Interest rate rise globally - bond selloff

Investment Analysis Clubs Macro Economic Trends and Risks
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I think it’s become much more of a catch all thread that only loosely relates to macro. The topics are at times interesting and the discussions passionate. It does little to inform investors doing ground up analysis. In many ways, it can be a distraction.

When I am looking for evidence, I mean long term, like decades and whether that outperformed after tax simply a buy and hold strategy. Part of what may be a bias on my part is the bulk of my investments are held in taxable accounts. It’s punitive to trade more frequently.

Munger and his partner Warren Buffett thought that trying to predict the broad economy was a waste of time. They believed the macro environment changes too fast and remains too complex for anyone to predict reliably.

Munger noted, “Gigantic macroeconomic predictions are something I’ve never made any money on, and neither has Warren.” –

Legendary investor Peter Lynch famously stated that if you spend 13 minutes a year on economics, you’ve wasted 10 minutes.

Apr 29, 2022 — “We think any company that has an economist has one employee too many,” Buffett said at Berkshire Hathaway’s (BRK-A, BRK-B) 2015

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Munger said some smart things about 4547. 4547 is our acting economist right now. Lower interest rates! Raise interest rates! Which is it?

About BRK

  1. Peak holdings: The cash and Treasury bill hoard reached a record high of $397.4 billion at the end of the first quarter of 2026.

  2. Recent decline: Holdings fell to $364.7 billion by June 30, 2026, marking an 8% drop (or about $32 billion spent) and the first sequential quarterly decline in more than three years. [1, 2, 3]

The trend can only be up for interest rates. Until we crash.

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Claude.ai

Are the global markets about to crash between now and the same time next year? Answer about the US, but keep in mind China’s economy.

Short answer: nobody knows, and a crash isn’t the base case, but the odds of a sharp correction are higher than normal.

US, as of now

  • Economy still growing. Real GDP grew at a 1.5% annualized rate in Q2 and 2.1% year over year, and employment, income and credit conditions keep near-term recession risk contained.
  • Recession odds are elevated but not majority. Back in March, Moody’s Analytics put 12-month recession risk at 48.6%, Goldman at 30%, Wilmington Trust at 45%, EY Parthenon at 40%, versus a normal baseline near 20%. By August, a 2026 recession didn’t look like a given, but the economy was sending mixed signals: inflation elevated, job growth slowing, consumers strained by prices and borrowing costs.
  • Market structure is the real vulnerability. Schwab’s mid-year view: leadership is narrow and concentrated in AI and energy, and markets may be vulnerable to disappointment given stretched positioning, a thin equity risk premium, and rising bond yield pressure. Goldman’s CEO has warned of a possible 10–20% decline over the next one or two years as investors reassess high multiples.
  • Wildcards: Middle East conflict and energy prices. The Fed’s July statement noted the conflict was clouding the outlook and supply shocks had pushed up energy prices. That limits how much the Fed can cut if growth stalls.

China

  • Not a crash trigger on its own, but a persistent drag. Deflation has run roughly ten consecutive quarters, property investment is down 50–80% from peak, and youth unemployment hit 16.9%. Home prices have fallen for four and a half years, a wealth destruction on par with America’s 2008, and Beijing is unlikely to deploy real consumption stimulus before the 2027 Party Congress.
  • Transmission to the US is mostly through export dumping (cheap goods, pressure on US manufacturers) and commodity demand, not financial contagion. China ran a $1.19 trillion trade surplus in 2025; that keeps flowing outward as long as domestic demand is dead.
  • Tail risk: a debt-deflation spiral, with national debt near 300% of GDP. That’s a multi-year story, not a next-12-months one, unless a big property developer or local-government default forces it.

Bottom line

Most likely path over 12 months: US avoids recession but eats a 10–20% correction at some point, driven by AI valuations, energy, or a Fed that can’t cut. Full crash (30%+) needs a recession, and the odds of that are roughly a coin flip at worst, one-in-three at best. China worsens the trade and manufacturing picture but doesn’t cause a US crash by itself.

Not financial advice; I’m not an advisor.

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Short version: a formal default is nearly impossible without Congress, so the realistic paths are soft defaults — renegotiating terms under coercion, or inflating the debt away. Ranked from most to least plausible:

1. Financial repression via the Fed (most likely, already underway)
Push the Fed to cut rates and eventually cap long yields below inflation. Bondholders get paid in full nominally but lose in real terms. Miran, author of the restructuring playbook, is now a voting Fed governor, and Treasury has said it will lean toward short-term maturities through late 2026, which makes debt service hypersensitive to Fed rate decisions. The Fed did explicit yield control in 1942 and 1951 to fund war debt. That’s the template. No default, no Congress, just negative real rates for a decade.

2. Coerced swap into century bonds (the “Mar-a-Lago Accord”)
Foreign central banks swap their T-bills for 100-year zero- or low-coupon bonds, under threat of tariffs or loss of the security umbrella. Analysts across the spectrum describe this as a restructuring that is essentially a default. The excuse: “you’ve free-ridden on US defense and dollar liquidity; this is your fair share.” Problems: tariff threats have lost credibility through overuse, and pushing too hard drives holders out of dollars entirely. The April 2025 Treasury sell-off after Liberation Day was the market’s preview.

3. Selective repudiation of adversary-held debt
Declare China’s roughly $700B in Treasuries frozen or subject to “user fees” as retaliation for trade practices, IP theft, or Taiwan. Miran’s paper floats user fees on foreign central bank holdings. Legally shaky, but Russia’s reserves got frozen in 2022, so the precedent exists. This is the one where a geopolitical crisis supplies the excuse.

4. Debt-ceiling brinkmanship as leverage
Let a payment date slip, call it “prioritization,” then use the chaos to force Congress or holders into accepting new terms. 2011 and 2023 showed how close this gets. The 14th Amendment says the debt “shall not be questioned,” which is why administrations always blink. Low odds unless Trump wants the crisis.

5. Gold revaluation and the sovereign wealth fund
Mark gold from $42/oz to market, book roughly $900B in “profit,” and use it to retire or offset debt. Not a default; an accounting trick. Also the sovereign wealth fund is meant to play into this but nobody’s explained how.

Binding constraints

  • Congress controls the purse; Treasury can’t unilaterally alter bond terms.
  • Roughly 70% of Treasuries are held domestically — banks, pensions, money markets, the Fed. Any “renegotiation” hits Americans first.
  • The whole system runs on Treasuries as the risk-free collateral. Impair that and repo, bank balance sheets, and money funds seize up faster than any foreign holder can be coerced.

So the path with the least friction is #1, and it doesn’t need an excuse. It’s happening under the label “rate cuts.”

Not financial or legal advice.

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Claude’s quality responses are worth it. Not the cheesy stuff from Chat or Gemini.

This last bit is worth juxtaposing against 4547. Harvard and many other institutions doing extremely important work in cancer research have been cut off even though court orders say otherwise.

The whole system runs on Treasuries as the risk-free collateral. Impair that and repo, bank balance sheets, and money funds seize up faster than any foreign holder can be coerced.

Let a payment date slip, call it “prioritization,” then use the chaos to force Congress or holders into accepting new terms.

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For those us investing from the ground up, it is the business that informs our decision making and the micro determines the macro. The reality is that in 2028 someone else will be President and we’ll have to adapt to those conditions, whatever they are.

Berk’s cash position is a function of finding little right now worth buying and that certain positions seem stretched from a valuation. Buffett has admitted in the past that it may have been better to simply hold some of these businesses despite the valuations.

It isn’t that markets won’t correct, they always do. It’s a matter of when and can one predict it and make money off of it. For those with the investing window and risk tolerance, the general trend is up and to the right. I agree that the lack of fiscal responsibility will continue to probably add inflationary pressure and interest rates may continue upward. I have zero certainty as to what will be the outcome. In the interim, the loss has been a 40% return in the index vs whatever cash has yielded in the last 2 years.

Harvard has a 56 Billion endowment fund that grew by 11% in 2025 alone. They have increased since 2000 the administrative ranks by more than 43%. Maybe Harvard should start spending some of its own money and employ more researchers rather than non teaching bloat.

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We want two different societies. Mine acheives far more.

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I think those that want a better society do so from the ground up. Very rarely, do these people weigh in with grand plans on how society should be ordered but work to affect change. It’s usually those that don’t have their own house in order or carry little influence weighing in with grand notions of how society should be constructed, usually as a distraction from their own problems they want to avoid.

I want people to be able to pursue largely their own interests unencumbered by what others that have often done little telling them how it should be. In large part, it’s worked and has collectively made the world a better place.

What is interesting is much of the Macro discussion here does tend to tilt away from the objective presentation of information to more of a pulpit telling the rest of us how the world and society should be ordered. The intentions are always noble but it is effectively old men shouting at clouds. It’s fascinating that it gravitates to a place primarily focused on investors helping investors. Rather than anything of substance, it’s often a lecture on the ills of the very framework that helps create wealth and lifted people out of poverty.

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???

Your quibble makes no logical sense. I told you what I did in 2020. It has turned 100k into over 600k. That outsized performance is never going to be less than what it would have been if I made no change. I can put it into a S&P500 fund today and I will ALWAYS have more than if I had left it alone. Even if the market craters from here, my total will always be higher than the alternative buy and hold strategy.

You are building a strawman - conflating my statement that macro noise is important to take into account with some idea of predicting the market. Buffett absolutely considers macro factors in his decision making - he just doesn’t use such to forecast the future. What you are suggesting is that Buffett would otherwise ignore things like inflation - which are macro. He does not:

One of the enduring misconceptions among investors is that Warren Buffett ignores the macroeconomy. To the contrary, a careful reading of Mr. Buffett’s shareholder letters over many decades makes it clear that he closely monitors macroeconomic conditions. It is more accurate to say that Berkshire Hathaway rarely makes bets directly on macroeconomic factors. This does not mean that Mr. Buffett ignores the likely effect of macroeconomic developments on individual businesses when he makes investments or strategic decisions regarding Berkshire’s current businesses.

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You are the one with no evidence. LOL

No one is trying to tell you how to live. Your business won’t be shut down. But if we fail because of the debt, you will fail.

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I’m not quibbling with your result. It’s fantastic but tells me nothing about your overall portfolio performance or how you have done applying this information over a much longer period of time. In other words, I have positions that are 20x since 2020. It doesn’t speak to my overall stock picking abilities or my total portfolio performance over the long haul.

Buffet had an evolution in thinking driven by Munger’s influence after the partnership closed and Berkshire became what it is today. The result was a refocus on businesses with sustainable moats and pricing power and willingness to pay a premium for these rare gems. Interest rates play a role in determining the price to pay but he pays little attention to their movements or predictions of where they may go.

“Though he famously detailed the microeconomic damage of inflation in his early 1980 letter, his recent commentary returns to the idea that the only true protection against an inflationary macro environment is owning high-quality businesses with strong pricing power (like See’s Candies or Apple) that require minimal capital to grow. [1, 2, 3]”

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Perhaps that is the disconnect. You appear to assume I am constantly (or frequently) timing the market based on such. That is not the case. I am simply using, what is clear to me as significant and acute macro factors as to when to get in or get out of either entire industries or out of equities. Those opportunities are very uncommon with only four of them in the last two decades - and I acted on three of them - each time to my benefit.

Great! I am not claiming any stock picking abilities either. That is the entire point - that macro noise allowed me to have a much better performance than if I had just maintained a 20-year buy and hold strategy.

Two things can be right at the same time. Your strategy of picking individual companies and ignoring the macro can work for you while me buying indices and paying attention to the macro can work for me.

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I find the quickest way to reduce personal debt is to stop the spending that keeps increasing it. Where prices have gotten highest, it seems to be in areas where the govt has sought to intervene most to fix the problem.

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It is the opposite with the federal debt.

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We’re past the point that increased revenues alone will solve the problem.

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No, I’m not assuming that you are constantly trading. You are moving, at least as I understand it, large portions of your portfolio in and out of the equity markets. Again, the disconnect is you have yet to tell me what the long term CAGR is for your overall portfolio to have a sense of whether it works vs just the events over the last 6 years. For example, the QLD has a 20 year CAGR of 26%. Would you have been better off just holding vs moving in and out, regardless of the frequency?

I would agree there are multiple approaches. I just rarely find and nor do professionals seem to adhere to it, a strategy that is based on macro indicators or predictions that after taxes and fees tends to outperform.