Stephanie Pomboy — Has The Grand Game Just Changed?

2:06 Adam's frame: a Fed trying to stop intervening

• Warsh reaffirmed at Jackson Hole that he wants to restore "the purity, the integrity of the market signal" — the Fed should react to the market, not the other way round.
• Adam relays Arthur Laffer (86, has known Fed chairs back to McChesney Martin): Warsh may be one of, if not the most, meaningful Fed chairs of his lifetime, possibly for decades — a Fed of last resort rather than first resort that sits on its hands through run-of-the-mill corrections.

4:06 Ending the Fed put — and the Greenspan 1986–87 parallel

• She agrees: this is about eliminating the Fed put installed by Greenspan in '87 and "burnished Fed chairman after Fed chairman" for four decades.
• The parallel: Greenspan took over in 1986 articulating a hawkish stance, the long end edged higher and higher while stocks "thumbed their nose" at it from late 1986 through summer 1987 — until they couldn't. He capitulated and "became the father of the Fed put."
• She thinks about it daily watching 10-year yields rise globally while equity investors treat it as not-an-existential-threat — "yet being the operative word."

8:48 The one chart: crises at successively lower yields

• Her view of markets has been shaped by one chart — the long-term Treasury yield with every financial crisis marked. Each crisis struck at a lower level of rates than the last, because leverage rose as rates fell: "your sensitivity to any increase in rates increases dramatically as you take on more leverage."
• That's why she was in the "we can't handle higher rates" camp — rates would barely move and it would be lights out for marginal borrowers.

9:49 Stress behind the curtain: bankruptcies and private-credit re-marks

• "The greatest wave of corporate bankruptcy since the global financial crisis" — just not high-profile enough to catch the average investor's attention. Credit stress on the consumer side too.
• Private-credit assets that actually have to trade are trading at huge haircuts to prior marks. "All is not nearly as strong underneath the surface."

11:04 Why no crisis yet: the put fed "extend and pretend"

• She'd have expected a crisis by now — rates rising since '22, SVB, the bankruptcy wave, but no cataclysmic meltdown.
• Her explanation: markets were so inured to the Fed put that after SVB (when the Fed "immediately started to inject some juice") investors priced cuts in 2024, then 2025, then 2026 — "extend and pretend" to bridge to the cut that's always right around the corner. Take Warsh at face value and that expectation "has just gone right out the window."

12:50 Pavlov in reverse: it takes repeated pain to untrain

• Four decades of tutoring investors that the Fed will always be there isn't untrained in four days or four weeks. It takes "repeatedly getting bonked over the head with this hawkish message."
• Concretely: the stock market down 5–10% in a handful of days or weeks with no dovish commentary from Warsh — "over and over and over again" — before investors believe he means business.

13:45 Two messages: Bessent the interventionist, Warsh the free-marketeer

• The administration talks out of both sides of its mouth: Bessent "couldn't be more interventionist" (yen intervention fails, then a buyback announcement that "flubbed"), while Warsh welcomes the bond market tightening for him.
• The hoped-for plan was a Laffer-style Fed-Treasury accord "à la Volcker": Treasury beats Congress into fiscal restraint, pressure comes off the long end, Warsh shrinks the balance sheet and then cuts. "Right now the markets are certainly not cooperating."

17:01 What's cushioning a 5.2% 30-year — and why it's new

• Adam's three cushions: AI capex, a reshoring manufacturing boom, and interest income flowing to bondholders. She agrees on AI and adds the corporate-profits boom — but that's only a 12–18-month story; it wasn't what carried 2023–24.
• For equities, either fundamentals or liquidity has to be working for you. Today positive fundamentals offset a hawkish Fed — which she prefers — but near term it's "a real comeuppance" for investors tacitly relying on four decades of support.

19:17 Eerie echoes of 2007 in hyperscaler credit

• In summer 2007 asset-backed commercial paper came unglued — the first flash point where the 2005 housing bust reached creditors' balance sheets.
• Today: higher borrowing costs for hyperscalers and rising credit default swaps. Credit, "always the first to sniff out potential issues," is demanding a bigger risk premium for circular financing and malinvestment fears; equities are "still fairly zippitydah."

21:18 Look through spreads: junk now borrows at 7.4%

• She takes credit for the crowding-out call everyone now repeats ("a little Johnny come lately").
• People fixate on narrowing junk spreads, but the absolute cost is what matters: junk borrowers pay 7.4% vs 4% at the zero-rate trough, and that debt is rolling at the new rates.

22:07 The roll-and-compete problem

• Bankruptcies plus ratings downgrades. The question is whether companies can roll their paper against higher rates and competition for capital — the federal government, municipalities, consumers and the AI borrowing boom all want money, plus $1.2T of old corporate debt to roll.
• She expects a high-profile issuer's roll or new deal to "really not go well" — a little of it is already visible — but complacency about credit risk will take a while to penetrate.

26:04 1920–21 as the ideal — odds "very low"

• Adam reads an X post on the 1921 depression that Harding and Mellon let burn out (spending halved, taxes cut) with the economy roaring back within 18 months. (His read of the Fed as "created… in 1983" is a slip for 1913.)
• She's "sort of an Austrian" and would love free markets without Fed or Treasury intervention — the reason we're here. Odds very low, though a second-term Trump has nothing to lose and history would vindicate a brutal cleansing.

27:32 Zero chance before November 3

• "Zero chance of anything like that happening between now and November 3rd." The Venezuela oil deal, beef imports and Bessent's buybacks are "desperate attempts" to win the affordability argument before the midterms — "they'll just do whatever it takes."
• After that it's open: they could build a legacy by ending the interventionist era — "ironic to see all these crazy frantic interventions in the leadup to that kind of a shift."

28:39 Her cover note: interventionist Treasury vs free-market Fed

• Last week's MacroMavens cover note set Bessent's interventionist policy against Warsh's free-market treatise; how the two play out over the next several months is the question, though they've surely coordinated some joint plan.
• Adam relays Laffer: no drama, no battle — they serve different masters. Warsh answers to the banking system and his independence mandate; Bessent works for Trump and "just has to say yes sir."

30:41 Has the put moved to Treasury? Near term yes — but the yen move failed

• "In the near term for sure." But the yen intervention was "obviously a spectacular failure" that Bessent — Soros's right arm against the Bank of England — should have known would fail.
• A central bank can push its currency lower indefinitely by printing, never higher; "the fundamentals will always win out." A "reckless" and "desperate gambit" to get Japan to stop liquidating Treasuries.

31:48 The TGA "trillion dollars of firepower" is nonsense

• When doubling buybacks from $2B to $4B lacked "oomph," Bessent floated using the Treasury General Account — almost $1T of firepower — and she's "gobsmacked" at how many ran with it.
• "We're running a two trillion dollar deficit." The TGA "is a checking account. That money has all been pledged and then some"; the calendar just leaves $1T sitting there for now, and whatever he taps must be replenished. "It's all nonsense."

33:32 Her theory: scare the shorts before the midterms

• Her operating framework now is "whatever it takes before the midterms." She's been bearish on rates, with one caveat: a record spec short in the long end. A hint of fiscal discipline or an end to long-dated issuance could trigger a massive short-covering rally.
• So the $1T is a loaded gun to flush the shorts. Not sustainable — no money, no fiscal discipline, foreign central banks still diversifying — but a month of it could knock ~100bp off mortgage rates for voters heading to the polls. "That's the gambit."

35:07 If he wants a real trillion: revalue the gold

• Revalue the gold reserve from $42/oz to today's price and it goes "from 10 billion to one trillion overnight" — a sustainable kitty to hold down the long end. A "radical idea" that could become mainstream.
• Why is it still at $42? "I have no idea." Gold bulls started doing the math when Bessent first spoke of monetizing the asset side of the balance sheet; not imminent, but a growing discussion point if the bond market keeps this up.

38:06 JGBs near 2.8% — the carry trade hinges on dollar-yen

• Whether rising JGB yields kill the carry trade depends on USD/JPY: when the BoJ abandoned yield-curve control, yen weakness "became the valve."
• That's why Bessent's intervention was high-risk: stopping Japan's Treasury selling via a de facto "yen put" risks unwinding a trade that sourced money for positions everywhere — EM, Europe, AI hyperscalers.

40:23 Central-bank ammunition is quantifiable

• Fighting a currency falling for fundamental reasons is very hard — "you cannot fight the fundamentals indefinitely." What made Soros able to hold the line against the BoE: a central bank's spending is quantifiable, so he could count how much ammunition they had left and just "suck it up" for the remaining rounds.

40:48 How seismic is a carry unwind? Maybe less than pre-COVID

• No way to quantify it; it was long the chief source of financing for levered positions, but may have become less of a factor once the US ran its own 0% money era — impactful, perhaps not the systemic rug-pull it would have been pre-COVID.

42:03 Leverage: $40T federal debt, record margin debt

• Adam's chart: federal debt under $6T in the dot-com bubble, under $10T into the GFC, now $40T+ — more than quadrupled.
• Her point: whether funded in yen or dollars, "the pure leveraging of financial assets globally is a huge vulnerability" while global bond markets re-rate aggressively. Margin debt is at its highest ever.

44:11 Haves vs have-nots: the top 10 vs the other 490

• The "50% earnings growth, so corporates can service anything" argument ignores that the top 10 balance sheets are nothing like the other 490 — and across all US companies it's "much less inspiring."
• Even in the Mag 7, companies are going free-cash-flow negative: the balance-sheet-strength myth should be shattered, and higher interest expense will bite earnings — for marginal firms, to the point of failure. That's the bankruptcy wave.

48:10 Venezuela's 100-year lease: timing is about price expectations

• Adam lays out the pitch (untapped deposits, a 100-year lease, US heavy-crude refining). Her read: a long-term game-changer, but the timing is about persuading people prices will come down meaningfully later — limiting how far they rise now amid Iran.
• Next few years it's irrelevant to supply, yet "not irrelevant," because expected future supply caps near-term prices — "a cushion," into the midterms and after Iran wraps up.

50:58 Oil won't drop like a stone — a near-term energy bull

• Despite Trump and Bessent promising lower prices after Iran, the whole world must rebuild depleted oil reserves, and a bearish energy call requires assuming the AI bubble busts — AI demand looks steady-state if not accelerating.
• Dismissing Venezuela is like dismissing Greenland's rare minerals. "In the near term, I'm a energy bull" — prices hold or edge higher, not explosively.

53:34 Really a China deal

• Between Iran and Venezuela, China's access to its main oil is "greatly compromised" — maybe the bigger lens is trade, national security and a strangle-hold on China, not the oil price. Adam agrees: US-vs-China is the overall game.

57:55 The biggest if: 2028

• Adam's "gas station to the world" case (Canada deal + Venezuela + Iran capitulation) is a multi-decade game-changer — she adds the biggest if: that this administration or something like it prevails. A Democratic-socialist win in 2028 ends it swiftly ("drill baby drill will not be part of their platform").
• "It's very binary" — continue on this plan or go 180 degrees the other way.