Why is it that at this time, buying U.S. Treasuries has a better cost-effectiveness than buying Bitcoin? How should we operate specifically?
First, let's discuss two concepts.
First, U.S. Treasuries are the cornerstone of modern finance. The entire stock market, real estate market, commodities, and all financial markets you can think of are fundamentally based on U.S. Treasuries.
Second, the price of U.S. Treasuries is inversely proportional to yield, meaning when everyone buys U.S. Treasuries, bond yields will go down, and when everyone sells, yields will go up.
U.S. Treasuries are essentially America's ability, as a person, to continuously borrow new funds to pay off old debts, or rather, its credit. Once the world begins to question America's ability to repay debts, or even to pay interest, the entire stock market, housing market, and the purchasing power of the dollar will start to collapse. A default on U.S. Treasuries would be a nuclear-level event; not just for America, the entire world would enter a depression more terrifying than 1929.
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So last Wednesday, the king of understanding suddenly compromised, actually because U.S. Treasury rates suddenly rose (someone was selling U.S. Treasuries wildly), and the next day, the king quickly retracted policies to stabilize bond market confidence.
This point is actually counterintuitive. Why?
Generally speaking, when the U.S. stock market falls, safe-haven money should flow into the bond market and the U.S. dollar because U.S. Treasuries are stable and will not default. The simultaneous sharp sell-off of U.S. Treasuries during a stock market decline, even causing a triple whammy of stocks, bonds, and currency, has never happened in previous U.S. financial crises.
So who is selling U.S. Treasuries?
Some say the whole process is retaliation from across the Pacific, but this doesn't hold water because, first, they don't have that many U.S. Treasuries; if the rumored selling speed is accurate, they would run out in 10 days. Secondly, U.S. Treasuries are assets of creditors; rational people wouldn't sell all their possessions just to express a stance. More importantly, there hasn't been a significant change in currency exchange rates, indicating that it isn't primarily the other side that's selling.
Another possibility is that U.S. hedge funds are deleveraging in basis trading (which I mentioned before, where the Black guy talks about the Fed saving the market), and there are rumors of a Japanese hedge fund that leveraged U.S. Treasuries going bankrupt, along with European capital selling off, etc. Of course, some countries' capital appears in the form of hedge funds, so we can't specify which country is selling.
Overall, it is the capital from various countries, for various reasons, that has collectively sold off, creating the current situation.
This is also the most profound and cautionary vote of distrust from the entire world regarding the king of understanding's tariffs and diplomatic policies.
That's why the king of understanding backed down quickly, directly pausing reciprocal tariffs; being a businessman, he understands the bond market.
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Alright, now let's talk about investment opportunities.
After this battle, we have already seen the king of understanding's trump card. You think he has pocket aces, but in reality, it's just a king high. He isn't bluffing because he is bold; he truly believes he has the nuts.
And what is the result? The result is today's news: exemptions for electronic products, semiconductors, etc.
In fact, U.S. Treasuries are his trump card and red line; 4.5% should be the bottom line. Approaching this bottom line requires releasing positive news. We know that at this yield, buying U.S. Treasuries is relatively safe, and this is the real Trump Put.
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I believe this is a good opportunity to go long on U.S. Treasury prices because as rates decrease, prices increase, maintaining an inverse relationship. I have previously mentioned that Bessent repeatedly says he wants to lower the 10-year yield, but his boss keeps causing him trouble. Overall, I believe that the total trend over the next 15 months will be a decrease in the 10-year yield.
More importantly, if he combines the potential upcoming U.S. economic downturn, weak consumption, lowered corporate earnings guidance, and even recession (what I'm saying is just a possibility), then the speed and magnitude of interest rate declines will be greater. If no recession occurs and the U.S. economy remains robust, even in a basic case, Bessent would find a way to lower rates.
So no matter how you look at it, if you extend the timeline, this bond crisis (can it be considered a crisis? It probably can't compare to '94) has given us a very good opportunity to bottom-fish in bonds. That's why I shared Howard Marks' article earlier; he has already bottom-fished $10 billion in U.S. Treasuries.
At the beginning, I mentioned that the cost-effectiveness of buying U.S. Treasuries may be higher than that of Bitcoin because U.S. Treasuries have higher certainty in the next 1-2 years, and there is enough room for growth (thanks to the crazy king). Whether it's a soft landing or a recession, regardless of the speed and magnitude of the Fed's rate cuts, there is a logical basis for going long on U.S. Treasuries. And more importantly, the facts have already proven that we have the Trump Put.
Bitcoin, on the other hand, relies more on a narrow economic outlook, and it is at the end of its cycle. I'm not saying Bitcoin can't make money, but its cost-effectiveness is somewhat lower (lower Sharpe ratio), meaning the additional returns for the risks taken are relatively lower. I'm talking about qualitative analysis, not quantitative.
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To put it simply, regarding specific operations: considering your own situation, let me give an example. You could choose to build a position in TLT/IEF over the next 2-3 weeks, or in extreme cases, buy TMF at a yield of 5.0%, or you could design a U.S. Treasury investment portfolio.
Of course, as always, we need to control our positions and not go all in. Preventing tail risk is one of my most important investment principles. There is nothing truly impossible in this world.
