Trust Bonds… At Your Own Peril
Anyone checking out the four pillars of the Permanent Portfolio since the start of the Jubilee Year would’ve seen quite the spectacle: gold is strutting around like a rockstar, beating the S&P 500 nearly 4-to-1 and leaving Treasuries eating dust—more than 7-to-1! Sure, some will politely point out that, if you ignore the “CP-Lie,” Treasuries have still eked out a nearly 5% gain this year… but compared to gold’s victory lap, that’s like bragging about coming in third at a two-horse race.
Nominal (not ‘CP-Lie’ adjusted) performance of $100 invested in physical gold (blue line); S&P 500 index (red line); Bloomberg US Treasury Index (green line); Bloomberg US Treasury Bill: 1-3 Months Index (purple line) since 31/12/2024.
The recent rebound in the US Treasury index feels like a classic case of Wall Street Pavlov: bankers and talking heads still salivating at the idea that Treasuries are “risk-free,” blissfully ignoring the chaos brewing in the world. Another likely spark? Leveraged bond positions hit an all-time low since 2016, meaning the shorts were primed for a squeeze. So, as the herd rushes in, long-dated Treasury yields could drop (prices rise) … until reality bites and investors finally realize that in a stagflation, Treasuries are about as helpful for preserving wealth as an umbrella in a hurricane.
Bloomberg US Treasury Index (blue line); Combined leveraged bond CFTC position (red line) since 31/12/2016.
Anyone who’s actually studied the business cycle knows the drill: after the inflationary boom party—currently raging in the US and soon-to-be “un-developed” Europe—the hangover is looming (i.e. inflationary bust). Enter what history may remember as the ‘Trump Stagflation.’
For those who trust market signals over government propaganda, the stagflation trigger is clear: oil needs to be a lot higher. Yet the YOLO crowd keeps acting like cheap oil is a birthright. Newsflash: oil prices respond to supply shocks, not only demand tantrums. With wars simmering in the Middle East and Eastern Europe, and the self-proclaimed “Peace Maker in Chief” in the Oval Office stirring tensions around Russian supply, it’s not if oil will spike—it’s when.
Everyone knows the Ukraine war is just a proxy fight — globalist West vs. mercantilist BRICS. Yet Washington’s self-proclaimed “Peace Maker in Chief” can’t resist meddling in a European mess cooked up to distract voters from a looming sovereign debt implosion. Instead of honoring Minsk and avoiding global chaos, Europe and the US are busy poking China and Russia, guaranteeing a permanently hostile world. If Russia actually lost, you’d get hardliners in power — and maybe WWIII. But sure, let’s pretend we’re saving democracy. Why not just hand the Regime In Change Diva ‘Victoria Nu-land the nuclear codes and get it over with?
https://www.nbcnews.com/video/audio-of-leaked-nuland-conversation-162208835907
For anyone still swooning to the siren song of the bond mermaids, it’s time for a reality check: higher oil prices have a nasty habit of translating into higher yields—not the lower yields (or higher bond prices) that the dreamers are hoping for. It’s like thinking a chocolate fountain in your office will somehow make your waistline disappear—nice fantasy, terrible math. Every time oil spikes, the bond market remembers it’s not a fairy tale; rising energy costs fuel inflation, which in turn scares investors into demanding higher yields. So while the Wall Street mermaids are singing sweet lullabies about “risk-free” Treasuries, the real world is over there waving a caution sign: in a stagflation fueled by pricey oil, bonds are not your cozy safety blanket—they’re more like a soggy umbrella in a hurricane.
US 10-Year Yield (blue line); WTI Price (red line).
As oil prices climb and chaos inevitably follows, those investors once again enchanted by the Wall Street mermaids crooning that bonds are the “risk-free” asset should take a deep breath. More chaos doesn’t whisper sweet nothings—it screams higher, not lower, Treasury yields. In plain English: when turmoil rises, bond prices fall, especially if that turmoil involves the ever-popular sport of weaponizing USD assets. So while the mermaids sing of safe havens, reality is out there giving bonds a not-so-gentle push off the cliff. It’s the financial version of thinking you can safely surf a tsunami because someone promised it’s just a “big wave day.”
US Chaos Index (blue line); US 10-Year Yield (red line).
While the YOLO crowd hangs on to the fairy tales peddled by CNBC and its army of financial “influencers,” reality has a different plan. As the world stumbles from an inflationary boom into the looming inflationary bust—speeding up with every new domestic or international chaos headline—gold quietly flexes its muscles. Since the start of the decade, it has consistently outperformed bonds, proving once again that while the media may hype risk-free fantasies, the shiny stuff doesn’t need a hype machine to hold its ground. It’s the classic case of the tortoise versus the hare, except the hare is leveraged, distracted, and scrolling Twitter.
US Chaos Index (blue line); Relative Performance of Gold to US Treasury Index in USD (red line).
From the same angle, anyone who’s actually paid attention knows gold is the war-and-chaos asset. So it should come as no shock that when chaos ramps up, gold—the ultimate antifragile, non-confiscatable rebel—doesn’t just beat Treasuries, it waltzes past equities like they’re standing still. Savvy investors recognize that gold outperforming the S&P 500 isn’t just luck—it’s monetary illusion, a historical canary signaling that an equity bear market may be looming, or at the very least, that equity returns are about to take a serious nap, even in USD terms.
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