Market Lab Report - Bond yields, gold, and the dollar are all rising. Is this an issue?

by Dr. Chris Kacher

Bond yields, gold, and the dollar are all rising. Is this an issue?

Prediction markets are pricing in a Trump win. Tens of trillions of dollars of self-interested financial actors have repositioned their risk to a Trump win. WSJ and CNBC show Trump is winning the popular vote. State-by-state polling also shows Trump is ahead in every battleground state. Early voters polls also shows Trump winning. Trump will be good for the economy with lower taxes. Meanwhile, the money printing machine will continue. Stealth QE remains firmly in place as the unfunded liabilities such as interest on debt must be honored. This has helped the S&P 500 trend higher if albeit being pushed on a string. Some tech juggernauts have taken a breather but should also continue to trend higher as major averages move higher. This explains the rise in the dollar and bond yields as both are anticipatory to a stronger economy since markets are forward looking. In other words, interest rates may not be lowered quite as quickly as anticipated but this is not due to recession but to strength in the economy. Nevertheless, the global trend of interest rates is down. Most central banks have lowered and will likely continue to lower rates well into next year further driving liquidity.



Another big factor is the property market bubble in China. Pricking the property bubble would decimate ordinary households, the banks, the industrial firms, and the local governments. Thus, their government's revenues are largely tied to the value of the property market; their government must therefore create QE to prop up their massive property market.

The idea of a stronger economy on the surface sounds absurd because the majority are struggling in the US, UK, and EU as the middle class gets wiped out, homelessness soars, and we know the official data are doctored. But markets follow the data. Markets dont care about how the divide between those who own property and equities and those who live paycheck-to-paycheck is larger than ever. That said, 57% of Gen Z want to be content creators. They lost faith in the system, not surprising, given that they are typically saddled with 6-figures in college debt with no decent job prospects.

Further, AI and the gig creation economy spurred by decentralized infrastructure such as Shopify and social media businesses have vastly increased the number of income streams as individuals, on average, are far more productive than ever given the tools available to the general public from ChatGPT to stable diffusion to the countless number of apps that are used by millions to create, code, compose, and publish. The 7 Ds are glowing brightly: decentralization, demonetization, dematerialization, digitization, disruption, deception, and democratization. Exponential technologies embrace the 7 Ds.

Over the intermediate to long run, liquidity guides general market direction. It trumps earnings, P/Es, inflation, economic strength, sentiment, and geopolitical issues as long as the rate of QE in all its forms does not decrease. Of course, some of these issues can affect liquidity so tracking liquidity is key.

Inflation worries are relevant but can take time. It wasn't until early 2022 for inflation to spike, nearly two years after the Fed blasted and continued to blast markets with QE due to COVID. So given current levels of stealth QE, soaring inflation may still be at least a year off. In the meantime, QE will lift all tides. So the talk of stagflation of the 1970s returning is becoming less likely for now. The illusion of growth painted by the doctored data together with global liquidity and moderating inflation, at least for now, makes for higher markets.

This means Bitcoin should sooner than later break out of its multi-month consolidation. While some have noted that Bitcoin CME futures have over $10B in short positions, the short:long ratio is close to 1:1 though was for a brief moment at 10:1 which helped push Bitcoin lower. Together with other factors, it was a nice setup for a brief price pullback. But this metric alone is unreliable. Even when the short:long ratio was 8:1 in late 2023, it was a bad call by institutions since Bitcoin continued to trend higher.

It also has been said that the three times when Bitcoin CME futures had over $10B in open interest, Bitcoin topped within days. This is confusing causality. Correlation does not imply causation. In all three cases, macro, central exchange, and geopolitical reasons pushed Bitcoin lower.


It just so happened that when Bitcoin CME futures open interest trended beyond $10 B, the price of Bitcoin topped shortly thereafter. But even in the first two cases, Bitcoin did not make a clean top but retested higher a couple of times before trending lower.



As for gold, it goes up anticipating a Trump win because while markets predict seeing more economic growth over the longer run, if you look over the intermediate term, you see more inflation so institutions want to hedge using gold. As Paul Tudor Jones has said, all roads lead to inflation. So he's long stocks, Bitcoin, precious metals, and commodities while holding no fixed income.