Treasury Yields Could Break the AI Boom

**Jesse Felder** (0:00)
I do believe we're watching kind of a slow-motion debt crisis unfold. The Fed may be facing a series of rate hikes over the next six to nine months. Honestly, I think it's the beginning of the end.

**Maggie Lake** (0:17)
Hi, everyone, I'm Maggie Lake. Before we dive in with Jesse Felder, I'd like to invite you to join our community. It's where investors come together for exclusive insights, expert analysis and thoughtful conversations about protecting your wealth that go beyond what we share here on YouTube. Just go to our new website, wealthion.com, to join. Now let's get to today's conversation.
Hi, everyone, welcome to Wealthion, I'm Maggie Lake. Joining me today to discuss the outlook for the economy and markets is Jesse Felder, founder and author of The Felder Report. Hey, Jesse, it's great to see you again.

**Jesse Felder** (0:54)
Yeah, good to see you, Maggie.

**Maggie Lake** (0:57)
So, just sort of let's start big picture and, you know, talk to me a little bit about your macro setup here. What are you watching? What do you have your eye on?

**Jesse Felder** (1:07)
Well, I mean, a huge week last week, right? We had the Fed meeting, we had hyperscaler earnings, we have a crash in the South Korean stock market. It's just been kind of, you know, a lot to keep an eye on, not to mention, a coordinated intervention in the Japanese Yens, with interest rates, you know, kind of moving sharply higher. So tons of stuff going on. I think it's all interrelated, so you can't really just focus on one. You have to kind of be aware of what's going on in a lot of these things, because the Yen is very closely related to the bond market, and the bond market is super important to the hyperscalers who are financing the build out of the data centers, and the stock market has become entirely dependent on the health of the AI economy. So they're all kind of interrelated, tons going on.

**Maggie Lake** (1:59)
Yeah, and I'm glad you listed them all, and it's why I started really broad, because it's hard to pick one, because they are all, it is a giant web to untangle. And by the way, we have a community that's really interested in real assets, but this is why we talk about macro, this is why we talk about rates as well, because everything is sort of, I don't want to call it a house of cards, because that's negative, but things are very interdependent on each other, as you just said. And so you can't look at things in isolation.
I don't think you ever can, but it seems like it's really pronounced right now. So how are you thinking about this?

**Jesse Felder** (2:37)
Well, I've been saying for at least, over the course of this whole year, probably going back into last year, that the 10-year treasury yield is the most important chart in the world, because it's the risk-free rate of return, you know, that everything is kind of based off of.
When you look at the fact that nominal GDP is still growing so rapidly, and something like the Taylor Rule says that the Fed is behind the curve by as much as 300 basis points, right? It makes sense that the long end of the yield curve is going to start to move away without, you know, basically expressing a lack of confidence in the Fed's willingness to bring the inflation problem back under control. So, you know, the strong move in the gold price that we've seen over the last 18 months, two years, is usually a really good leading indicator for the rest of the commodity space, which is a good leading indicator for interest rates, right? So I think the gold price has been telling us for a while that there's going to be some problems in the debt markets.
And so what's going on, I think, in commodities today is they're just following gold's lead, and then the interest rate is starting to kind of follow the lead in the broader commodity space. So there are a lot of those kind of technical indicators that have suggested that the 10-year yield is too low is going to break out to the upside for quite some time now. Now we have basically a consensus after the Fed meeting last week that the Fed is behind the curve and the bond market is losing faith in Kevin Warsh's dedication to the 2% mandate. So I think that's the one that I'm watching most closely right now because I do believe we're watching kind of a slow motion debt crisis unfold. Now it's really kind of been the focus has been on Japan. But like I said, with the interrelatedness, Japan has to kind of intervene in the currency. They've got to sell treasuries, which kind of has ripple effects for our bond market. And so there's kind of a slow motion debt crisis playing out in Japan. But it's not just Japan. This is really kind of an issue that affects all of the major developed sovereign bond markets. So I really do think that is kind of the thing to keep the closest eye on. Because if yields do really start spiking higher, it obviously creates problems for equities in terms of just the relative value of equity prices, but also financing this AI build out, which has become so important, like I said, to the broader economy and market.