#776: Yields Must Rise, Fed Must Hike with Michael Howell

— Fed rate decision and bond yield dynamics: The Fed is likely trapped by rising bond yields and nominal GDP growth (6–8%), forcing eventual rate hikes despite market expectations of a hold. Yield volatility control via short-end bill issuance and Treasury buybacks is deliberately suppressing the 10-year yield.

— Hidden monetization and fiscal reality: The U.S. Treasury is funding deficits through short-dated bill issuance (80% of gross issuance under two years), effectively monetizing debt via bank balance-sheet expansion—a subtle form of money printing that masks what would otherwise require explicit Federal Reserve purchasing.

— AI capex bubble and nominal GDP surge: The AI infrastructure investment boom, combined with fiscal spending and energy export growth, is driving nominal GDP to 6–7% or higher. This capital-spending cycle is inherently inflationary near-term, yet it's driving money supply (M2) growth toward 10% annualized rates.

— Global capital wars and state-led capitalism: The U.S., China, and Japan are now competing through direct equity stakes in national champions and critical industries. This regime shift demands larger, more active states and guarantees higher government spending, debt issuance, and—by extension—monetary inflation.

— Crypto and gold as monetary inflation hedges: Global liquidity changes predict crypto price movements with 30% correlation (R²). Crypto shows 8x sensitivity to liquidity swings versus precious metals' 2x. China's PBOC liquidity drives gold; Western global liquidity drives Bitcoin. A portfolio need only 5% crypto allocation to hedge monetary debasement substantially.

— Trough timing for crypto: Bitcoin likely bottoms in late 2026 to mid-2027, tracking the global liquidity cycle downswing; substantial upside follows once monetary inflation hedges are re-priced in response to expected debt expansion and money printing.

— Position for monetary debasement: Allocate 5% or more of a portfolio to crypto (Bitcoin, Ethereum, Solana weighted ~60/30/10) and precious metals as hedges against monetary inflation. History shows crypto is 4x more sensitive than gold to liquidity expansion, making it the superior long-term hedge if monetary inflation accelerates as expected.

— Accumulate weakness in Bitcoin and crypto: Expect a bottom by late 2026–mid 2027 based on global liquidity-cycle analysis. Once stabilization is visible, initiate positions, as a 40–45% correction from prior highs—within a single year—presents a shallow bear cycle historically and may precede substantial upside once the liquidity tailwind returns.

— Monitor Treasury yield curve and SOFR-to-two-year spreads: If these two-year yields continue breaking above overnight SOFR (now tracking 2021–22 tightening behavior with 85–90% historical accuracy), expect broad risk-asset weakness and margin calls in leveraged positions before the Fed formally hikes rates. This signals monetary tightening is already embedded in markets.