Summary – A top-down review of interesting calls and comments made last week in Treasuries, monetary policy, economics, stocks, bonds & commodities. TAC is our acronym for Tweets, Articles, & Clips – our basic inputs for this article.
Editor’s Note: In this series of articles, we include important or interesting Tweets, Articles, Video Clips with our comments. This is an article that expresses our personal opinions about comments made on Television, Tweeter, and in Print. It is NOT intended to provide any investment advice of any type whatsoever. No one should base any investing decisions or conclusions based on anything written in or inferred from this article. Macro Viewpoints & its affiliates expressly disclaim all liability in respect to actions taken based on any or all of the information in this article. Investing is a serious matter and all investment decisions should only be taken after a detailed discussion with your investment advisor and should be subject to your objectives, suitability requirements and risk tolerance.
1.Markets Last Week
- 30-year Treasury yield down 7.3 bps on the week; 20-yr yield down 7.2 bps; 10-yr down 6 bps; 7-yr down 6.2 bps; 5-yr down 5.9 bps; 3-yr down 5.3 bps; 2-yr down 4.5 bps; 1-yr down 2.9 bps;
- TLT up 1.4%; EDV up 2.2%; ZROZ up 2.4%; TMF up 4%; HYG down 1.1%; JNK down 1.2%; EMB down 60 bps;
US Indices:
- VIX up 30.9%; Dow down 2.7%; SPX down 2.4%; RSP down 3.2%; NDX down 2.3%; SMH down 3.4%; RUT down 3.3%; MDY down 3.8%; XLU up 1.8%;
Key Stocks & Sectors:
- AAPL down 4.9%; AMZN down 1.4%; GOOGL down 3.6%; META down 74 bps; MSFT down 1.2%; NFLX up 5.8%; NVDA down 2.4%; MU down 3.3%; BAC down 3.9%; C down 3.9%; GS up 1.8%; JPM down 3%; KRE down 5.1%; EUFN down 3.3%; SCHW down 2.3%; APO down 6.1%; BX down 8.7%; KKR down 7.7%;
Dollar was Up 1.5% on UUP & Up 1.3% on DXY:
- Gold up 3%; GDX down 1.7%; Silver down 79 bps; Copper down 3.4%; CLF up 3.4%; FCX up 3.1%; MOS down 12.1%; Oil down 3%; Brent down 2.6%; OIH down 7.7%; XLE down 4.2%;
International Stocks:
- EEM down 4.2%; FXI down 7.5%; KWEB down 9.9%; EWZ down 5.1%; EWY down 3.7%; EWG up 2%; INDA up 61 bps; INDY up 86 bps; EPI up 58 bps; SMIN down 23 bps;
The two potentially big & trend-changing movements this week are lower Treasury interest rates and the up move in the U.S. Dollar.
- Mike Zaccardi, CFA, CMT 🍖@MikeZaccardi – Tue Oct 7 – Dollar ripping. Quietly putting in a strong second half of 2025.
The currency markets trade about 9.6 trillion every day and the short dollar is the biggest trade of the year. It would be terrible if it gets unwound in a furious move!
Something weird happened this week to sectors that should rally when interest rates fall.
- Mike Zaccardi, CFA, CMT 🍖@MikeZaccardi – $XRT Retail ETF – just about its worst 2-day drop since April 8
And,
- Mike Zaccardi, CFA, CMT 🍖@MikeZaccardi – $XHB homebuilders.. worst 2-day stumble since April 8.
Then a nasty reminder of an event before the last big crash:
- zerohedge@zerohedge – Quants Are Blowing Up Again
Not every one was as discreet as us to avoid specifying the last crisis:
- Bespoke@bespokeinvest – As a reminder, this is what a one-year chart of the S&P 500 looked like at its peak in 2007 just before the Financial Crisis:
That brings up a name that might possibly signal a potential crisis:
- Walter Deemer@WalterDeemer – This may not be the best time for me to be in the midst of rereading “Too Big To Fail“.
On the other hand,
- SentimenTrader@sentimentrader – Everyone’s worried about #weak #consumerconfidence. History says they shouldn’t be. When sentiment drops this low, markets have often turned higher soon after. Read the full breakdown: 50 years of data, #risk context, and sector impact → https://payhip.com/b/mUjDS
A sort of similar but more emphatic bullish call was made on CNBC Squawk Box on Tuesday who explicitly wishes for a sell off that can be used to rally into year-end. She calls for 7,000 by year-end & 7,200 by Q1 2026. She also thinks Treasury rates will come down & she actually thinks the 10-yr yield will trade with a 2-handle, yes 2-handle.
The above is fine but, we got to be honest! Friday afternoon was simply awesome – “Volatility exploded; Stocks crashed for over $1 trillion; heard about the worst flash crash in history in crypto & dollar screaming red-alert“. If you like that sort of a thing, watch the 13-minute clip below that tries to find “Signals in the Chaos“.
2. Interest Rates
All week we saw Treasury yields gently move lower. Almost daily, yields would inch higher & then give up in the afternoon. We like that because the psychology is so one-sided with bullish economy & stock commentators dissing the downwards move. In contrast, an eminently worthy chartist said on Monday October 6, that “he is a buyer of bonds“.
A day later on Tuesday, Rick Santelli pointed out that the bond market had a reversal with the 2-yr yield going higher than Monday’s high yield & then in the afternoon going lower than Monday’s low yield to deliver an “outside reversal“.
But the 10-yr yield refused to close below 4%, as Rick Santelli pointed out. We are actually happy it did not. The move down in yields is steady & against entrenched disbelief. The fact that even the 10-year yield is NOW inverted below the 4.125% midpoint of the Fed Funds rate channel doesn’t faze the elites. Perhaps it is the unwillingness of the 30-yr yield to collapse quickly gives them comfort & belief in their refusal to act. We found it interesting to read the following comment by Stephanie Pomboy at minute 1:39:
- “The level of hubris in these institutions and the Federal Reserve particularly that seems to imagine it’s omnipotent and he even made some reference to it.”
It could be that Powell & his FOMC believe that their constituency is the rich, invested in stocks section of the American society &, like Marie Antoinette, Powell & his coterie think the rest of the American society is ignorant & beneath their rich-intellectual class.
Seriously go back & read what Powell said in his Wednesday, September 17 presser:
- “At today’s meeting, the committee decided to lower the target range for the federal funds rate by a quarter percentage point to four to four and a quarter% and to continue reducing the size of our balance sheet“
How arrogantly contemptuous of American society must this Fed be if, despite the convulsions in the financial conditions in America, they are still tightening monetary liquidity & reducing their balance sheet!!! That tells you that they think their main job is to destroy inflation even at the risk of destroying the savings & livelihoods of the American middle class & lower class.
Below is a clip with 13 charts that might persuade the moral, sensible people that a stealth recession might already be spreading under the Fed’s and our feet.
3. Bull vs. Python – a story of Dollar liquidity vs. QT & Inverted Yield Curve
Easier money conditions in the system is what the Fed does to increase liquidity in the system & enable the Banks to lend. In the extreme it is called Quantitative Easing because the Fed essentially creates money/liquidity out of nothing & it goes into the banking system as bank reserves. Quantitative Tightening works the reverse way by the Fed withdrawing liquidity from the Banking system & essentially turning Bank Reserves into pooh!
We didn’t know how to illustrate this. So we thought of a real intense struggle in the animal kingdom between two very powerful beasts. Watch the below for 40 seconds. This is not a fight as in most wild animals. The Python is not biting the Bull or injecting poison and the Bull is not using its strength to trample the python or use its horns. It is simply a case of the Python squeezing the Bull & the Bull trying to expand its breathing to shake off the grip of the Python.
The Bull is quite clearly the banking/liquidity system. When the bull is up & free, it breathes air & fills its lungs to generate the energy it needs. A smaller snake or anything weaker than the Bull cannot restrict the Bull. Enter the giant python. It wraps its giant coils around the big bull & begins to squeeze it. When the bull exhales, it loses energy & the python uses that moment to intensify its grip on the Bull’s body restricting how much it can breathe next.
Initially, this is how the inverted yield curve starts weakening the economy in a small way. But when the Fed applies QT or quantitative tightening, the ability of the bull to keep breathing gets restricted with each breath & it weakens. Enter SOFR – Secured Overnight Financing Rate from the Fed or the rate at which the Fed will pay interest on bank reserves deposited at the Fed.
Folks, it is this struggle that came to the fore last week. First on September 30 or quarter end, see chart at minute 13:35 of the clip titled Breaking: SOFR Soars as Liquidity Stress Worsens. As the clip explains at minute 14:27,
- “the overall direction is clear which is dollars are getting more and more scarce and of course not only the Move index (Move = bond volatility) by the way but VIX which measures equity market volatility we can also see a pretty good correlation between quarter end and elevated uh quarter end and month end and elevated equity market volatility. So, not only equity market volatility but bond market volatility because of course remember if if there are less dollars in the financial system, well, there’s less dollars to buy US Treasuries. “
But that was September 30, end of the 3rd quarter. And quarter-ends are usually illiquid. Usually this stress is relieved after the new quarter begins.
Two days later was Friday, October 2, 2025. We urge you to look at the clip titled Breaking: Emergency Fed Backstop Gets Hit – Repo Market Cracks Widen which points out that “bank reserves plunging below $3 trillion“.
What about the above SOFR?. Well, as is explained at minute 4:43, with “SOFR, on the other hand, you have to rely on another financial firm“. What happened to this psychology when use of SOFR on Wednesday September 30 was fine but not so fine two days later on Friday, October 3? That leads to the coup de grace of the clip at minute 5:18:
- “Well, what this indicates is that to some degree uh there is counterparty risk starting to emerge,”
This is not just emotional caution, mind you. A Bank that was using the Fed’s Reverse Repo instead of SOFR was giving up 17 bps in interest that the SOFR was yielding above the Reverse Repo on Friday, October 13. This is a lot of money & is only given up when caution is deemed much more important than higher interest. This higher caution doesn’t necessarily take you to 2008 when one bank did not trust the other bank to hold its reserves but it does take you closer to the Reverse Repo crisis of 2019.
Now ask yourselves how tricky the banking conditions must be when one angry line from President Trump about 100% tariffs on China could create such enormous havoc that the S&P would lose $1.8 trillion in one afternoon! That points to a highly unstable condition in global markets!
This is sort of like the 2018-2019 QT crisis. But today’s economy is weaker than than 2018 because it is already in a stealth recession & is surrounded by almost Pathetic Germany & allied economies like Japan, South Korea & Taiwan who are now against America and in no condition to relieve the pressure on the US economy. So the Fed will actually have to do more than it did in 2019.
So Good Luck to all of us, if Fed Chair Powell & his team remain aloof & egoistic. They have already stayed silent while an Auto Bankruptcy wave is going across US dealerships. May be they are waiting to see the broader economy gasp for air & weaken like above Bull is.
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