Endgame

We’re in the endgame now

[Endgame @dedollr]

“The fiscal solution that works mathematically is not a solution that wins elections, and the people administering Treasury and other parts of the government are appointed officials operating within mandates ultimately created by elected politicians and the voters who put them there.”

[Matt Cole @ColeMacro]

Another very long macro post, but I don't write these often. We are watching the most interesting macro backdrop of the last several decades take shape in real time.

One important piece of the long-term dollar view I wrote about last week is what happens at the long end of the Treasury market. Stan Druckenmiller published an excellent piece in the WSJ last night titled "Let the Bond Market Speak". The U.S. fiscal trajectory is unsustainable, running deficits near 6% of GDP at full employment with inflation still above target is reckless, the entitlement trajectory is generational theft, and attempting to suppress long-term Treasury yields does nothing to fix the underlying fiscal problem.

Druckenmiller's argument is that suppressing yields delays the fiscal reckoning that higher rates would otherwise impose on Washington. He is right about the economic logic, but I am not even sure our expectations for what ultimately happens are different. By the mid-2010s, I had come to the conclusion that there was never going to be a realistic path where sustained pressure from the bond market produced the kind of fiscal conservatism necessary to solve this problem. That realization was a major part of why I became a Bitcoiner in the first place, and Druckenmiller's own investments in Bitcoin and other hard assets suggest to me that he has come to the same underlying conclusion.

I read his piece less as a prediction of what Washington will actually do and more as a warning about what it should do before it is too late. I view it as a Hail Mary from one of the greatest macro investors of all time telling policymakers to let the market impose the discipline that the political system has been incapable of imposing on itself. I hope they listen, but unfortunately I know they won't.

Druckenmiller makes the political constraint explicit himself when he writes that neither party will run on entitlement reform. That is precisely the problem. The fiscal solution that works mathematically is not a solution that wins elections, and the people administering Treasury and other parts of the government are appointed officials operating within mandates ultimately created by elected politicians and the voters who put them there.

That distinction matters because the appointed officials can be extraordinarily intelligent, deeply patriotic and genuinely committed to making the country stronger while still being constrained by a political system with completely different incentives. Scott Bessent obviously understands the fiscal problem, and I believe he and Druckenmiller agree on the underlying diagnosis. But Bessent is running Treasury inside a political system whose mandate is set by elected officials, not by the optimal answer on a macroeconomic spreadsheet.

We just saw a version of this with DOGE. Elon Musk, the most capable private-sector operator of our generation, entered government with an explicit mandate to dramatically reduce spending. The institutional and political forces were stronger, DOGE did not change the fiscal trajectory, and the deficit continued moving in the wrong direction.

That is not an indictment of the intelligence or intentions of the people involved. It is evidence that the constraint is structural, and that is why we have to invest in the world that exists rather than the world we wish existed.

As the fiscal arithmetic continues to deteriorate and policymakers refuse to allow long-term interest rates to fully reflect it, the adjustment will not disappear. It will be expressed somewhere else, and the dollar will be the release valve.

The Treasury market is already far from an untouched free market. The Federal Reserve owns approximately $1.6 trillion of Treasuries with more than ten years remaining, roughly 28% of the entire >10-year maturity bucket. Treasury has now also doubled its planned purchases of 10-to-30-year securities after long-term yields pushed toward levels not seen in nearly two decades, while making clear that the size of those operations can increase materially further.

Those actions are important less because of their current size than because of what they reveal about the government's reaction function. Treasury has now told the market that it is sensitive to the level of long-term yields before committing enough capital to actually change their trajectory, and the market has already largely looked through the initial announcement. Druckenmiller is right that once the market believes Treasury is defending a price, every further increase in yields becomes another test of how much policymakers are actually willing to do.

I think Treasury will ultimately regret going this small this early. By showing its sensitivity without overwhelming the market, it has effectively invited the market to find out where the real line is. My expectation is that the current intervention will not be enough, long-term yields will continue higher, and the bond market will eventually force Washington to prove that it is serious.

I believe it will prove to be serious when tested. The signaling around larger Treasury purchases and the potential use of the TGA matters, but signaling will not be enough if the long end keeps selling off. At some point the market will force Treasury to move from telling investors what it could do to actually deploying capital with enough size to change the outcome.

The resistance zone on the long-term 10-year Treasury chart attached here is one I have been watching for several years. The 5.25% to 5.85% area has long stood out to me as the place where this secular move higher in rates would face its most important test, and this is not a zone I identified because of anything that happened over the last week.

It came out of a fundamental view about the U.S. debt trajectory, the natural direction of long-term yields as the fiscal problem worsened, and the level at which Treasury and/or the Fed would be forced to respond. The chart matters, but this has never been about drawing squiggles and assuming price will reverse at a line. The resistance zone mattered because I believed the underlying fiscal mechanics would eventually push yields into it while the political and financial consequences of allowing yields to move materially beyond it would become increasingly intolerable.

If the 10-year moves into the 5.25% to 5.85% range, the headlines will write themselves. Ten-year Treasury yields would be trading at levels not seen since around 2007, except this time the United States would be arriving there with a dramatically larger debt burden and a vastly more difficult fiscal position. Narrative follows price, and a large enough decline in Treasury prices will quickly become a story about the Treasury market failing, government financing becoming unstable and the world's most important bond market entering a crisis.

That narrative itself will increase the political pressure to act. Mortgage rates, government interest expense, equity valuations and broader financial conditions would all be under substantially greater pressure, while every move higher in yields would make the fiscal arithmetic worse. Treasury is already showing its sensitivity before the market has even reached the zone I have been watching.

If yields ultimately move into that area, I expect Treasury and/or the Fed to blink substantially. The response could include much larger Treasury buybacks, heavier reliance on bills, actual deployment of the TGA, renewed Fed balance-sheet expansion, some form of explicit or implicit yield management, or a combination of those tools. I would not be surprised if we ultimately see intervention in the Treasury market on a scale that looks nothing like what has been announced so far.

The path into that moment could create significant stress across financial markets. Higher long-term yields would put additional pressure on equity valuations at exactly the same time that AI is creating a growing question around the durability of many corporate moats, which could make the environment particularly difficult for traditional equities and other risk assets.

Bitcoin is more interesting because the endgame is becoming increasingly obvious. I think it is roughly a coin flip whether Bitcoin experiences meaningful weakness during the final move higher in yields or simply continues grinding higher while other risk assets struggle. If we are fortunate enough to get a meaningful Bitcoin selloff during that period, I would view it as a potentially once-in-a-lifetime opportunity to increase exposure before policymakers are ultimately forced to respond with size.

But I would not build a portfolio around the hope that opportunity appears. The macro backdrop is already bullish enough that, in my view, the time to be positioned is now if you are not already positioned. A dip would be an extraordinary gift, but the market may simply look through the short-term stress because the eventual policy response is becoming increasingly obvious.

From a traditional fixed-income mandate, the 5.25% to 5.85% zone has always looked interesting to me as an area where I would want to get very long duration. If Treasury and/or the Fed respond the way I expect, long-term Treasury bonds could perform extremely well as policymakers push yields back down. But at Strive we do not run a fixed-income mandate. We run a Bitcoin mandate, and this is the kind of setup that calls for responsibly maximizing Bitcoin amplification.

Treasuries would be a beneficiary of the intervention, but I want to be long risk, long scarcity and, above all, long the fastest horse. Bitcoin is the fastest horse, and the ability for Strive to amplify Bitcoin into this kind of macro environment is far more attractive to us than owning an asset whose yield policymakers are explicitly trying to suppress.

That brings this directly back to the dollar thesis I wrote about last week. Druckenmiller is right that governments defending prices against fundamentals ultimately lose, but that does not mean they cannot suppress the specific price they are targeting for a meaningful period of time. If Washington refuses to meaningfully reduce spending, then suppressing long-term yields and allowing the dollar to weaken may actually be the least damaging of the politically available alternatives.

The correct solution is obviously fiscal conservatism. But because that solution is politically unavailable, allowing an uncontrolled rise in long-term yields against today's debt burden risks creating a much more immediate Treasury-market crisis. Financial repression and a weaker dollar are deeply imperfect outcomes, but they are preferable to simply allowing the financing structure of the U.S. government to break in real time.

That is why the dollar becomes the release valve. Treasury and the Fed can suppress long-term yields, but they cannot make the underlying fiscal imbalance disappear. The cost gets transferred somewhere else, and a weaker currency is the most politically tolerable place for a meaningful portion of that adjustment to occur.

This is also why I don't view a DXY move into the high-60s or low-70s as some extreme end-state for the dollar. It would take the dollar to the weakest levels we have experienced in the modern era, but not by an historically extraordinary margin. Bitcoin has repeatedly benefited from weakening-dollar environments throughout its history, but it has never existed through a secular move in the dollar to these kinds of lows. Bitcoin was created after the 2008 dollar low and has spent its entire history with the dollar either recovering from those lows or operating materially above them.

A secular move to new lows in the dollar would therefore represent something genuinely new for Bitcoin, and this Treasury dynamic adds another fundamental layer to the framework I have been writing about. Dollar debasement increases the pool of capital seeking scarcity. Bitcoin's continued monetization allows it to capture a growing share of that expanding pool. AI abundance simultaneously increases the uncertainty around the long-term value of traditional corporate moats, strengthening the relative appeal of an asset whose scarcity cannot be competed away.

The explosive scenario is when these forces begin aligning at the same time: a growing pool of global capital seeking scarcity, Bitcoin capturing a growing share of that pool as it continues to outperform other scarce monetary assets, and Strive amplifying Bitcoin on top of both. Those are not independent tailwinds. They compound.

That is the grand slam scenario I continue to see forming. The dollar declines, policymakers increasingly suppress the long end of the Treasury market, AI continues to debase traditional corporate scarcity, Bitcoin reasserts itself as the fastest horse among scarce monetary assets, and Strive is positioned to maximally amplify Bitcoin through that environment. If the bond market gives us a temporary Bitcoin selloff on the way there, I want to buy it aggressively. If Bitcoin sees through the endgame and never gives us the dip, I want to already be positioned.

Druckenmiller ends his piece by urging Washington to let the bond market speak. I agree with the warning and share his frustration with the generational consequences of refusing to address the underlying problem. The bond market is going to have to speak much louder before policymakers respond with the size ultimately required, and when it does, they are far more likely to suppress the message than undertake the fiscal restructuring necessary to eliminate it.

The path I have been watching for years is increasingly coming into view: the 10-year moves into that 5.25% to 5.85% resistance zone, the Treasury-market narrative turns into a crisis narrative, Washington is forced to respond with real size, and the secular dollar decline accelerates as pressure that would otherwise have been expressed through long-term yields is redirected elsewhere.

TLDR: YOU ARE NOT BULLISH ENOUGH^3

[Russians With Attitude @RWApodcast]

Jake Paul, an 80-IQ faggot with a perm, telling Trump that he "liberated the women of Iran" after killing more than a hundred Iranian girls on day one of the attack, with Trump adding he's "fighting for gays", is certainly the highlight of whatever America is these days.