Dear Reader,
The Fed made its decision yesterday.
And honestly, it doesn't really matter what they did.
Whether they raised a quarter, stayed flat, or lowered a quarter — the bond market is back in charge.
That's the real story.
Amateurs Watch the Fed. Professionals Watch the 10-Year.
I've said this many times on this channel.
Amateurs look at the Fed funds rate.
Professionals look at the 10-year bond yield.
That's what we use to actually value stocks — it's the backbone of any discounted cash flow analysis.
And right now, the 10-year yield is pushing hard at 5%.
What Warsh is trying to do is get the Fed out of the business of manipulating interest rates and let the bond market tell us what rates should actually be.
I agree with him 100%.
Here's why.
The Problem With Artificially Low Rates
When interest rates are kept too low for too long, what happens?
Bubbles.
Think about a trillion-dollar pension fund — a firefighter's fund, a hospital fund, a police officer's fund.
They have guaranteed commitments to retirees.
When interest rates are near zero, they can't earn enough on safe investments to fulfill those commitments.
So they speculate.
They take on more risk than they should.
And that speculation creates bubbles.
The housing bubble.
The dot-com bubble.
The crypto nonsense.
Bubble after bubble after bubble.
That's the sign of a sick monetary system.
I am genuinely happy with higher yields.
Retirees can actually earn income again.
If you retire with a million dollars and you're earning 4% or 5%, you've got $40,000 to $50,000 a year coming in.
You don't have to be aggressive.
You don't have to panic about the stock market every day.
You can actually relax.
That's what a healthy system looks like.
The Ceiling That Isn't Working Anymore
Now here's something important I want to update you on.
I've said many times on this channel that a 10-year yield at 5% is a ceiling for stocks — that when yields hit that level, stocks go down.
That has historically been true.
But something has changed.
We've seen yields push toward 5%.
We've seen energy prices up 60% to 70%.
We've seen inflation running hot.
And stocks haven't gotten hit the way I warned they would.
The reason is earnings.
Earnings have been so extraordinarily strong that this market can now handle a 10-year yield at 5%.
That's how powerful this profit boom has been.
So I'm updating my view.
Right now, in the middle of a genuine profit boom driven by AI investment returns, the 5% ceiling is less concerning to me than it used to be.
The facts changed.
I'm changing with them.
When Does This Bull Market End?
People ask me this all the time.
I don't know exactly when.
But I know what to watch for.
The first warning sign: when the Mag Seven stops spending a trillion dollars a year on AI infrastructure.
That spending is flooding through the entire S&P 500 and beyond.
When it stops, the ripple effects stop too.
The second warning sign: when the quality of the paper being sold starts to deteriorate.
In the dot-com era, you knew the bull market was over when Pets.com went public.
Garbage paper.
Two weeks later, the market imploded.
Right now the paper in this bull market isn't IPOs — it's debt.
Nvidia and others are financing the purchase of their own GPUs.
When smart investors start walking away from that paper, that's another warning sign worth watching.
The third warning sign: a Six Sigma event.
The Iran war escalates dramatically.
Something unexpected breaks.
These things happen.
The Bottom Line
My number one risk right now is not the 10-year bond yield.
Not with earnings this strong.
We are in the middle of a genuine profit boom, and that is driving this stock market.
When the facts change, I'll change my position.
But right now, I'm playing the ball where it is.
And where it is, is pretty good.
Have a wonderful day.
I'll see you tomorrow.
“The Buck Stops Here,”
P.S. One more thought on that 10-year yield.
I told you professionals watch it. That's true. But there is one buyer in this market who has never looked at it once — and never will.
The United States Treasury.
There is an account created in 1934, during a national emergency, that can buy gold and sell dollars in complete secrecy on a single signature. It doesn't answer to Congress. It doesn't answer to the courts. It doesn't even answer to the Fed.
It answers to one person: the Treasury Secretary.
It was used to stop a currency run in Mexico in 1995. It was used again during the 2008 panic. It is still active today.
So when I tell you the bond market is back in charge, understand there is one player at the table who was never subject to it — and who has been quietly on the other side of the dollar for ninety years.
I wrote up the whole story, including the one American gold mine our own government agreed to finance.
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Written by Dylan Jovine