and dollar weakness. Use SP500. Ditch the Dow (only 30 stocks computed w adding machine tech). nt

[Bluestocking]

4. I wonder how quickly it will happen

I wonder if it will be a slow decline or a sudden crash. We are not there yet but it will happen soon. A lot of people are oblivious to what’s coming.

[Bernardo de La Paz]

8. It will happen slowly and then all of a sudden

But don't expect a big dramatic crash. There could be one, but there is a lot of reluctance to sell. Retail investors are buying the dips, which looks like a winning strategy until suddenly one time it isn't and they get burned badly. I suspect retail investors don't have the discipline to back out of a losing dip trade.

A crash happens when there is a "rush for the exits", when brokers get orders like "sell everything ASAP".

It is said that bull markets "climb a wall of worry" and bear markets "slide a slope of hope". In bear markets, recalcitrant bulls buy each rally only to be disappointed. Typically bear markets decline to a base (unknowable where it is during the decline). After a period of basing (sideways movement) and maybe after a final capitulation selloff, a new bull market is born.

However, in recent years, 2008 and 2021, markets have made V bottoms. We saw one in April, but that was not much of a bottom. I don't think there is going to be a dramatic government rescue this time because deficits are ballooning under the RepubliConners and there are enough deficit hawks to put the brakes on. The Fed might take dramatic action at some point cutting rates and easing, but is likely to react only when there is more clarity on the economy's direction and that is likely to be too little too late.

We could even see some modest new highs in S&P 500 in June, but beware of the risk to reward ratio. Stocks are historically high (PE ratio) now and there are dark clouds and headwinds coming out of DC because there does not seem to be a fundamental change in regime policy and the Big Bad Bill has math that doesn't add up. It was written by an AI called Rosy Scenario. For example, it bases growth estimates on no impact from tariff taxes and $200 billion a year in an uninterrupted stream for 10 years.

If tariffs work and imports go down and manufacturing on-shores, then tariff revenues go down. If manufacturing does not on-shore (tariffs fail at job 1), the economy contracts and imports go down so tariff revenues go down.

Note: In economic matters I am constantly surprised about one thing or another, and I could be wrong about everything.

[Srkdqltr]

5. There have been reports like this forever. And nothing. Same old same old.

[Bernardo de La Paz]

9. Complacency among analysts is the source of the same old same old reaction to market declines

Almost all of them think these are ordinary conditions and ordinary indicators apply. They discount the destructive effects of the orange chaos agent. And retail investors have been buying the dips which works like a charm in TACO, until one time it doesn't.

The economy has been resilient so far, in part because of delays in tariff effects and front running to mitigate their effects for a short period of time. Another delay is that many federal workers have taken the September buyout option so they don't count in stats until then or October. Tourism is expected to be down this summer, but we're only seeing hints now and won't see the ripple effects on the broader economy until later.

Ask yourself: are the downside risks greater than potential upside rewards?

[Baitball Blogger]

6. Let's remember, we said it on DU first.

https://www.democraticunderground.com/100220332393