Bonds Are Warning Of A Global Inflation Crisis

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I mean, maybe someone recommended that TV show you've been obsessed with lately. But when it comes to home projects, it's different. If you don't like a show, you might lose a few minutes. If you hire a friend, a friend, a friend to fix a leaky ceiling, you could end up with a flooded kitchen. Maybe I know a guy just isn't enough for your home. That's why thumbtack works so well. They'll match you with a top rated local pro, and you can see photos of past work, credentials and reviews all right in the app. For your next home project, try thumbtack. Hire the right pro today. Welcome to Profty Markets. I'm Ed Elson. It is September 3rd. Let's check in on yesterday's market vitals. The major indices rose, halting a sell-off. Treasurer yields remained at multi-year highs more on that in just a moment. Brent crude's rally slowed, but it stayed above $90 per barrel. And finally, Dell shares soared 16% after posting record revenue due to AI server demand. OK. What else is happening? Around the world, bond markets are having their worst stretch in years. Japan's 10-year yield hit 3% for the first time in three decades. Germany's is at its highest since 2011. France's is at its highest since 2008. British 30-year borrowing costs are back at levels last seen in the 1990s, and the US 30-year yield recently hit its highest level since before the financial crisis. This global sell-off reflects the countless worries that investors are now forced to reckon with, including climbing energy prices and hot inflation due to the war in Iran, unsustainable levels of government debt, hawkish sentiment from the Federal Reserve, and also the enormous amounts of debt that is now being issued to fund the AI build-out as we discussed earlier this week. Secretary Scott Bessent tried to bring yields down and failed. And so the big question for investors is the following. What will happen if yields keep rising? Hit help answer this question. We are speaking with John Maori Chief Investment Officer at NFJ Investment Group. John, it's great to see you again. I'll just start with kind of a broad question, which is when you look at the bond markets right now, when you look at this sell-off, which has continued into the week, what do you think the bond market is really trying to tell us right now? Had great to see you. So I think there's really, you know, there's two scoreboards. There's the equity market and there's the bond market. And they both have interactions on the bond market side. There's clicking start about deficits in debt. But what I would say is that, you know, the deficits in debt levels were pretty high 15 years ago as well relative to nominal GDP across Switzerland, Japan, the US. I think the real difference today has been a regime shift because for so long, investor thought inflation was dead. And globalization really had kind of quench that. And today, we have a shift that's going on at. And I think we move from the cheapest being the most important to the safest. And that's not that it's a binary situation, but there's a continuum. And I think that as that trickles into supply chains, you know, inflation is part of kind of the new the new normal a little bit because it's almost like we skipped the insurance premium for getting everything so cheap in years past. So what extent is the war in Iran have a role to play in this new normal of higher elevated inflation? Is it that or is it multiple things at the same time? Well, I think the war in Iran is is one key component of it. I mean, energy prices are definitely affecting so many components of the economy. There's something that touches the consumer very directly. But, you know, the high oil prices is just one part of this. You know, again, I kind of go back to the reordering of supply chains. And I mean, if you think about, you know, we used to rely heavily on China for cheap exports, cheap labor. That was basically importing labor deflation to the US. So there's a lot of things that are pulling up inflation today. Oil is definitely part of that. I think the challenge for investors and for the Fed is raising rates won't necessarily fix the straight of four moves. It doesn't necessarily fix the supply chains in China. So there's no doubt that what's going on in Iran is pushing inflation higher. But I think it's a bigger phenomenon that's going on when you look at bond yields across the globe. We look at the prediction markets as now 77% chance of a rate hike this year. We're getting increasingly hawker sentiment from Kevin Warton, the Federal Reserve. Is your expectation that he's going to raise rates and is the plan to essentially try to get to two percent? It seems kind of crazy at this point. We've been so far from the target for so long. But are we actually going to continue to try to get to that Federal Reserve target? You know, it's a great question. You know, the bond markets have done a lot tightening for the Fed. I mean, you know, you had negative rates right back in COVID. Now you've got the highest rates going back to, in some cases, like in Japan since '96, as you cited. So, you know, what I would say about, you know, the Fed's decision coming up with the rates is, yes, they are in a tough spot because the two-year bond yield is roughly 60 basis points ahead of the Fed funds rate. It's not the signal for them. But I think they know the complication. And that is that if they raise rates, that is going to definitely increase the cost of capital. But the cost of capital is already up. I mean, everyone knows what the mortgage rates are. Everyone knows what it costs to go, you know, buy a new car today. So, you already have cost of capital higher. I think the real fascinating dynamic in the market is cost of capital is up and that's a headwind. But earnings resiliency and earnings growth is a tailwind. And right now, the earnings growth is beating the headwind, if you will, from the cost of capital. So, you know, it's plausible, for sure, that they could raise your rates. But my expectation would be that it's going to be a tough outcome for them because I don't think that's actually going to fix the problem. And maybe if I can share one of their observation, you think back to where they were negative. And I just want to make kind of a valuation comment around this. I don't think people fully appreciated what they were paying. We just went through a bond bubble bursting, okay. When you have the 10-year bond yield at 50 basis points, that's like paying 200 times cash flow for that asset. So, people were paying enormous multiples for bonds. And so, what we've really done is normalize the bond market. Everyone thought it was going to stay that way forever. But inflation has kind of woken up and it's really re-rated bond yields back to levels that are really more normal if you look at history. I mean, you say that, basically, Ken Waters trying to fix this, but he might not be able to fix it. There's not much that you can do at the Federal Reserve to fix what's happening in Iran. But, Scott Besson has tried to fix it, and he tried to fix it with buybacks, and it didn't really work. Or maybe it did for a couple of days, and then it didn't. What do you make of the buyback strategy as a means to lower borrowing costs in America? Is it the right strategy? Is it the wrong strategy? What do you think of it? Treasury's job is to finance America. But there's no rulebook on where, on the curve, the Treasury can issue that debt. They're really fascinating topic. How many 30-year bonds is the right now. or how many ten year, what the Treasury is effectively doing is they're saying, okay, we would rather finance more of America's debt at the short end of the curve. So it's basically like taking out an arm on America's debt and adjusting or hitting mortgage so you have to refinance more versus a 30 year fixed. So it's their prerogative, they can do it. I think that it's a relatively small compared to what was Operation Twist back in 2011 when the Fed stepped in and said, hey, we're going to buy bonds back on the long end and sell short term. So it's a relatively small move from two to four billion when you think about the total size of the balance sheet of the US government. But it's in his prerogative to do so. He's getting criticized for it. But I guess I would just kind of throw out again kind of the thought piece on what's the right number for 30 year bonds that the US government should hold. And whenever he decides he's going to go out and buy back those bonds, what he's effectively doing is he's buying those back and he is exchanging what was it a lower interest rate for something into the higher interest rate. So that could be good of rates fall, but it looks a little bit like active management to me, which is an interesting role for the treasury to be in. You mentioned earlier that the debt situation in America and kind of across the rest of the advanced world isn't that much different compared to what it was on an nominal basis or compared to GDP at least. I wonder if perhaps part of the concern for investors right now is that it seems like the longer this drags on, the clearer it becomes that our government just doesn't really care about fiscal responsibility. If we get to the higher numbers we get to now we're at $40 trillion in US national debt, the longer this goes on, the more we start to realize, okay, no one's going to fix this. This is never going to change. And perhaps that might be the concern that is being priced in. Is that a concern to you? Do you see our debt and our rising deficit under this administration? Actually he said that this was an important thing to balance the budget at least. That was part of his platform. Is that a real concern for you? No doubt. I mean, look, I mean the debt continues to expand. But if you think about how we deal with debt in kind of the modern economy, it's the inflation. The reality is that we repay our debt with many dollars because the dollar and all currencies continue to depreciate over time. Everyone understands that. Everyone knows that a couple of coffee costs 10 years ago, 20 years ago, 30 years ago. So the way that we deal with this is inflation and it's the most insidious tax on the global population that's ever been invented. And you can see it very slowly and it's a regressive tax ad. So it taxes everyone. So are we going to be able to contain it? I mean, if you look at the cager of the national debt, it's about 7.6 percent and that cager is pretty consistent. So we like to spend money and unfortunately when you don't pull enough in taxes and you spend more than you bring in, you've got to issue debt and the markets tolerate it. And particularly in the U.S., they tolerate it because we're the strongest, most liquid, deepest market in the world. But the way that it's paid for is through inflation. And I think that for years at it was massed by globalization. And now that that's being reordered, I think that it's revealing that, hey, maybe that was temporary. Maybe inflation is permanently in the system and it's a byproduct of what we've done fiscally and monetarily. But it's also the price that you should pay for convenience. I mean, if you look again, we'll go back to what you said about what's going on in Iran. Yeah, the oil markets are probably going to price in a new risk premium because it's like, hey, if the straight gets shut down, that's a big problem. And when you have a just in time supply chain where everyone was used to getting things just when they needed them for their distributors and for their production, everyone got used to no inflation. I think that's what created kind of a bond bubble. You have no inflation. You can spend more than you need and you can issue debt very cheaply. And now we are having to pay that bill. And what's fascinating though is if you told me that rates on JGBs would go from negative to three over the course of three or four years, I would have thought the markets would have had a really tough time. The new case at all time highs, the S and P's at all time highs. Why is that? It's because earnings are overpowering what's going on with the cost of capital. And so I think the Fed needs to pay close attention to that because at the extent they raise rates and at an extent they slow down growth in the economy. It could be a much more challenging situation because it's ultimately the US companies that employ all the people. Say yields continue to rise even higher, they've been rising all week, practically a month, say it continues. What does that mean for investors and then what does it mean for everyday Americans? Well, I think that if you look at the continual rise in the cost of capital, there's no question that that is, again, a regressive tax, if you will, because that's affecting everyone up and down economic scale. In terms of how it affects the market, though, Ed, it's really going to come down to when does the cost of capital start to pull away the earnings resilience? And the reason that the market has tolerated higher rates is because we're probably sitting inside the biggest capex cycle in history. And so that's trickling to so many areas of the economy and it's absolutely tied to the AI buildout. And so that is allowed the economy to tolerate higher rates. So no one knows exactly what that number will be when that starts to kind of erode the durability of earnings, but as long as we continue in this capex cycle, then that's going to allow earnings to be resilient and that's going to allow the markets to be resilient. And so that's the role of the tug of war right now between cost of capital and earnings resiliency. And to be honest, you know, the way you deal with it is you invest because you want to be on the side of the companies that can pass through that inflation that's really the best gift that Americans have. We have a very open and liberalized market and anybody can do it. Our kids can do it. You can open an account. You can stick in $500 when she gets that saved up. You can start it. Not done that with my kids. I've started investment accounts and I've shown them when it's up and down. So I think that that is how Americans should try to tackle, again, going back to the most in cities tax ever put up and on the global economy, which is inflation. You need to be an investor and get on the right side of the equation. John Murray is Chief Investment Officer at NFJ Investment Group. John's always good to see you. Thank you for your time. Thank you, Ed. Off to the break. An inside look at Open AI. Support for the show comes from Vanta. When you run security for your company that's scaling fast, the stakes just keep climbing. More compliance frameworks, more vendors, more risk and a board that wants to see it all in one place. But your compliance data can be all over the place, controls in one tool, vendor risk and another, customer commitments, bear it in contracts. The team has to spend more time stitching it all together and less time running the program. 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Many now more likely to identify as independent. But what is going on with the kids? I think the biggest misconception about Gen Z's politics right now is that all of a sudden they're all socialists. That is just not the case. Yeah. They are embracing candidates who are offering new bold ideas in the absence of those ideas from establishment Democrats. This week on America actually, Gen Z researcher Rachel Jenfaza joins us to separate Gen Z fact versus fiction. It's not rocket science and this is, you know, I keep saying like, young voters aren't that complicated after all. It's pretty simple. We'll discuss every Saturday on YouTube or wherever you get your podcasts. We're back with Profty Markets. Open AI has had a tumultuous few weeks. As we discussed a couple of days ago, roughly 700 rogue open AI agents hacked the machine learning platform hugging face in July. And reportedly, open AI didn't know about it until later. Meanwhile, the company is facing multiple legal battles on Monday, Apple escalated its trade secrets lawsuit against the company, telling a federal judge that open AI is actively destroying evidence. Meanwhile, 30 new lawsuits were filed this week over a school shooting in British Columbia, which killed eight people. The suits alleged that open AI could have helped to prevent this as the suspected shooter had heavily interacted with chat GBT. This all comes amid the anticipated release of open AI's newest model, Astra, which is reportedly the first to have critical cyber abilities. So to get into all of this, open AI news, we are speaking with Alex Heath, who just sat down for multiple one-on-one interviews with the CEO of open AI, Sam Altman. He also spoke to more than 20 people at the company for a cover story. He just wrote for Time Magazine. I mean, few people know more about what's going on at open AI than Alex. Alex is the author of the sources newsletter and he just launched the new sources podcast. Alex, thank you for joining us. Good to see you. Let's just start with your interview with Sam, which was just released this week. I watched the interview fascinating on many levels. We'll get into it. But what were your top takeaways? Oh, man. Thank you, Ed. I appreciate that. Yeah. I've been spending a lot of time at open AI and with Sam. We covered a lot of ground in the conversation. A couple of things stood out. They are really slowing down frontier research in a way that is unprecedented in the industry. Speaks to the capabilities they're seeing that have not yet been released. They have Astra. Their next family of models coming, which I've gotten to see as part of my reporting process for the time cover story you were talking about. But no one externally has used yet. And what they saw, and I was actually in the office as this was happening, was even further frontier training runs that they have after Astra were showing, as Sam put it to me, you know, various degrees of misalignment, which is AI speak for the AI is not doing what it's supposed to. And you see that with hugging face, right, the hack on hugging face that everyone knows about. But I think it speaks to as these models become more agentic, doing things in browsers, taking over computers, the security risks go way up. And open AI's research team decided, which that company is still very much a research culture led company, even with all the commercial stuff that we'll get into. That team has pushed them to slow down and they are that said, they're also in this fear small race, they want to get asked throughout the door as soon as possible. I think it's going to be any day now. It's going to be a very powerful capable model. And then we touched on a bunch of stuff. We touched on recent leadership departures. We touched on the IPO and Thropic competition. The device work with Johnny Ive, he told me they're going to make a humanoid robot. There's a lot to get a lot to go over. You asked him about the hugging face incident and the extent to which it was a security breach and accident, he is what he had to say in response. It's a safety failure for sure. There's a question of how much you're supposed to understand that as a security issue or alignment issue, I think it's mostly been reported on as a security issue. I think I understand it personally more as an alignment issue. But in any case, yes, that was a bad thing. And I don't want us to make excuses for that because I don't believe that's how we fix it. The more we're like, oh, our nice little model, he would never do anything bad. No, it was just a little e-vails, harness, misconfiguration, no problem, nice little model. If I said something like that, then I think you should be like, well, this is really bad. It seemed as though his view is we're recognizing the problem, we've admitted the problem. So it's not that much of a problem. What did you make of his comments? I can see that take. I think he was throwing a little shade at other labs who hype up the capabilities of the models. And then when stuff happens, don't really talk about it or kind of throw it under the rug. I think that was more of the meaning behind that statement when he was explaining that. And there's another part of the interview, he's like, people call me the yellow CEO. He was referring to something that Dario Amade said at a conference last year. Which you acknowledged and then he sort of refused to admit that that's what he was saying, which I also thought was interesting. I won't acknowledge or deny or not deny who I'm talking about. And you're like, yeah, you're talking about him. Well, I look Sam and Dario, I think, live rent-free in each other's sides always. It's very apparent. But I think I'm not saying this for a fact, but I think if you were Sam and Thropics about to have maybe the biggest IPO of all time in the coming weeks, if I'm Sam and you're slowing down from to research for a good reason, because you have concerns about the alignment risks, it's probably like a good PR move to go out there and be the safety company, right? Because that's what Anthropics' whole claim to fame is. I mean, that's how the company began was a bunch of safety people left open AI, right? So I think there's a genuineness in that open AI really does see capabilities internally that frighten them in terms of their ability to align them. And I also think, look, it's convenient timing. I think both can be true. Something I've been wondering about this hug and face incident, which I feel like is people weren't talking about and suddenly everyone's talking about it. For me, I can't tell whether maybe they're proud of it, because it's this example of their agents being very capable and going out there and doing something that is very sci-fi-e. And then also they get to say like, oh, but we're addressing the problem. And part of me wonders, I mean, on the one hand, I feel like maybe they want us to see it as evidence of how capable the agents are, but then part of me thinks the cynical part of me thinks, well, maybe you guys just aren't really doing a good job with your insecurity. And it doesn't say that much about the advanced capabilities of the models, as much as it says about that you're a kind of scrappy start-up and you're not doing your job when it comes to cyber security. How did you see that incident? Do you see it as a serious statement? Does it say something big about where AI is headed right now? I think it does. If you, I would encourage everyone listening or watching this to go watch open AI's black cat presentation where their researchers, I cite it in the interview as Sam, where their researchers walk through how the model actually escaped and hacked hugging face. It's remarkable. And it's the first incident of this happening. And at the same time, I think you're right to point out opening, I didn't have the safeguards in place. If this is a company, one of the two main companies we're trusting with the future of AI, upending everything, how should we feel about the fact they didn't have the safeguards in place to keep this from happening, they didn't foresee what would happen. And I talked to the chief scientist and head of research and a bunch of people ahead of alignment about this. They had safeguards that they had developed that would have stopped this. They didn't implement them for the training run that led to the hugging face breach because they didn't think the model was going to be that capable. So there is a sense of what's happening inside these labs at the frontier is the model capability is getting ahead of the human researcher's ability to foresee what's happening, which is you get into this concept of an AI recursive self-improvement, RSI, which Sam and I also talk about in the interview, particularly around the IPO, which is, I thought, interesting the way he framed it around the IPO. People in the frontier labs really feel like they're on the edge of like a precipice that's like potentially amazing and also cataclysmic in the sense of AI that can build itself recursively self-improve, not need a human in the loop, even the chief scientist of open AI. And that's already starting to happen. People talk about RSI as a thing that hasn't happened yet. It's definitely starting to happen. And so then you get into this AI people talk about this concept of take off and like there's no going back, it can get very spooky, very sci-fi, you know, I mean Sam said that in the interview too. It feels like sci-fi. And it kind of is like when you see what happened with hugging face. At the same time, to your point, yes, open AI should have had safeguards in place. One of the big themes we talk about on this show is the profitability of AI or the lack thereof among the AI labs open AI included. You guys talked a little bit about the AI build out and the extent to which it is or isn't profitable. I thought it was coming through really interesting. Here's what he said. No. build out plans. I am worried about the world's compute build out plans. I think we are going to be able to use all of the compute very profitably that we are planning to build. But I am seeing the first signs of what feels to me like unsustainable silliness of random new NeoCloud, popping up, people claiming that they're going to build gigantic massive compute next year that I think they don't have the revenue to support or a buyer. Yeah, I definitely feel like some fear about what the world is doing as a whole. Although I think we feel very good about what we're committed to. What were your reactions to those comments? Oh, it's interesting, right? I mean, there are a bunch of NeoClouds. They are making gigantic contractual commitments. And that was the position open AI was in last year, right? With Stargate and Sam with Larry Ellsson in the White House, these trillion dollar headlines that we're flying around. And you could look at a lot of companies making huge commitments and just kind of do basic napkin math of what revenue do they have to support those commitments? Open AI, obviously, it's not public yet. We don't have an S1. I, Ed, I got to be honest. And I know you've had people on the show that are very critical of the finances and you have been too. And I get that. And until we see it, right, you kind of have to be into job. I've walked away from the reporting process and I talked to Sarah Fryer. I talked to all the computers. I talked to everyone. Feeling a lot more confident that this isn't as fragile as maybe people think it is. At least with Open AI and Anthropic, I mean, Open AI is at about a 40 billion run rate enterprise has passed consumer in terms of the revenue mix. The most interesting part about Open AI's business from the interview that I actually wanted to talk about with you was, was A, that his comment about the NeoClouds, but B, there was a moment where I was asking him about chat you be too growth because they hit a billion users recently. But it took a long time. It took, there's an incredible ramp up to hundreds of millions of users. And then a day, they teetered on a billion for months and months and months. And I thought that was unusual and suggested maybe more competition in the market is chat, losing its luster. And he very matter of fact, it was like, well, we decided to put all our compute in the codex, in the coding to compete with Anthropic. And I was like, wait, so your revenue is a direct function of where you can put the compute. And he's like, yeah, completely. So they're kind of like these labs are like alchemists in a sense of how they control their business because they are so compute constrained that it's not like a normal business where you know, there's demand that you can forecast and control. They're just, they don't have enough. They don't have enough compute to serve the demand at any given point. And so open I made a decision to shift compute that then slowed its consumer growth to grow its enterprise growth. So yeah, these labs are a little bit like alchemists right now. And I don't think that's, I don't know if there's precedent in the history of modern capitalism, especially for two companies that are about to have trillion plus IPOs. Like, I don't think there's precedent for that. And I found that very interesting. - What parts of your interactions with, particularly Sarah Friah made you feel more confident in the financial sustainability and the financial health of this company? - Well, look, they're not profitable. I think if they stopped training today, they could be. I think that's been the case, by the way, for a while. What happens to the multiple on the company, on the valuation, if they stopped training, if there's no more frontier to chase, that's a bigger question, obviously. The economics of just like inference are actually really good. The frontier labs operate at incredible margins on inference. - Infraints meaning running the models themselves that people are using versus trying to build these incredible frontier models for the future. - Correct. - And if you look at what OpenEye has done with token efficiency driving the cost down of tokens, even for the sole family, it's most recent one with Luna and the smaller ones. This is not the behavior of a company that is teetering and they're building a real machine in house that is, you know, they're still growing up. They're still startup even though they're huge. Like the culture is a startup, right? Like that company operates on like a 12 hour horizon at any given point. I can just tell you from being on there for a couple weeks. At the same time, like, they're starting to become more regimented about spending and the inference business is going to be very good. I think I've no doubt about it. Now look, like if training continues to balloon, maybe that's an issue. I think a lot of people in AI think RSI will lead to training costs declining. Also like the chip gains that they're making with their custom chip, jalapeno, like lowering the cost of compute is a big focus for them. And I think they see a line of sight to it. So look, it's unprofitable. I think that's a choice. I don't think that's like a, that's because they have no choice. But, you know, we'll see. We don't have an S1 yet. - Just to wrap up here, you asked him about the growing anti-AI sentiment and the data center backlash. I'm not sure he gave you much on how he actually felt about that. What do you think he thinks about the fact that so many people hate AI and not just AI, but open AI? - I was really curious to hear how you thought about this, especially with the recent attacks on his home personally, right? And the data center backlash is stronger than ever. I thought his response to me was, you know, it was interesting. It was basically like if we make a better product, they'll like it, right? And, you know, I kind of respected in the sense that puts the pressure on them to deliver. You know, I've had some pretty magical moments. I'm not gonna lie with AI in the last few weeks, HTTP work, cloud co-work, doing basic stuff. I mentioned in the interview, but like filling out a post office web form so a package gets picked up and would have taken me 20 minutes. I just did a prompt and did it and I put the package out and it was gone the next day. Little stuff, but it starts to add up and you're like, wow, this is like, this is a nice value. Like I'll pay $100 a month for this. Most people do not use chat that way. They use the basic free model. It's better Google search. You can do some other things, but it's like, people look at it as like insanely expensive Google search that's like detrimental to the environment. That's how most people think about AI. And I think what he was trying to say there is like, as we move into this agent world, which like Astra the next model, it's trying to use enterprise software faster than humans. So like as we move into this world, we're like, you hate using your expense software and you just tell chat to go do it for you. Like maybe you start to feel differently about AI. If it's like actually making a meaningful positive change in your life. And I think that's what he's banking will happen. That's a that's a prediction by him. I'm not saying that's going to happen. But that was his answer. And yeah, I don't know. I don't know if people will find that answer fulfilling or not. I think people are going to keep hating AI. Alex Heath is the author of the Sources Neusester and a host of the Sources Podcast. Alex, appreciate your time. Thank you. Always thanks. Circling back to our discussion with John, it appears that the bond markets have finally reached the end of their line with the administration. Turns out that if you drive up inflation with tariffs that ended up just being returned to corporations. And if you double that inflation with another forever war that just so happened to choke off a fifth of global oil supplies. And if you rack up $2 trillion in annual deficits and if you explode our total debt to $40 trillion and if you show the world that you don't really care about any of this, nor do you think that any of it even matters then eventually, yeah, investors will price that in. The yields on the 10 year has risen to more than 4.8%. It's highest level since 2023. The yield on the 30 year recently hit 5.3%, it's highest level since the financial crisis and the yields on foreign bonds from Japan to the UK to Germany and France have all hit multi decade highs. Borrowing costs around the world are soaring as the bond market speaks out about an impending inflation crisis. Now keep in mind, this is all in spite of the fact that Scott Bessent used the Treasury Department to try to muzzle the bond market. He issued billions of dollars in long dated bond buybacks that was his attempt to fix the price of US bonds to bring yields down and, as his former colleagues Stanley Druckermiller put it, to prevent the bond market from speaking. But you can only shut investors up for so long. And in his case, it was a couple of days. Eventually, reality has to catch up. Now has the full force of our fiscal reality and our inflationary reality fully set into the markets yet. I think probably not. But it appears that it is beginning to. Whatever appetite investors used to have for this administration's BS is clearly beginning to wane. They are fed up with it. And if you can't tell from the sound of my voice, I am fed up with it too. (upbeat music) Okay, that's it for today. This episode was produced by Claire Miller, Douglas Weiss, and Engineered by Benjamin Spencer. Our video editor is Brad Williams. Our research team is Dan Shalon, Cristino Donahue, and Mia Silverio. And our social producer is Jake McPherson. Thank you for listening to Property Markets from Property Media. If you liked what you heard, give us a follow. I'm Ed Elson, tune in tomorrow for our conversation with Tyler Cowan.