On My Radar - U.S. Treasuries No Longer a Safe Haven
May 23, 2025
By Steve Blumenthal
“What worries me the most is somehow our agenda gets slowed down. Either by courts or by legislators.”
— Scott Bessent, Treasury Secretary, Bloomberg TV May 23, 2025
We hosted a client call today with one of the credit funds we favor, and I always look forward to these quarterly updates. The manager is on the front lines of the economy, financing trade receivables - essentially the bridge between when a product is delivered and when payment is received, often 60 days later. If you’re making gaskets and selling them to AutoZone, this is the gap you need to fund. When economic stress shows up, he and his team tend to see it first.
We asked him about tariffs. His response was clear: “We are past the point in the tariff situation where our supply chain can avoid being impacted.” He’s not calling for a recession yet, but for the first time in a while, he expressed genuine concern. A meaningful slowdown may be ahead.
Separately, I watched Scott Bessent on TV this week. My simple takeaway is that he looked nervous. As my manager friend sitting on the front line indicated, it’s getting very real, very fast. There’s a link above if you’d like to see for yourself.
Grab a coffee and find your favorite chair. This week, I’m sharing what I believe are the most important takeaways from Howard Marks and Felix Zulauf’s presentations at SIC2025. It’s hard to find two more contrasting investors. Marks is a value-focused, fundamentally driven thinker who emphasizes the difficulty of predicting the future, especially the timing of events. Zulauf, a global macro trader, takes the opposite approach - leaning into probabilities, market psychology, and bold forecasts.
What I appreciate about both of them is that they have real skin in the game.
Before you jump in, I want to correct last week’s post. After reading OMR, Barry Habib shot me this note. “My brother, Thank you so much for your kind words. But a couple of corrections. My mortgage rate forecast is for the low 6% area, not 5%. Also, I see a minor, not major, improvement in inflation readings this year.” I jumped into the piece and edited it last Friday evening. Here is the corrected section. My apologies for the error. Thank you, Barry!
Ok, reheat, let’s go.
On My Radar:
Howard Marks - Still, Nobody Knows
Felix Zulauf - U.S. Treasuries No Longer a Safe Haven
Mauldin Strategic Investment Conference - SIC2025
Trade Signals: Update - May 22, 2025
Personal Note: When Time Itself Disappears
See Important Disclosures at the bottom of this page. Reminder: This is not a recommendation to buy or sell any security. My views may change at any time. The information is for discussion purposes only.
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Howard Marks - Still, Nobody Knows
Marks’s biggest worries are the size of the debt, deficit spending, the pace of the increase in our debt, and the value of our currency. His presentation was similar to his recent Nobody Knows April Memo, which you can read in full here.
Following are what I feel are the most important points Howard Marks made in his presentation:
Tariffs are a Net Negative (Generally): While some tariff goals may seem worthy, their complex "second-order consequences" (like higher costs for consumers, reduced competition, and damaged international relations) generally outweigh the benefits. Markets are calmer as tariffs recede, but the fundamental issues remain.
US Debt and Deficits are a Serious, Unaddressed Problem: The continuous and growing federal deficits are unsustainable. While the dollar's reserve status provides a "golden credit card," it cannot last indefinitely. The likely consequence, though unpredictable in timing, is higher interest rates demanded by bondholders, significantly increasing the cost of financing the debt. (SB Here: The WSJ’s Nick Timiraos wrote the following about The Big Beautiful Bill on Wednesday. The 20-year auction went poorly.
Source: X, WSJ
SB Here: The yield on the 30-year Treasury Bond is more than 5%, and the trend remains higher. The red horizontal line marks the high made in 2023. You can also see we are flirting with the highest bond yield in 20 years.
Source: Stockcharts.com
SB here again: My quick take on the Big Beautiful Bill:
The bill includes material spending reductions primarily targeting Medicaid, SNAP, and certain green energy programs. However, these programs are overshadowed by larger tax cuts, leading to a net increase in the deficit.
The proposed $1.7 trillion in spending cuts is significant, representing a notable attempt to reduce federal expenditure.
However, the bill's tax cuts, estimated at $3.8–$4.5 trillion over 10 years, substantially outweigh the spending reductions, leading to a projected net increase in the federal deficit of $2.3–$3.3 trillion over the decade, according to nonpartisan estimates from the Congressional Budget Office (CBO) and other fiscal watchdogs.
In my view, there is insufficient deficit reduction. The bill awaits Senate consideration, which will involve changes. Out of the gate, a big disappointment!
I’ve become a fan of Lyn Alden and follow her on X, @LynAlden. She said this in a recent tweet, “The bond market is starting to realize that Nothing Stops This Train.”
Back to Howard Marks:
The Dollar's Reserve Status Will Likely Persist, But With Caveats: There's no viable alternative currency ready to replace the dollar as the world's primary reference currency for transactions. However, this doesn't mean people will want to hold as much dollar-denominated debt, which could lead to a weaker dollar and/or higher interest rates on US Treasuries.
Private Credit is Not a Systemic Risk (Unlike 2008 Subprime): While some private credit firms may have lower lending standards, the industry as a whole is not highly leveraged nor deeply interconnected like the banking system was pre-2008. Therefore, it's unlikely to trigger a widespread financial crisis. However, investors need to be wary of managers who haven't proven their ability to navigate tougher times.
"Nobody Knows Nothing": Marks consistently emphasizes the impossibility of confidently predicting the future, especially "when" specific events will occur. This underpins his investment philosophy, suggesting a focus on prudent asset allocation and valuing assets based on their fundamentals, rather than market timing.
America is Still the "Best Place," But Potentially "A Little Less Best": The free-market system, rule of law, and spirit of innovation have made the US exceptional. However, unpredictable policy decisions (like erratic tariffs) and the growing debt could degrade this advantage, making the US a slightly less attractive destination for capital.
Please note that the information provided is not recommended for buying or selling any security and is provided for discussion purposes only. Current viewpoints are subject to change. Views are those of Howard Marks and not necessarily Steve Blumenthal’s nor CMG’s.The information provided is not recommended for buying or selling any security and is provided for discussion purposes only.
Felix Zulauf - U.S. Treasuries No Longer a Safe Haven
While Howard Marks is a distressed debt investor who looks for fundamental value in corporate debt that has gotten into trouble, Felix Zulauf is a macro market trader looking to capitalize on various markets around the world. He might consider going long or short the dollar (or other currencies), buying in countries he finds attractive, shorting stocks in markets he finds unattractive, positioning long or short bonds, and commodities like gold, etc.
The key distinction is that Zulauf is a trader, not a distressed debt investor; two entirely different skill sets.
Key Takeaways:
Politics Are The Primary Market Driver: Zulauf believes politics will play an increasing and disruptive role in financial markets in the coming years. Traditional analyses focusing solely on corporate earnings and interest rates are "useless." Investors must understand the "political mood swings" and their impact on market sentiment and expectations.
Forecasts a "Rollercoaster" Market Ahead (Heading to an End Game): Zulauf believes we are in the "beginning of the end game" of a secular bull market, which could last a few more years. This will involve significant, volatile swings with periods of sharp rallies and deep corrections. He predicts a potential rally to S&P 7,000 this summer, a decline to 4,500 later in 2025/early 2026, and a rebound to 9,000 thereafter.
Short-Term Bullish, Long-Term Caution: He sees a near-term rally to new highs, driven by technical factors, aggressive money execution, and potential liquidity injections from the Treasury General Account (via running down the TGA, approximately $600 billion today) and possible Fed intervention at 5% on 10-year Treasuries. The current 10-year yield is 4.49% (May 22, 2025).
Economic Slowdown Coming: Despite the short-term rally, Zulauf expects the underlying economy to slow down in later 2025 into 2026. This will be due to cautious corporate executives pausing spending due to uncertainty from tariff conflicts (even if temporary truces), postponed investment projects, and potential consumer fears about jobs, leading to increased savings and reduced spending.
US Equities: Large-Cap Tech Still Leads (for now): For the current rally to new highs, Zulauf suggests focusing on large-cap growth stocks, particularly several of the "Mag 7" and FANG stocks. Value, small-cap, and mid-cap stocks are expected to underperform in this phase.
Future Rotation to Value in a Downturn: He anticipates a reversal after the current rally, with value stocks outperforming in a declining market as large-cap growth leaders are, as he puts it, "clobbered" and fall below previous lows.
He suggests that in this "end game" phase, if an investor can "stand the heat in the kitchen when the downswing comes" (even if temporarily), they can stick with equities, but he would advise shifting to value stocks rather than high-growth stocks during those downswings.
US Treasuries are No Longer a Safe Haven. There has been a notable change in fixed income and currency behavior. Zulauf said that US Treasuries, for the first time, did not act as a safe haven during the recent market meltdown. They are now "trading assets, not an investment asset and certainly not the safe haven anymore." He said, nominal assets, in general, are a "risky game" for the next 5-10 years due to anticipated inflation.
Gold as the Long-Term Safe Haven: He sees gold as a probable safe haven for the next several years. He expects a temporary peak and correction for gold, with dips below $3,000 presenting buying opportunities. He believes gold will then go on to make higher highs.
As we approach some form of global restructuring (End Game), he anticipates a deflationary shock to the economy, where all assets decline, with gold expected to decline the least.
Ultimately, he sees the End Game, a "systemic calamity and a systemic cleansing," happening later this decade into the early 2030s. A "deflationary shock where all assets go down." In this scenario, the asset that declines the least (which he expects to be gold) would be the "winner.”
Bitcoin: High Beta Tech Play, Not a Safe Haven: Bitcoin is seen as a legitimate asset that correlates highly with the NASDAQ 100 but with much higher beta. It's suitable for those bullish on NASDAQ 100, but will also decline significantly in a broader systemic market downturn.
Oil and Commodities: Long-Term Upside with Volatility: Zulauf sees continued demand growth for oil, with potential for prices to return to $150 or higher in two to three years. He suggests buying oil below $60 with a two-year horizon. Energy stocks are best bought at the next major low, likely in 2026. Agricultural commodities also have potential for "explosion in prices" due to supply disruptions and weather, but it's "too early" to invest now. Copper is the most attractive base metal, but not a buy currently due to an expected economic slowdown.
Geopolitical Shifts: The world is transitioning to a multi-polar order, bringing significant geopolitical volatility. The US is in a state of "imperial overstretch," with debt servicing costs now exceeding defense spending. This will impact global alliances and economic relationships.
Avoid Europe, Consider Asia and Latin America (Long-Term): Zulauf is negative on Europe as an investment theme due to political disarray, demographic issues, exploding debt, and economic problems. He views Asia (especially India, Cambodia, and Vietnam) as a better long-term play, potentially experiencing a "deflationary boom." Latin America is also interesting due to its raw material wealth, but it also carries government policy risks. He believes these emerging markets are currently "too early" to enter.
Tariffs are a Tax, Not a Cure-All: He views tariffs as a tax that generally leads to less global trade and less prosperity for all sides. While Trump aims to improve external accounts and bring manufacturing back, correcting deficits truly requires addressing domestic economic policy (e.g., increasing savings, making consumption more expensive), not just focusing on trade partners.
Please note that the information provided is not recommended for buying or selling any security and is provided for discussion purposes only. Current viewpoints are subject to change. Views are those of Felix Zulauf and not necessarily Steve Blumenthal’s nor CMG’s.
The information provided is not recommended for buying or selling any security and is provided for discussion purposes only.
Mauldin Strategic Invesment Conference - SIC2025
I’ve spent every spare moment watching the video presentations. The views vary. For example, Rosenberg, Hunt, and DiMartino Booth see recession risk as high with interest rates moving lower, while Jim Bianco continues to see interest rates moving higher.
I’ve just begun to scratch the surface with last week’s post, which you can find here, and this week’s notes from the Marks and Zulauf presentations.
While I’m focusing on the high-level, bottom-line viewpoints, I can tell you there is so much more to watching the presentations: vocal tone, body movements, and convictions stress-tested by interview or panel members. In my view, this is the best investment conference in the business.
Presenters include: Howard Marks, Felix Zulauf, David Rosenberg, Dr. Lacy Hunt, Peter Boockvar, Barry Habib, Danielle DiMartino Booth, Louis Gave, Karen Harris, Joe Lonsdale, Pippa Malmgren, Rene Aninao, Jim Bianco, Erik Prince, George Friedman, Ed Yardeni, Mark Mills, Liz Ann Sonders, Dr. Oz, Dr. Roizen, Robert Redfield, and others.
If you’d like the full details, it’s not too late to sign up and tune in to SIC2025. You’ll find recordings and transcripts of all the sessions. Please know that Mauldin Economics does not pay me. I'm just a big fan of their work.
Trade Signals: Update - May 22, 2025
Market Commentary:
I share trend charts and more weekly in Trade Signals, a free service for clients.
TRADE SIGNALS SUBSCRIPTION ACKNOWLEDGEMENT / IMPORTANT DISCLOSURES
The views expressed herein are solely those of Steve Blumenthal as of the date of this report and are subject to change without notice. Not a recommendation to buy or sell any security.
Please note that the information provided is not recommended for buying or selling any security and is provided for discussion purposes only. Current viewpoints are subject to change. Please note that the information provided is not recommended for buying or selling any security and is provided for discussion purposes only.
Personal Note: When Time Itself Disappears
I receive an email from The Daily Coach each day. I share many of them with my wife, Susan, who, as you know by now, is a youth soccer coach. There was one recently about Coach Dawn Staley titled Discipline. Joy. Coaching Lives At The Intersection. Staley said, “Great teams and organizations, like great homes, are built on both a backbone of discipline and a spirit of joy.” It’s excellent. I hope you like it.
As you head into your holiday weekend, I thought I'd share a few quotes from another Daily Coach post. You can read the short piece here.
Some wisdom, some love. I particularly liked “The Last Words.”
Fear Questions. The Soul Knows.
Fear says, “What if it doesn't work out?”
Soul says, “It may not. And that's not the point. The point is who you become in the process.”
Surrender to the unfolding. Source: Cory Muscara
Comfort Isn’t the Goal. Growth Is.
Life is continued work. It’s constant learning.
I don’t believe in getting comfortable just because everyone says you’ve arrived.
We should never be comfortable where we are. We should always be aspiring to know more, to better ourselves and to improve ourselves because that’s how we improve the world around us by working within.
Source: Lauryn Hill, American Academy of Achievement interview
The Last Words…
"One day you will realize that happiness is not what your house looks like, but how you love the people within its walls.
Happiness is not finding success by a certain time, but finding something you love so much time itself seems to disappear.
Happiness is not thinking you have earned the world's approval, but waking up each day and feeling so at peace within your own skin, quietly anticipating the day ahead, unconcerned with how you are perceived.
Happiness is not having the best of everything, but the ability to make the best of anything.
Happiness is knowing you did what you could with what you were given.
Happiness is not something that comes to us when every problem is solved and all things are perfectly in place, but in the shining silver linings that remind us the light of day is always there, if we slow down enough to notice."
― Brianna Wiest, The Pivot Year
I hope you find something “you love so much that time itself seems to disappear” this weekend, and always.
Wishing you “happiness” this wonderful holiday weekend. I’ll be shopping for an outdoor sun umbrella with Susan, some work around the house, golfing at Stonewall with friends, and catching up on the SIC2025 sessions I have yet to watch.
Oh, and enjoying some fine red wine. Here’s a toast to silver linings!
Kind regards,
Steve
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Stephen B. Blumenthal
Executive Chairman & CIO
CMG Capital Management Group, Inc.
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Stephen Blumenthal founded CMG Capital Management Group in 1992 and serves today as its Executive Chairman and CIO. Steve authors a free weekly e-letter entitled, “On My Radar.” Steve shares his views on macroeconomic research, valuations, portfolio construction, asset allocation and risk management. Author of Forbes Book: On My Radar, Navigating Stock Market Cycles.
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