I’ll Be Live - Right Here - at 8:30 AM Slides after the jump… Good morning: Well, here we go… After all this leadup, President Trump will meet with Chairman Xi. I promise to mispronounce the leader of China’s name at least twice today. This is Xi’s first visit since 2016, which is the year that a lot of this started. There will be a state dinner that will include the leaders of Apple, Nvidia, OpenAI and Qualcomm. Absent are all of the Chinese CEOs. But the drama is already gone. First, both nations quietly extended the trade truce by two months. That is the biggest deliverable for the event, but it’s only two months. It signals further discussions… not peace. Next, we saw the nations’ financial leaders forge an AI-hotline language before the event. An AI pact now awaits a signature from Trump. This entire day is now largely a story about optics… It’s now hard to expect much else aside from a reduction in tariffs in soybeans and consumer products. We’ll see what sort of Chinese purchase commitments arrive. The wildcards of these events are simple. If China gets Iran to move, that would be the trigger for this market. China maintains significant leverage over Iran, and some shift in the war because China would crush the war premium in the barrel, and that would be the thing that triggers a massive squeeze on the TLT. But that’s going to be difficult with the 30-year bond now moving to its highest levels since 2004. Nothing significant today is a problem with yields surging and nothing stopping the breakout. That’s where this negative breadth can worsen, and the only trade holding this market up in technology combined with vol-selling could take this market down quickly. Dumb Economics The debt problems continue to accelerate globally. But we will turn our focus here in the U.S. for obvious reasons. People will write about how high rates are moving… but they’re not focused enough on how FAST they’re moving. Stocks really get spooked when we move about 30 basis points over a two-week horizon. We’ve hit 25 so far, and yields have been surging without oil. So… we are in the middle of a rate shock. The VIX is still cheap… so use it. This is all happening while our flash PMIs are red hot, and now multiple Fed speakers are telling us that we’re going to need another rate hike by the end of the year. I know that most people weren’t paying attention to that five-year bond auction, but it was terrible - and that’s on top of that terrible German bond sale that couldn’t find demand. Yields are rising all around the world, and it’s happening at the front ends as well. Here in the U.S. the housing market can’t be enjoying 7.21% mortgage rates. Already, starts and permits are dropping, pending sales are hitting their worst levels since January 2025, and idiotic politicians are pitching even worse ideas that make the situation worse. Politicians in the election are pitching “demand-driven” subsidies into a U.S. housing market that still lacks supply, maintains painful rates, all while sitting at very high prices. I swear no one understands the laws of supply and demand in the 202 area code... Diesel Days Ahead Yesterday, I talked about what would happen if the U.S. proposed a diesel ban. We have a 90-day plan that’s been drafted. The news led to a massive swing in the Europe-U.S. heating oil spread, and the four names I mentioned yesterday (SHEL, BP, EQNR, and TTE) had a great day. Valero (VLO) would struggle right now. Here Comes the Regulatory Moat… Right on time… Remember when we were going to deploy new technologies and everyone got a fair shot… Well… of course we’re going to create a massive regulatory moat for large AI labs that can absorb massive compliance costs. This was so obvious that it didn’t even bother me when I woke up a year ago… Sorry smaller frontier and open-weight developers. The House passed the Ratepayer Protection Act 417-3, a law that would force data centers to pay their own grid costs. It couldn’t get through the Senate because one guy wanted a new law that would be more bureaucratic and force longer review times… You can’t make that up… You thought that we had a free market?
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