I make it a rule not to get offended by things that don’t involve me, lest I sprout blue hair and a nose ring. But this has got me raging as few things do.

If you’ve read my scribblings for a while, you’d know there are few things in life I love more than reading books: beautiful, dusty, dog-eared books, preferably leatherbound. Sure, I take my Kindle on the road to make my bag lighter. But I came home from the US recently with no less than a dozen books weighing down my luggage.

As a parent, there’s nothing more important to me right now than to get my son Micah into the habit of reading. Thanks to the gnat-like attention span of his generation, the ability to read, comprehend, and learn from books will give him an unassailable advantage over his peers.

And yet, in the name of “progress,” which rarely, if ever, moves anything forward, we’re destroying our physical legacy in the name of byte-sized literature and all the sterile consequences that entails.

Calling Out the Vulgarians

A hat tip before we begin. Mike Kobe (Wild Horse), who posts as @Oklahoma_Brave on X, flagged this story. He's a Comanche-American who loves history and books, and he gave the only advice that matters: hold on to your old books and hand them down to your kids. He saw it first. We must give credit where it's due.

Now, the story itself.

Jeff Bezos started his empire selling books out of a garage in 1994. Thirty-two years later, his company runs a warehouse in Las Vegas where workers scandalously slice the spines off rare books, feed the loose pages into scanners, and throw the remains away.

That's the circle of life, Big Tech edition.

That Can’t Be True!

For about a year, rare booksellers noticed something odd. Huge, scattershot orders were coming in. A thousand titles at a clip. The buyers didn't haggle, and they didn't seem to care what they got. A history of Connemara sat next to a personal finance guide. No collector buys like that. But a machine might.

The trade suspected AI companies were behind it, but nobody could prove it. So the journalists at 404 Media did something beautifully simple. In July, they teamed up with an independent bookseller who had just received an anonymous 1,000-book order through Biblio, the big independent book marketplace. The seller slipped a $29 Apple AirTag inside one of the volumes and shipped the order.

Then they watched it move.

The tag flew to Milwaukee. It sat two weeks in a distribution warehouse near Kenosha, Wisconsin. A truck hauled it west through Grand Junction, Colorado. Then the signal stopped at LAS8, a high-security Amazon facility in northeast Las Vegas.

The book didn't land just anywhere in LAS8, either. It ended up in a corner of the building run by a unit called VGT3. The logo painted on its doors is a Tyrannosaurus Rex clutching a book. I wish I were making that up. Somebody at Amazon looked at a dinosaur devouring the written word and thought it was the perfect mascot. It reminds me of the Fabian Society in England, whose logo is a wolf in sheep’s clothing.

At least they're honest. So let’s take them at their word.

Guillotine Scanning

In the print trade, the machine that chops a book's spine is called a guillotine. VGT3 runs them at industrial scale. Workers there told 404 Media the job is one thing, all day long: cut the bindings off incoming books so the pages feed the scanners faster, digitize everything, and discard the originals.

Call it guillotine scanning. The book goes in whole. The words come out as data. Nothing physical survives.

Why would the world's richest companies pay retail for obscure, out-of-print titles just to destroy them? Because pre-2022 human writing is the last clean water supply on Earth.

The open internet is now polluted with AI-generated text. Train a model on AI slop, and you get a photocopy of a photocopy, a machine eating its own output. But a book printed before the chatbot era is guaranteed pure human thought. Rare and obscure titles are even better, because they likely never made it online. That makes them fresh feedstock no rival model has ingested.

So the frontier labs are strip-mining the one asset that can't be printed: the pre-AI human record.

Amazon wouldn't confirm the AI angle. The company told 404 Media it buys books "through commercial channels" to improve its products and services. Note what's missing from that sentence: any mention of AI, and any denial of the destruction.

One bookseller summed up the corporate mindset for the reporters: "They just want the content as a bunch of words strung together."

The Cantillon Angle

Regular readers know where I'm going. The Cantillon Effect says those closest to the money spigot buy real assets first, before prices adjust. We usually talk about it in terms of land, gold, and equities. But watch what's happening here.

Flush with cheap capital and AI-bubble equity, trillion-dollar companies like Amazon are converting an irreplaceable physical asset, civilization's printed memory, into proprietary digital capital. The scanned file doesn't go to a library. It goes into a private training set behind a corporate firewall. You can't borrow it, inherit it, or even confirm it exists.

The book was a bearer asset, like the bonds of old. Whoever held it, owned it. No permission was required, no server was needed, and no subscription had to be renewed. The scan is a permissioned asset, owned by a corporation, accessible only through its products, on its terms, and at its price.

That's the trade Amazon just made, 1,000 books at a time: your bearer asset for their walled garden. And they made it with books they bought fair and square, which is why nobody can stop them.

Not every old book is a Gutenberg Bible. Most of what's getting pulped is worth twenty bucks. But value isn't only price. A regional history, a first-person war memoir, a small-press labor of love: these carry information that exists in only a few hundred physical copies. Every copy guillotined brings some titles closer to existing only as weights inside a model.

Wrap Up

Mike Kobe's advice was right.

Keep your books. Real shelves, real paper. A physical library is knowledge you own outright, with no platform, no license, and no terms of service.

Hand them down. A box of books passed to your kids is a bearer instrument of civilization. It works during blackouts (with candles, of course), and it never gets a software update.

Buy the odd book and the local one. Regional histories, out-of-print technical manuals, small-press runs. These are exactly what the scanners want, which tells you what's becoming scarce.

And think about what this signals for the broader trade. The AI complex is now paying real money for physical inputs. Books today, but also copper, power, land, and water. When digital empires start hoarding analog assets, believe the hoarding, not the press release.

Amazon's first product was the book. Its newest facility eats them. If that's not the clearest chart of where this era is headed, I don't know what is.

Avignon is a walled city in the south of France. It sits on the Rhône River, an hour northwest of Marseille. We felt the mistral wind blowing down the valley hard enough to knock over our café lattes.

Our trusty Managing Editor and fellow world-traveling paesan Frank DeVechio recommended we visit the Palais des Papes, or, in English, the Palace of the Popes.

It’s a breathtaking fortress in the middle of the city that’s the size of four Gothic cathedrals. 

The Palais des Papes, from a café in the adjacent square. Credit: Sean Ring

Most people don’t know that for most of the 14th century, the Pope didn’t live in Rome. He lived here, in the shadow of the French crown.

I’m going to relay a story that most Catholics, let alone Americans, have never heard. It’s one of the best lessons in monetary history, written in stone.

Avignon shows you what happens when a government captures an institution everyone is supposed to trust.

The parallel questions for us today are, “Will the USG capture the Fed like the French crown captured the Church?” and “If they do, what happens next?”

How the Pope Ended Up in France

Around 1300, King Philip the Fair of France picked a fight with Pope Boniface VIII. As always, the fight was about taxes. Philip wanted to tax the French clergy to fund his wars. Boniface said no king taxes the Church.

Philip's men stormed the Pope’s residence in Italy and, well, roughed up the old man. William McChesney Martin nods from the Great Beyond. Boniface died a few weeks later.

The church got the message. In 1305, the cardinals elected a Frenchman, Clement V. He never set foot in Rome as pope. By 1309, he had settled in Avignon, a stone's throw from French territory and power.

For the next 68 years, 7 popes ran the Church from this city. All of them were French.

The Italian poet Petrarch called it the Babylon of the West. The Romans called it the Babylonian Captivity. The institution that was supposed to stand above kings now lived next door to one.

The Best Tax Machine in Europe

An institution that moves in with power has to pay for the arrangement. So the Avignon popes built the most sophisticated tax machine in medieval Europe.

Pope John XXII, formerly a lawyer, perfected it. Every new bishop owed Avignon a year’s income for his post. Every document, appeal, and dispensation carried a fee. The papal treasury, called the Apostolic Camera, collected from every parish in Christendom, from Portugal to Poland.

Our old friend, the Cantillon Effect, rears its head again. This is the rule that new money enriches whoever stands closest to the printing press (or coin mint, in this case) before it reaches anyone else.

Avignon was the gushing spigot. Thanks to his proximity to the money, Clement VI bought the entire city in 1348 for 80,000 gold florins. Then, he finished the largest Gothic palace in Europe, filled it with banquets and paintings, and lived like the king he cowered to.

In the meantime, Rome fell apart. The true seat of the Church watched as its basilicas rotted and its population collapsed. The periphery paid, and the seat of power feasted.

Same as it ever was.

The Bill Comes Due

In 1377, Pope Gregory XI moved back to Rome. He believed returning to the Church’s headquarters would restore the institution.

It didn’t. He died within a year, and the wheels came off.

A Roman mob demanded an Italian pope, and the cardinals elected one. Then the French cardinals declared the election invalid and elected a rival, who moved back to Avignon. Now Europe had two popes, each claiming to be the real one, each excommunicating the other’s followers.

France and its allies backed Avignon. England and most of Italy backed Rome. In 1409, a church council tried to fix the mess and instead elected a third pope. For a while, 3 men wore the crown at once.

This Western Schism ran for nearly 40 years, until 1417. (Let’s not confuse it with the more famous Great Schism of 1054, when the Western and Eastern churches parted ways. This one was a civil war inside the Western Church, and Avignon caused it.)

Unfortunately, moving back to Rome didn't restore the trust. Once an institution sells its independence, the sale is permanent in the people’s minds. And when people stop trusting an institution’s impartiality, that trust is lost for good.

The Historical Rhyme

Now, let’s look at the current state of the Swamp.

The Federal Reserve is supposed to be independent, standing above the politicians the way the papacy was supposed to stand above kings. But the Treasury has to finance trillions in deficits, and it needs cheap money to do it. That’s fiscal dominance, and it’s turning up the pressure on the Fed to serve “the crown” with every FOMC meeting.

The reference to Martin above reminds us how then-President Lyndon Baines Johnson physically shoved the Fed Chairman around his Texas ranch, yelling in his face, “Boys are dying in Vietnam, and Bill Martin doesn’t care.”

Today, nobody is storming Kevin Warsh’s office in the Eccles Building. This is a gentler age. Now, the politicians are prisoners of a system that demands cheap money to function, just as Philip's wars demanded Church silver. Of course, they expect Warsh to respond to the State's needs, even if the State caused this mess to begin with.

Heck, savers expect Warsh to respond by cutting rates, and they're picking gold to prove it.

The cardinals of this system, the central bankers outside of America, have been buying it by the hundreds of tons. In fact, Norway’s sovereign wealth fund is the latest to propose cutting its Treasury holdings. That's no confidence vote, if we’ve ever seen one.

Wrap Up

The Palais des Papes still stands. So does the Church, which should give you hope. It cleaned its own house in time, though the reform came only after Luther and his 95 Theses forced the issue.

So institutions repent, but they won’t do that until all other possibilities have been exhausted.

Trust works like compound interest. Protect it, and it builds for centuries. Break it, and the losses compound too, long after the men who broke it are dust.

Seven hundred years of stone in southern France tells you which way the Church went when a sovereign leaned on it.

But will Warsh’s Fed cave the same way by cutting in he face of rising inflation? Even with 3 hawkish FOMC members dissenting at the last meeting, in favor of rate hikes?

For what it’s worth, according to FedWatch this morning, the market only gives a rate hike a 50/50 shot, down from the previous 67% probability.

For the record, I don’t think they’ll hike this coming meeting. But the mere threat will hang like the Sword of Damocles over the market until Warsh either hikes, or declares hikes are off the table.

We won’t know for sure for another 12 days.

In the meantime, it’s always a good idea to hold assets no committee can excommunicate: gold, productive land, real businesses with pricing power.

The faithful who kept the treasure through the schism handed it down intact to their grandchildren.

You can do the same.

Have a great weekend!

It was none other than John Adams’ wizened old mug. In bronze, on a stone plinth, in the middle of Basque Country.

It wasn’t the Francophile Jefferson, nor Franklin, the celebrity. It was Adams, the grumpy, unfashionable, indispensable one. He was the man Congress sent wherever nobody else wanted to go.

The plaque quotes him. “This extraordinary people have preserved their ancient language, genius, laws, government and manners without innovation, longer than any other nation of Europe.”

So why does a Basque city in northern Spain keep a monument to America’s second president?

Because Adams found something here in 1780 that most economists still haven’t figured out: Liberty isn’t a feeling or a predisposition. It’s a mechanism.

Today, I’ll show you that mechanism. The Basques ran it for 5 centuries. They called it the fueros, and it made kings ask permission.

The Worst Business Trip in American History

First, how did Adams get here?

In November 1779, Congress sent Adams back to Europe to negotiate peace with Britain, whenever Britain got around to losing. He sailed on the French frigate Sensible with his sons John Quincy and Charles.

The ship sprang a leak in the mid-Atlantic. Passengers took shifts at the pumps. The captain made for the nearest friendly port, El Ferrol, on Spain's northwest tip. They landed in December.

Paris was a thousand miles away, overland, in winter, and across the Cantabrian mountains.

Adams bought mules and carriages and set off with his two boys through mud and ice. They slept at inns that were barely fit for animals. The trip took weeks.

Then, in mid-January 1780, he came down out of the hills into Bilbao.

Everything changed.

Here was a clean, busy, prosperous merchant port, full of warehouses, working shipyards, and competent traders. After weeks of misery, Adams had stumbled into one of the richest little corners of Europe.

He asked the question every good traveler asks. Why here?

The House That Armed the Revolution

His hosts had part of the answer.

Adams stayed with the house of Joseph Gardoqui and Sons, Bilbao's most powerful merchant family. If the name doesn't ring a bell, that’s fine.

Before France signed anything, and before Spain officially joined the war, the Gardoquis were quietly shipping muskets, gunpowder, blankets, and shoes to the American rebels.

Much of it moved through this very port. Bilbao was a supply line for the American Revolution while London still thought the whole thing would blow over.

Diego de Gardoqui, the son who showed Adams around town, later became Spain's first minister to the United States. He stood near Washington at the first inauguration. The link between this city and the American founding is genuine, and we’ve got the shipping records to prove it.

But the merchants weren't the real story. The real story was the system they lived under.

The Mechanism

Biscay was technically under the Spanish crown. In practice, it ran itself. The instrument was the fueros, ancient written charters that spelled out what the sovereign could and couldn't do here.

Consider what those charters actually said.

No taxation without local consent. The crown couldn't levy a new tax on Biscay. It had to ask the Juntas Generales, the assembly of local delegates who met under an oak tree in Gernika.

The king swore first. Before a new monarch could exercise authority as Lord of Biscay, he or his agent had to stand under that tree and swear to uphold the fueros. The oath came before the obedience.

And then the right of refusal. This one is my favorite. Under the pase foral, if a royal decree violated the charters, the Basques could set it aside with a magnificent formula. Se obedece, pero no se cumple. “It is obeyed but not complied with.”

We honor you, Your Majesty, but your order goes in the drawer.

Add customs autonomy, an exemption from forced military service beyond their borders, and universal nobility, meaning every Biscayan was legally an hidalgo and equal before the law, and you get something remarkable: A constitutional order inside an absolute monarchy.

While Madrid ran on divine right, Bilbao ran on a contract, and the contract had teeth.

What Adams Did With It

Adams filed all of this away. Seven years later, he came out swinging.

In 1787, while the Constitutional Convention was meeting in Philadelphia, Adams published ADefence of the Constitutions of Government of the United States of America from London. It's a giant survey of every republic he could find, ancient and modern. Letter IV is Biscay.

The John Adams statue in Bilbao. Credit: Sean Ring

That’s the letter quoted on the statue. Structure, not luck or virtue, preserved the oldest free people in Europe.

Now, Adams being Adams, he didn't gush. He looked under the hood and noted that Biscay's "democracy" was really run by a narrow set of landed families. The assemblies were real, but the winning coalition was small.

Yet Adams told the delegates in Philadelphia what they needed to hear. Parchment protects nothing. The fueros worked because strong institutions enforced them. Power negotiated because it had to.

Checks and balances aren’t an American invention. Adams saw a working model on his way to Paris, run by shepherds and shipbuilders, older than the printing press, and ran with it.

How It Died

So what happened? The same thing that always happens. The center won.

Madrid spent the 19th century centralizing, and the Basques spent it fighting back. They picked the losing side in the Carlist Wars, in part, to defend their charters. After the final defeat in 1876, the Spanish government abolished the fueros outright.

Five hundred years of contract, gone by decree. Centralizers are patient. They only have to win once.

But here’s the twist the Rude exists to reveal. The mechanism didn’t die. It merely changed shape.

Two years later, Madrid and the Basque provinces struck the concierto economico, the economic agreement. It survives to this day, with interruptions. Franco punished Bizkaia and Gipuzkoa by revoking theirs. Democracy gave it back.

Under the concierto, the three Basque provinces collect almost all major taxes, including income, corporate, VAT, and excise taxes. Social security and customs stay with Madrid. What’s left over goes north as the cupo, a fixed 6.24% share of everything the State still does for them.

That’s the opposite of how most of the rest of the world works. The capital usually collects, and the regions beg. Here, the region collects, and the capital sends an invoice. The money flows uphill.

Whoever collects the taxes holds the leverage. Every negotiation starts from that fact. The Basques understood it 500 years before public choice theory got tenure. It's why this remains one of the wealthiest, most industrial corners of Spain. It’s also why every other Spanish region quietly envies the deal.

Wrap Up

Adams left Bilbao in late January 1780 and made his way to Paris, where the glamorous diplomatic work was. But Biscay stayed with him.

The lesson he carried home is simple. Liberty survives where power is forced to negotiate.

Sentiment fades. Virtue fails. But mechanisms can endure for 5 centuries if you build them right and defend them like your mother tongue depends on it.

The Basques kept their language, laws, and tax authority through empires, wars, and one very determined dictator. That's proper constitutional engineering.

And somewhere on a shopping street in Bilbao, between a cafe terrace and a department store, stands the crankiest of the Founders. He’s honored not for what he wrote about America, but for what he learned and relayed about the Basque people.

Have a great day ahead.

This is not a ceasefire or armistice, both of which are reached by agreement and formalized in some manner. It is simply a time-out in a game that is certain to continue in some fashion in the near future.

The time-out is mutually convenient. The U.S. wants to stop the fighting because none of the U.S. goals were being achieved. 

The U.S. killed hundreds of top Iranian religious, political, and military leaders. But Iran simply replaced them with younger officers who are even more nationalistic and militant than the ones they replaced. 

The U.S. destroyed much of Iran’s Navy, but it was never much of a navy in the first place.

The U.S. destroyed about 3,000 Iranian missiles and hundreds of missile launchers, while Iran launched about 3,000 missiles. But this leaves Iran with another 4,000 missiles in reserve and enough launchers to attack the Gulf states, Israel, and even targets in Europe. 

Iran has more than made up the missile gap with drones. Iran is one of the leading drone manufacturers in the world, with ample access to Chinese components and Russian satellite targeting information.

The U.S. is also suffering from substantial depletion of its own supplies of weapons and ammunition, including Patriot anti-missiles, THAAD missiles, Tomahawk cruise missiles, 155mm shells, and more. 

The U.S. would not be so low in these inventories if we had not wasted so much of the arsenal in a war in Ukraine that Russia is almost certain to win. The Russians are watching the U.S. expend weapons in Ukraine and Iran even as they resupply Iran. It’s a win-win situation for Russia in its global competition with the U.S.

Finally, the Strait of Hormuz is effectively closed to normal commercial traffic and may remain that way indefinitely. That’s a clear loss for the U.S. and the global industrial economy. 

In short, the U.S. has accomplished none of its goals and is worse off in terms of weapons and critical materials trapped in the Persian Gulf. The U.S. desperately needs this time-out.

Iran’s Best Weapon Is the Clock

Iran has its own reasons for favoring a time-out. 

It can use the hiatus to resupply its own military with new weapons from Russia and China. It can also receive financial support from Russia — some of which will arrive as gold bullion. That gold is difficult to trace and can be traded anywhere in the world for cash, arms, and technology.

Iran will also use the time to repair some of its critical infrastructure damaged by U.S. attacks. 

The longer the clock ticks, the greater the possibility that the U.S. will blink first in terms of Iran’s demands because of the threat to the U.S. and the global economy coming from the closing of the Strait.

So, both sides need the time-out. What comes next?

Iran is betting that the shortage of critical resources, including oil, natural gas, sulfur, helium, aluminum and nitrates, will lead the U.S. to agree to Iran’s demands for reparations and sanctions relief. 

Iran is also well aware of the midterm elections on November 3 and expects the White House to cave to avoid Republicans losing the House of Representatives.

For its part, the U.S. is betting that a financial and economic war can win what a kinetic war could not. To wit, U.S. Treasury Secretary Scott Bessent has announced what he calls the “toughest sanctions in history” against Iran.

These sanctions are expected to include obvious steps such as bans on Iranian exports and on imports into Iran except for humanitarian purposes; further isolation of Iranian banks from global payment systems, including SWIFT; and facilities that settle transactions in U.S. dollars, including Fedwire. 

The U.S. may also try to ban Iranian flights from airports worldwide and, to the extent possible, deny Iranian officials access to personal credit cards and accounts.

Beyond that, the U.S. will employ secondary sanctions. These are sanctions imposed on third parties that do business with Iran. For example, if a Chinese shipping line carries cargo to or from Iran, the vessels of that line could be banned from U.S. ports and from ports such as Rotterdam, Piraeus, and Stockholm. 

The U.S. message to countries around the world is: “You’re either with us, or you’re against us.”

Countries that are against us will face additional U.S. sanctions. This is really World War III using finance instead of firebombing.

Most importantly, the U.S. will target banks that do any business with Iran or with countries that do not join the sanctions. Many of the largest banks in Europe, Asia, and Australia have substantial operations in the U.S., including lucrative wealth management businesses. This puts them under the thumb of the Federal Reserve and other U.S. banking regulators.

The appropriate officers of those banks will soon be getting phone calls instructing them to join the Iranian sanctions, including secondary sanctions, or be prepared to see their U.S. operations shut down or at least strangled. They will fall in line quickly.

But if enough major countries — including Russia, China, India, Brazil, Turkey and Malaysia — refuse to go along, Iran may have a sufficient network of trading partners and financial channels to weather the sanctions.

U.S. application of secondary sanctions to that same list of countries for failure to be “with us” could result in the greatest contraction of world trade and finance since the Great Depression.

Whether a financial war on Iran can be won in time to impact Republican chances in the midterms favorably is doubtful. Financial war tactics can work, but they can take years to produce hoped-for results.

Investors can prepare for this looming financial Armageddon by increasing allocations to gold, silver, cash, real estate, and U.S. Treasury bills. Those assets will preserve wealth and liquidity and are robust to the inflation that will result from a world with broken supply chains and unprecedented uncertainty.

In any case, the financial war may only be temporary. Once the midterm elections are over, expect the kinetic war to return with a vengeance. 

Win or lose, Trump will be out to punish Iran. Even with a partial resupply of critical weapons, Trump will be eager to go back on the attack, blaming Iran for its failure to do a deal.

Trump said he did not want a forever war. But he appears to be getting one — despite his best intentions.

We saw gold and silver have their sharpest advances of the year. Crude extended a quarter that has repriced the entire inflation path. Copper firmed. And, finally, mercifully for Michael Saylor, crypto rose from the dead after an awful first half.

Against that, long Treasuries and investment-grade credit only managed a wee bounce inside a downtrend, and REITs were the month's clearest loser.

But here’s the thing: 10-year yields moved higher after the market rejected Bessent’s strategy and after hearing Warsh on Friday. At the same time, the dollar drifted lower. That combination isn’t a growth story. Growth differentials would lift the currency. It’s a term premium and debasement story, and everything that worked in August worked for the same reason.

Let’s get to the charts.

S&P 500

The index is absorbing a rising discount rate by relying entirely on nominal (before inflation) earnings growth, which an inflating economy is happily supplying. That works for now. But when the term premium rises faster than revenue growth, watch out below!

Headline calm is masking meaningful rotation beneath the surface. The internals look far less serene than the level suggests.

The upside target is 10,465, implying a 35% up move from here. But will it be real, or just inflation?

Nasdaq Composite

A great August repaired the July damage. But that’s it. We’re still bullish according to the charts. But we’ve got the overblown AI bubble ready to pop. Will we get to the ludicrous upside target of 43,404, or was that all earnings smoke? I bet the latter.

Russell 2000

Small caps still lead on the year yet trail badly this quarter. The group frontran an easing cycle the rates market refuses to confirm. With floating rate debt loads, the Russell trades more like a levered short on the 10-year right now, rather than a bet on the domestic economy.

The first upside target of 3,212 is doable. But the second, at 4,081, is a pipe dream for now.

US 10-Year Yield

I wrote enough about Bessent’s move. And I was right in that Warsh didn’t fall in line; he’s far more worried about inflation than his boss. So here we are: a high 10-year yield that’s rising further.

And yields rising higher in a quarter when oil rose more than 20% confirms this isn’t growth optimism. The fact that this happened alongside a softening dollar (below) demonstrates the market is demanding a higher return for its risk. Every other item in this report, like REITs, small caps, and gold, is downstream of this number.

An upside target of 4.96% will surely be hit. The bigger target of 5.16% will take a bit longer.

US Dollar (DXY)

The world doesn’t want dollars. It needs them. And when the world can be rid of them, it will be.

Until then, the dollar remains the world’s reserve currency.

But it’s a currency that isn’t rallying while its yields rise. That tells us something about who is being asked to fund the deficit and at what price. Dollar softness is the common thread beneath the strength in gold, copper and crypto this month.

We still have an upside target of 109.76. But that’s clearly in jeopardy.

TLT (20Y Bond)

A small monthly gain for bonds inside a persistent downtrend is about the coupon, not a turn in fortunes. Supply and the term premium set the price now, and neither responds to soft landing narratives. Buyers here are getting paid a decent coupon to be wrong about direction. In short, bond prices will fluctuate, but at least your higher coupon won’t.

The next downside target is an eye-watering 70.41, implying a nearly 15% down move.

LQD (IG Corp)

Investment grade is duration wearing a credit costume. At times like these, people who own LQD as a conservative sleeve discover it’s a position on interest rates. Until the long end stabilizes, the income is the return story. The long-term downside target is 99.83.

HYG (High Yield)

Why not own junk when the Fed will always bail you out? You get higher coupons with little additional risk. Still, it’s also the strongest argument against the recession narrative implied by small-cap weakness (above). The bond sector isn’t confirming equity-market anxiety, and credit usually knows first. (See yesterday’s piece on CDSs.)

If spreads start widening in concert with the Russell, that is the signal to reduce risk across the board. For now, the next upside target is 89.01.

VNQ (Real Estate)

REITs are the cleanest listed expression of long-duration cash flow, and they were the month's designated victim. Cap rates reprice mechanically off the 10-year yield, and rent growth can’t outrun a mid-4% discount rate. That this happened while high-yield rallied confirms the pain is in financing costs, not tenant credit… for now.

Still, we have an upside target of 103.38.

WTI Crude Oil

The year-to-date move in crude is arguably the most important number in this report because it feeds headline inflation with a lag, which then feeds the term premium, which then feeds every valuation in the report. This is a supply-side and geopolitical issue, thanks to the war. That makes it stickier and harder for policy to offset. A Fed pivot and $85 oil aren’t a good mix.

We’ve got mixed targets for crude. It depends on The Donald, for better or worse.

Copper

Copper firming alongside oil looks like a generic commodity bid. Still, the driver is different: grid buildout, data-center electrification, and a mine supply pipeline that can’t respond within the cycle.

The split between strong copper and weak domestic small caps is unusual and instructive. Global industrial demand is fine, while rate-sensitive domestic balance sheets aren’t. Treat copper strength as an inflation input, not as an all-clear for growth.

The immediate, hittable target is 6.82. The next big upside target is 8.54.

Gold

Gold advancing while nominal and real yields rise is nakedly debasement. The rebound comes off a genuine drawdown, and the longer-term average still sits overhead as a reminder that even structural bull markets need to digest. Central bank and reserve-diversification demand remains the floor under every correction.

We have no immediate targets for gold.

Silver

Silver did what silver does: fall harder, then bounce harder. It still sits underwater for the year. The dual industrial/monetary demand profile amplifies both the gold and copper theses simultaneously. Position sizing matters more here than the thesis. Volatility is the cost of greater upside.

Still, we have a medium-term downside target of 54.33 and a long-term downside target of 44.95.

Bitcoin

Reclaiming the longer-term trend after a brutal first half is repair, not renewal. The year-to-date hole is still double digits. BTC behaved this month exactly as a liquidity and dollar-weakness product should, which is a reminder that it’s not the hedge Bitcoin Maxies think it is. The question is whether investor flows follow the price or merely watch it.

We have no immediate targets for BTC.

Ethereum

Ethereum’s year-to-date damage is more serious than Bitcoin's, meaning this is a lower base recovering faster rather than genuine leadership from the Avis rent-a-car of crypto. Sustainability depends on whether staking and stablecoin activity confirm the price.

We also have no targets for ETH.

Summary: Traditional Asset Classes

Summary: Crypto

Wrap Up

Read as a whole, the table describes a nominal-growth, weak-currency regime rather than a risk-on one. Assets with claims on real output, such as energy, industrial metals, precious metals, and, in its own peculiar way, crypto, were bid.

Assets promising fixed nominal cash flows, such as long Treasuries, investment-grade bonds, and REITs, were sold off.

Equities sit awkwardly in between, benefiting from revenue growth while paying for it with a rising required return, which is why the indexes are fine, but the small-cap and REIT complex isn’t.

Credit's resilience says this isn’t the start of a recession. The dollar's inability to rally on higher yields says it may be the beginning of something more structural.

The chart should lead every financial broadcast in the country. It doesn’t, of course. The anchors are too busy cheering the SPX.

It shows the cost of insuring Broadcom’s debt against default. That cost just jumped another 5 basis points to an all-time high of 131.

One basis point = 0.01%, or 1/100th of 1%. It’s easier to say 1 bp, pronounced “ one bip,” than to keep saying “zero point zero one percent.” Hence, 5 bps = 0.05%. 100 bps is 1.00%, and so on. 

Nvidia’s debt insurance hit a record the same day. And the day before that. And the day before that. As Zero Hedge put it, "another day, another CDS blowout."

The instrument behind that chart is called a credit default swap, or CDS. Most investors have heard the term, usually in a sentence that also contains the words "2008" and "catastrophe." Few know what one actually is.

Today, we fix that. Because right now, the CDS market is telling you something the stock market refuses to hear.

What a CDS Actually Is

A credit default swap is a form of bond insurance.

That’s it. Strip away the jargon, and that’s the whole thing.

Say a pension fund owns $10 million of Broadcom bonds. The fund manager starts to worry that Broadcom might not repay him (default on the debt). He can’t sleep. So he calls a big bank and buys protection.

Here’s the deal they strike. The fund pays the bank a premium every quarter. In exchange, if Broadcom defaults on its bonds, the bank makes the fund whole. If Broadcom never defaults, the bank keeps the premiums and pays nothing.

The fund is the protection buyer. The bank is the protection seller. The contract usually runs five years.

That annual premium is the number you saw on the chart. It’s quoted in the basis points I mentioned above. Broadcom CDS now trades at 131 basis points. That means insuring $10 million of Broadcom debt costs $131,000 per year ($10,000,000 x 1.31% = $131,000).

A year ago, that same insurance cost a fraction as much. The price of protection has gone vertical.

One more twist. You don’t need to own the bonds to buy the insurance. That’s like buying fire insurance on your neighbor’s house. Ghoulish? Probably. But it means speculators who think a company is in trouble can put real money behind that view. And that’s what makes this market worth watching.

A Price Beats an Opinion

Now for the distinction that matters. A credit rating is an opinion. A CDS spread is a price.

You know the rating agencies: Moody’s, S&P, and Fitch. They assign letter grades to debt, from AAA down to junk. A committee meets, reviews the file, and publishes its judgment. The company being graded pays for the privilege. That conflict of interest is the whole story (and it explains the S&P analyst with poor eyesight in The Big Short).

Ratings move slowly and are backward-looking. They have no predictive power whatsoever. Enron carried an investment-grade rating four days before it filed for bankruptcy. Lehman Brothers was rated single-A in the month it died. The inspectors showed up after the fire.

A CDS spread is different. It updates every second the market is open. It’s set by traders risking their own capital, and nobody pays them to be polite. When the spread doubles, it means people with real money got nervous and acted on it.

A rating is the fire inspector’s certificate. It gets issued once a year, framed, and hung on the wall. Sometimes it’s still hanging there while the building burns.

A CDS spread is the smoke detector. It’s loud, immediate, and doesn’t care about anyone’s feelings.

The agencies still call Broadcom solidly investment grade.

The smoke detector agrees for now, with a wince.

Why It’s Beeping Now

On August 20, Bloomberg reported that Broadcom is arranging one of the largest debt deals in history. The structure calls for $60-$70 billion in senior secured debt, plus a junior slice of roughly $30 billion. The total could reach $100 billion, making it the largest deal of its kind ever.

The money buys AI chips, which get leased to customers, including Anthropic. Private credit giants Blackstone and Apollo are in talks.

The detail that made the CDS market gag is that the debt sits in a special purpose vehicle (SPV). That’s a separate legal entity created so that the borrowing doesn’t appear on Broadcom’s balance sheet, even though Broadcom guarantees a portion of the senior debt.

Off-balance sheet vehicles. Where have we heard that before? Enron ran on them. So did the 2008 mortgage machine.

The stock market shrugged. The credit market didn’t. Broadcom CDS has ripped wider every session since, hitting 131 bps at last count. Nvidia’s spread is making new daily highs, even after a coalition of banks announced half a trillion dollars in AI financing earlier this month. That announcement was only a memorandum of understanding, a comfort statement with no money attached. The detector ignored the press release and kept beeping.

Zero Hedge translated the credit market’s message into plain English: bondholders are done subsidizing overpriced GPUs, TPUs, and memory chips. The people lending the money want more compensation for the risk. They’re getting it, one record deal at a time.

When cheap money floods a sector, investors make the same bet simultaneously. When the turn comes, the bond guys blink first. Bonds led equities lower in 2000, in 2007, and in every cycle before and since.

Wrap Up

You can’t trade CDSs yourself. It’s an institutional market where contracts trade in multimillion-dollar blocks.

But you can read it, and the reading is free. Search "Broadcom CDS" or "Nvidia CDS" now and then. Watch the direction. When the cost of insuring a company’s debt keeps hitting records while its stock sits near highs, that’s a disagreement. One of those two markets is wrong.

To be fair, 131 bps implies a low chance of default. This isn’t Lehman in September 2008. But direction matters more than level.

The AI buildout runs on borrowed time and money. Now you know the instrument that keeps score. The equity crowd watches the stock's price. The credit crowd watches the price of survival.

A sharp young analyst named Scott Bessent was working in the London office of Soros Fund Management. His research on Britain’s housing market helped make the case that the Bank of England can’t defend the pound sterling (GBP). British homeowners had held floating rate mortgages. Every rate hike to protect the GBP hits their monthly payments directly. The homeowners, and hence the British government, can’t take the pain.

The Bank of England was doing this because of the European Exchange Rate Mechanism (ERM). Not sure if they wanted to be in the eurozone, the British chose the middle path of linking the pound to the European economy without making a firm commitment.

But as West Germany had just swallowed East Germany and inflation took off, the Bundesbank (the old German central bank) started raising interest rates to fight that inflation. The increasing rates led to a rise in the value of the Deutsche Mark.

The Bank of England also increased its base rate, solely so the pound could keep pace with the mark. In short, the Brits were raising their interest rates for reasons unrelated to the British economy. As a result, the policy was unsustainable.

Stanley Druckenmiller and George Soros bet roughly $10 billion that the Bank would fold, meaning that sooner or later, it would have to let the sterling drop to the free market’s unfettered price level.

On September 16th, now known as Black Wednesday in the City of London, the Bank of England indeed folded. Sterling crashed out of the ERM. Soros’ fund made over $1 billion in one day. Impressive. To this day, if you mention the name “Soros” within earshot of Threadneedle Street, where the Bank of England is, you’ll give an English economist the tremors.

Every man in Soros’ office carried this lesson for life: When a government defends a price the fundamentals won’t support, the market wins. Always. The only question is when the market will win.

Nearly 3 ½ decades later, Bessent is the government.

Doing What He Condemned

As I mentioned in yesterday’s Rude, in January 2024, while still running his own macro fund, Bessent wrote to clients about his predecessor, Janet Yellen, and her preference for issuing short-term Treasury bills when rates were low. He warned it was a risky strategy that "creates the potential for a financial accident."

He went further that June. He accused Yellen of having "taken control of monetary policy" through her debt choices. He amplified the now-famous Miran-Roubini paper that coined the term “activist Treasury issuance.” Bessent charged Yellen with flooding the market with bills to hold down long-term yields and flatter the economy before the election.

Now look at his work. Bills are a staggering 22.2% of marketable debt (about $7 trillion), far above the advisory committee’s recommended range of 15% to 20%. Though not innocent, Yellen never pushed it that far.

Last week, after the 30-year yield hit a 19-year high, the Treasury said it would double its long-end buybacks from $2 billion to $4 billion per operation, starting September 9th. It buys long bonds and funds the purchases with more short-term bill issuance. It’s not quantitative easing per se, but it’s certainly a duration swap.

The man who wrote Yellen’s indictment now runs her scheme on a grander scale.

The Mentor’s Letter

On Monday, the Wall Street Journal ran an op-ed titled "Let the Bond Market Speak."

None other than Stanley Druckenmiller authored it. Yes, he, of the famous sterling trade, who happened to be Bessent’s mentor.

He didn’t mention 1992. He didn’t have to. "Governments defending prices against fundamentals always lose," he wrote.

In his view, the buybacks weren’t liquidity management, but price management, and a mistake far larger than $4 billion suggests. He wrote a 30-year that needs 5.5% to clear isn’t a crisis. It’s the bill come due for fiscal prolifigacy. He said the long bond yield is the most important price in the world, and muffling it removes the last check on The Swamp’s borrowing.

Bessent’s response came on CNBC. "We have a big toolkit," he said. Bessent insisted the yields don’t reflect the underlying fundamentals. The poacher-turned-gamekeeper had changed his tune. Lord Action was right: absolute power corrupts absolutely. But does Bessent have absolute power? Or does the market?

The Bank of England thought it had a big toolkit, too, until that fateful afternoon on September 16, 1992.

The Referee Speaks Today

Today, the referee enters. Kevin Warsh took over the Fed on May 22nd. This morning, he gives his first Jackson Hole speech as Chair.

Warsh has one stated ambition. He wants markets to set prices again. He killed forward guidance. And his most telling line came earlier this summer: market participants are learning to "play the ball, not the referee."

Note the timing. Treasury’s buyback barrage came just weeks after that quote. One arm of the government preaches market prices. The other arm sets them from a desk in the Treasury building.

We know Warsh and Druckenmiller are old allies. They co-wrote critiques of easy money in the Journal a decade ago. The Fed Chair and the mentor stand on one side. The Treasury Secretary stands on the other, running the trade both of them taught him to bet against.

As of its most recent reading, the consumer price index (CPI) sits at 3.4%. Three FOMC members dissented at the July meeting, calling for a rate hike. That’s a hawkish committee under a Chair who prizes independence above all, speaking to a market that still prays for cuts.

The Rollover Trap

Will Warsh cave and be the Company Man that The Donald hired him to be?

Because all it takes is a neutral speech. Warsh doesn’t even need to attack Bessent this morning. He doesn’t need to mention the bond market at all.

Warsh doesn’t need to sound hawkish; he just needs not to be dovish, and the game is up.

T-Bills reprice constantly. The aforementioned $7 trillion rolls over in weeks and months, not decades. Every basis point (0.01%) of hawkishness flows almost instantly into Treasury’s own funding cost. Net interest is already running near $1 trillion this fiscal year. For the first time, that ridiculous line item matches the base defense budget.

Bessent himself had warned about this exact trap. His 2024 letter said that concentrating issuance in short tenors exposes the Treasury to refinancing risk. Correct.

It’s sterling in 1992 all over again, with the roles reversed. Britain defended a currency peg with rate hikes it couldn’t afford. Bessent defends the long end with bill issuance he can’t afford if rates stay where they are. The deficit is running $1.8 trillion with two months left in the fiscal year. The defense consists of buybacks and jawboning.

We’ve seen this before. So has Bessent.

What About Gold?

If Warsh sounds hawkish on Friday, the immediate math is ugly for metals. Front-end yields jump. The dollar pops. Real yields rise. Gold and silver get smacked in the mouth. Ray Dalio told everyone this week to sell bonds and buy gold. A hawkish Warsh makes that call look bad for at least a few days.

But keep the sizes straight. Central banks bought 288.9 tonnes of gold in the second quarter, up 62% from a year earlier and a record for any second quarter. They bought while prices fell. They aren’t trading Jackson Hole. They’re front-running the fiscal dominance trap: The Fed that can’t hike much without blowing up the USG’s funding, and can’t cut without reigniting consumer inflation.

So treat any post-speech selloff in metals as a sale, not a signal. The structural case won’t die on Warsh’s Wyoming platform.

Wrap Up

Today, Kevin Warsh steps up for his first Jackson Hole speech as Chair. He may say nothing about rates. He’s promised big structural questions, and this year’s theme is payments plumbing. Fine. The contradiction stands either way.

Thirty-four years ago, 3 men in a London office learned the same lesson from the inside: markets beat governments defending indefensible prices. This week, one of them wrote it in the Journal. The other is defending the price. And the referee, who’s been preaching that lesson for decades, has the market’s undivided attention today.

You don’t need to predict the speech. You just need to know which side of the trade history favors.

Have a great weekend!

On July 27, New York Mayor Zohran Mamdani stood in Brooklyn holding a bunch of bananas. He announced 5 city-owned grocery stores, one per borough, selling food at 30% below retail. The crowd cheered.

On August 19, Treasury Secretary Scott Bessent announced Washington would at least double its buybacks of long-dated Treasury bonds. The 30-year yield had crept to uncomfortable highs, and that simply wouldn’t do. Wall Street cheered, too… for about 24 hours.

The right called Mamdani a socialist. And yet, they called Bessent a market technician.

But if you strip away Bessent’s tailoring, they’re running the same play. One of them thinks the price of bread is wrong. The other thinks the price of money is wrong. Both reached for the same tool: the state’s thumb, pressed firmly on the market’s scale.

Ah, but surely it must be permissible for a gentleman to fiddle with the market, you say? This version of corporatism, or socialism, or whatever you want to call it, arrives with a Treasury seal instead of a Little Red Book. But it’ll fail just the same. It just fails in a pinstriped suit.

Two Men, Two Caps

I’ll say this for Mamdani: at least he’s honest about what he is. This economic illiterate wants to freeze the rent on a million apartments starting October 1st. He’d also like to open city stores that critics are already calling ration shops. Oh, and don’t forget taxing second homes in the city. He believes prices are a political choice, rather than a market mechanism, and he says so out loud.

Bessent’s idea needs more translation.

The Treasury’s buybacks target 10- to 30-year bonds and run from September 9th through November 4th. The old limit was $2 billion per operation. The new minimum is $4 billion, and Bessent went on TV to stress it could be more. He swears this is about liquidity, not yield curve control (YCC).

Nobody bought it. Former PIMCO CEO Mohamed El-Erian read the move as YCC wearing a fake mustache. Evercore’s Krishna Guha called it a weak Operation Twist. JPMorgan warned that the Treasury was walking away from its oldest promise, that debt issuance stays regular and predictable, in favor of ad hoc market management.

Traders coined a new phrase for it: the Bessent put.

To paraphrase Mark Twain, when a government official finds himself on the side of moral hazard-addled investors, it’s time to pause and reflect.

The Yellen in the Mirror

In 2024, Bessent hammered his predecessor, Janet Yellen, for issuing short-term bills when interest rates were at rock bottom rather than issuing long-term debt to lock in those historically low rates. That would’ve helped the government’s fiscal situation and made Bessent’s life at the Treasury much easier. He asserted she was putting her thumb on the market’s scale to hide the true cost of Washington’s overspending. He was intellectually correct and morally right.

So how is the Treasury funding its new buybacks? It can’t print money. That's the Fed’s racket. Instead, it’s issuing more short-term bills and using the cash to retire long bonds.

In other words, it’s the exact maneuver Bessent condemned, that Bessent will now perform at a greater scale.

And for some situational irony, the national debt crossed $40 trillion the same week the policy was announced.

Bessent isn’t a fool. That makes this worse. He’s a Soros-trained macro trader. He knows what a rigged price looks like, because he spent his career hunting for them. The system didn’t fool him. It captured him, like it does every unsuspecting politician. Every Treasury Secretary eventually figures out the long bond yield is a political price. And sooner or later, every one of them succumbs to the temptation of market manipulation.

The Market Called Both Bluffs

The ice water of reality almost immediately splashed both men in the face.

Bessent’s announcement knocked yields down for a few hours. Within a day, the 10-year and 30-year had erased the entire move and closed higher than before he opened his gob. The 30-year sat back above 5.2%. The market looked at $4 billion per operation against trillions in supply and guffawed.

Mamdani’s month ran about as well. A Staten Island judge blocked his second home tax. Landlords sued the city over the rent freeze. And on Monday, a coalition of bodega and small grocery owners, many of them immigrants, sued to stop the city-run stores from ever opening. Their argument was simple: no private shop can compete with a store that pays no rent or utilities and sells below cost on the taxpayer’s dime. Of course, they are correct.

The small businessmen Mamdani claims to champion are now suing him to survive. Oh, the irony.

Why It Always Fails

Prices are information. The 30-year yield is the market’s weighted opinion on $40 trillion of debt, sticky inflation, and a government that spends as if its bill will never arrive.

Bessent can try to cap the price, but he can’t change the market’s ultimate verdict.

Mamdani’s 30% discount doesn't make food cheaper. It just moves the cost from the buyer to the taxpayer, and drives the honest grocer out of the neighborhood.

Bessent’s buybacks don’t make America a better credit. They swap long debt for short debt, pile up risk, and tell every foreign bondholder that DC is at odds with its own price signals.

There’s one more wrinkle.

Fed Chair Kevin Warsh wants the bond market’s honest opinion, so he can set the Fed’s monetary policy against a market-discovered price. Bessent now stands between Warsh and that number, interfering with the signal. Bessent’s and Warsh’s old boss, Stanley Druckenmiller, doesn’t approve. Neither do the rest of the bond vigilantes.

Wrap Up

Spare me the kabuki theater where one half of the political class faints over a socialist mayor’s grocery stores while the other half applauds this bond-buying scheme.

The difference between Mamdani and Bessent isn’t a matter of principle. It’s merely the difference in perception between an avowed socialist and an alleged free marketeer.

The gentleman’s price control ends the same way the commoner’s does.

The gentleman just gets better press on the way down.

Then the Spanish closed the River Scheldt. It strangled Antwerp’s port. Merchants, bankers, and printers packed up and sailed north to a swampy little town called Amsterdam.

Within a generation, Amsterdam had the world's first stock exchange, the first central bank worth the name, and the Dutch East India Company.

Amsterdam didn't win that prize. Antwerp handed it over.

Keep that in mind when you read what the Texas governor says about Wall Street moving south.

The Headline

Greg Abbott says Texas is "the new financial capital of America."

The LinkedIn crowd is cheering. Morgan Stanley just picked Dallas over Alpharetta, Georgia, for a regional hub. The plan calls for up to 4,800 jobs and a $1.3 billion, 709,000-square-foot tower on McKinney Avenue, with the bank moving in around 2031 on a 16-year lease.

Goldman Sachs is building an 800,000-square-foot campus a mile away for 5,000 people. Bank of America is putting up a tower in the same neighborhood. The Texas Stock Exchange went fully live on July 31. The NYSE and Nasdaq both opened Texas outposts to avoid being left out.

That’s a lot of concrete. The governor is doing what governors do. But the claim is wrong, and you should know exactly why before you nod along.

The Numbers Behind the Bluster

New York's financial services industry generated $330 billion of gross regional product in 2024. That's 71% more than Texas.

The New York City securities industry was on track for roughly $60 billion in profits last year, a record. The city still has more securities jobs than any other city or state in the country.

Then there's the trick in the "Texas has more finance jobs" headline. Texas had 519,000 financial sector workers in 2024, compared with New York's 507,000. But that's the whole state, Dallas, Houston, Austin, and San Antonio included, against one state. And it leaves out insurance and real estate. Dallas alone has about 317,000 financial activities workers. That's less than half of New York City's total.

What is Morgan Stanley really doing? Those 4,800 jobs are 5.8% of the bank's 83,000-person workforce. The city records show a slower move than the headlines do. Roughly 1,500 jobs will be added by 2031, 3,800 by 2035, and the last 1,000 by 2039. Dallas paid for the privilege with an $18.5 million grant tied to hiring benchmarks and a 90% property tax abatement for 10 years.

That's a back office and middle office hub following the incentives. The headquarters is still at 1585 Broadway. JPMorgan just opened a $3 billion tower in Midtown. Goldman isn't leaving New York, either. It's adding Dallas.

As for the exchanges, NYSE Texas and Nasdaq Texas are dual-listing venues. Companies list there at no extra cost and keep their New York listing. TXSE is the real thing, with $275 million raised and its first primary listings coming from Texas Capital Bank. But it doesn't expect its first IPOs until 2027. Indeed, that's a promising startup. But it’s not a capital.

So no. Texas isn't the new financial capital of America. Not this decade, and probably not the next one, either.

Why the Trend Is Real Anyway

Nevertheless, Albany shouldn’t rest on its laurels.

Since February 2020, financial services employment in Dallas is up 23.2%. In New York City, it's up 6%. Chicago, Boston, and San Francisco are still below their pre-pandemic levels. Over the past decade, Texas's financial GRP grew by 121%, versus 72% for New York. In 2025, recruiters posted 9% more finance jobs in Texas than in New York.

Taxes and cost of living explain some of it. The Central Time Zone explains a little more. But the timing of the Morgan Stanley decision tells you what you need to know.

The bank started looking outside New York this year, right after the city elected a declared socialist as mayor, who campaigned on taxing the rich, raising property taxes, and reining in corporate real estate. Zohran Mamdani has since picked a public fight with Ken Griffin over his Manhattan apartment. Jamie Dimon warned shareholders that residents and businesses "vote with their feet." Treasury Secretary Scott Bessent told the city not to expect a bailout.

In our sister publication, the Daily Reckoning, I wrote about the Curley Effect. A politician who drives out the people who vote against him doesn't see it as a loss. He sees a smaller, more loyal electorate. Boston did it in the 1920s. New York is doing it in 2026.

Texas isn't stealing Wall Street. Texas is where Wall Street goes when New York turns up the pressure. It's a relief valve. The valve doesn't create the steam.

A Word of Caution on Y'all Street

I'd be lying if I said the Texas side was all clean.

The Dallas Fed's 2026 outlook noted that the state grew in 2025 without adding jobs, the first time that's happened since 2002-2003. Most of the Texas job growth that exists is in commercial construction for AI data centers, not in finance. And the Dallas towers are being bought with the same tax abatements and "deal-closing grants" that every state uses to poach from every other state.

So this isn’t a wholesale upgrading of the American financial map, but a Dallas real estate and Texas banks story. And that’s fine.

Wrap Up

Antwerp lost its crown to a closed river, not a better city.

New York City, for all its sins, is still the financial capital of America. The profits, listings, headquarters, and deal flow are still there. Unfortunately, the city government has started acting like the Spanish crown on the Scheldt, and the banks are quietly building a second harbor away from the madness.

Abbott's claim is at least a decade early. But he doesn't need to be right. He just needs Mamdani to keep doing his job for him.

The governor is the second biggest reason Wall Street is looking at Texas. The biggest one works in New York’s City Hall.

George Armstrong Custer looked down at an encampment and saw a fight he could win. His scouts saw something else. The village below was bigger than any of them had ever counted. Custer split his command anyway and charged.

The reinforcements he counted on never arrived.

Last week, current, and maybe for-not-much-longer, Treasury Secretary Scott Bessent rode down his own hill, on live television.

The 30-year Treasury yield had just hit its highest level since 2007. The 10-year wasn't far behind. The national debt had crossed $40 trillion the same week. And the bond market, the last honest critic left in Washington, was demanding real compensation to keep funding it all.

So Bessent charged.

The Three Escalations

I was so happy we got a former hedge fund manager as a Treasury Secretary. Now, not only do I think my enthusiasm was misplaced, I think the man is flat-out certifiable.

On August 19, two weeks after the quarterly refunding, when changes like this are supposed to be announced, the Treasury said it would at least double its buybacks of 10- to 30-year debt. The cap went from $2 billion per operation to at least $4 billion, running September 9 through November 4. It’s like shooting an elephant with a Tic Tac. But, boy, did it excite the metals and miners.

Yields fell for exactly one day. Then they reversed. Of course, they did!

So Bessent went on CNBC and escalated. The buybacks could top $4 billion per issue. He'd - get this! - "make a market" in the long bond. In his words, he has “a big toolkit.”

Yesterday brought the third escalation. Two senior Treasury officials floated tapping the Treasury General Account (TGA), the government's $950 billion checking account at the Fed, to fund the buying.

That headline knocked the 10-year down to 4.7% and the 30-year to 5.23%... for a New York minute.

Here's my catalog of what can go wrong. Let me count the ways: 9. They come in 3 groups of 3: the inflation, the snapback, and the trap.

The Inflation 3

1. QE without the Fed.

The TGA sits at the Federal Reserve. When the Treasury spends it, cash flows out of that account and into the banking system as fresh reserves. Draining the TGA to buy bonds is a liquidity injection, run by a political appointee, timed ahead of an election, with inflation already above target. They can call it cash management. It's stealth QE during an inflation fight.

2. We fought this exact battle before, and lost.

From 1942 to 1951, the Fed pegged Treasury yields at the Treasury's request to fund the war. When price controls were removed, inflation rose to almost 20% in 1947. The Treasury-Fed Accord of 1951 exists because the whole country learned a hard lesson: a government that sets the price of its own debt pays for it in inflation. Bessent is unwinding 75 years of hard-earned knowledge by press release.

3. The dollar is already telling you.

Rising yields should attract capital and increase a currency’s spot (cash) value. Instead, yields rose while the dollar fell. That happens in emerging markets and banana republics, not in the home of the world’s reserve currency. And yet, it did.

It means capital is leaving, not repricing. If you suppress the yield on top of that, you take away the only compensation foreign T-bond holders were still getting. When they sell, the dollar drops further, and import prices climb. Of course, rising import prices are what The Donald wants. Fleeing capital is not.

The Snapback 3

4. Yield curve control always ends the same way.

Ask the Aussies. In November 2021, the Reserve Bank of Australia abandoned its bond yield target, and the market blew through the peg within days. Ask the Bank of Japan, whose exit from its own yield cap took years of hostage negotiation. The defending central bank always runs out of either ammunition or willpower. Then the yield gaps to where it should have been all along, plus a penalty for the panic.

5. He's shredding the one asset Treasury had: predictability.

For decades, the Treasury's mantra was "regular and predictable." It would announce its schedule and never surprise the market. That discipline is why the world lends to America cheaply. This off-cycle announcement broke it, and Wall Street desks said so in writing.

The result of this intervention is a higher term premium, because bondholders are paid more for lending over a longer period. That’s the very thing Bessent is fighting! The intervention manufactures the problem it claims to solve. This market needs Metamucil, not Pepto-Bismol.

6. The ammunition is finite.

The TGA holds $950 billion. The Treasury market rolls around $30 trillion, and the sellers reload at every auction, every week, forever. When the account runs dry and the buying stops, the curve doesn't drift back to its fair value. It snaps there and then overshoots, because the market will price in a Treasury Secretary who panics.

The Trap 3

7. The duration doom loop.

Even if Bessent buys back long bonds, he still has to finance the deficit, so he’ll have to issue short-term bills to do so.

Every buyback at the long end gets refinanced at the short end. The average maturity of the national debt shrinks. America is converting its long-term fixed rate mortgages to short-term floating rate ones on $40 trillion, at higher rates. Every future hike hits the budget almost immediately. Remember fiscal dominance? Here it is, made automatic.

8. The reinforcements aren't coming.

Fed Chair Kevin Warsh speaks Friday at Jackson Hole, and he's made his preference clear: markets should set rates, not The Swamp. That leaves two outcomes. The Fed accommodates Treasury, and its independence dies. Or the Fed fights back with tighter policy, and the two arms of the state pull the rope in opposite directions. Expansionary fiscal policy from Bessent will meet contractionary monetary policy from Warsh’s Fed.

9. The buffer disappears right when you'll need it.

The TGA was fattened up as a crisis cushion. If you piss it up a wall by suppressing yields, two bills will come due. First, there will be no dry powder for the next debt ceiling standoff, expected between winter and early spring. Second, the TGA will have to be rebuilt with a flood of bill issuance that drains liquidity from markets. That's an inevitable tightening shock on a delayed fuse.

Wrap Up

The 30-year yield is one of capitalism’s most important prices. It influences every pension, mortgage, and entrepreneurial decision. Heck, it’s the price of time.

It’s also the last alarm still ringing loud enough for The Swamp to hear. Bessent is buying its silence with the nation's checking account.

You can't stop him. But you don't have to ride in the column, either.

Own gold and hard assets, the things no Treasury official can buy back. Keep your duration short and your cash ready. Avoid anything whose value depends on the long end of the curve telling the truth.

Custer's men didn't get a choice about where they stood that afternoon.