Monthly Market Compass: June 2025
DOGE is out. A Big Beautiful Bill is in. And Moody's has eyes. The USD and Bonds continue to sell off as gold goes skyward. Are risk assets poised to rebound in the face of recessionary indicators?
Hello again, and welcome to our Monthly Market Compass for June 2025. We send these chart heavy market summaries at the beginning of each new month.
Please be aware that these notes are not investing advice and should be enjoyed as entertainment and for informational purposes only. Always do your own research. Sources can be found below each graphic.
As usual, we divide these monthly notes into several sections: Inflation, Economy (currently focused on the potential for a recession), Geopolitics, a Liquidity summary, and our thoughts on the Fed. A conclusion and market summary follows these sections. Enjoy!
Introduction and Market Observations:
Well, the Big Beautiful Bill is in and DOGE looks like it has been sidelined. Moody’s has downgraded US Treasuries, and bond markets are selling off as gold continues to punch new all-time highs every few days.
How did we get here?
Well, as a quick review, in the last few years the post-COVID fiscal response has reignited long term inflation concerns. The BIS has reclassified gold as a Tier 1 asset for banks. And the fiscal outlook for the US looks dire.
The combination of these factors appears to have reversed a long term secular decline in US Treasury bond yields (a bull market in bonds) to a (possible) long term secular rise in yields.
History tells us there are only a handful of ways to get out from under this:
Fiscal Austerity (which is not politically tenable)
Inflation and Financial Repression (the usual way)
Default and/or Debt Restructuring (the other usual way)
Asset Sales and/or Privatization of government assets (something that Trump is probably open to)
Economic Growth (in the current US case, this would be termed a ‘Growth Miracle’)
For the time being, the market is betting on inflation, with the possibility of some type of default. As a result, the US Dollar, and US Treasuries have been selling off, while gold has been on the rise in Dollar terms.
How dramatic is all of this?
I’m glad you asked:
The divergence between long term treasuries and gold continues to be the most important and arguably the most dramatic chart in macro currently.
Source: https://x.com/LukeGromen/status/1923734361133748687
Long term treasuries certainly look like they are in a new regime:
Source: https://x.com/Barchart/status/1929472738676154504
And not to be outdone, most advanced economies are experiencing similar troubles in their own long term bond markets:
Source: https://x.com/GlobalMktObserv/status/1927417017008619589
Global debt and US debt are both at record levels with no sign of slowing down:
Source: https://x.com/bravosresearch/status/1930338824082862290
Source: https://x.com/bravosresearch/status/1927779513250795680
Because rates now are higher than a few years ago, when debt is rolled over, both the US Government and all advanced economies are forced to refinance at higher and higher rates, leading to more of tax receipts going to pay down interest expenses:
Source: https://x.com/Barchart/status/1928596737154801877
US credit default swaps have risen as a result, as markets see no way out of the problem other than the issuing of new money to pay down the increased interest expense, or some type of default:
Source: https://x.com/AskPerplexity/status/1927388552641270163
Following the Moody’s downgrade a few weeks ago, credit markets are now pricing in continuing credit level downgrades for US Credit Default Swaps:
Source: https://x.com/Barchart/status/1925015009140035920
DOGE appears now to be a valiant effort, but not one that President Trump can get Congress to stick to if it means that fiscal spending needs to be constrained.
While the ongoing tariff turmoil is quickly wearing out its welcome, leading to additional inflation expectations.
And despite tariff revenue hitting record numbers, the income is only in the billions against federal deficits in the trillions:
Source: https://x.com/KobeissiLetter/status/1929620029768671677
