Making Hay Monday – September 2nd, 2025

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David Hay

Editor

Haymaker

Making Hay Monday

Aligning with a consensus view (plus, revisiting a Strong Buy)

“The strain now being applied to Jerome Powell bears an uncomfortable resemblance to the pressure once exerted on Martin and Burns*… If Trump gets his way, as history strongly suggests he will, the inflationary fallout may once again be just as severe.” –Goehring & Rozencwajg, 8/25/2025

*Bill Martin and Arthur Burns were Fed chairmen in the 1960s and 1970s, respectively, who were intimidated by Lyndon Johnson and Richard Nixon into ill-advisedly easing monetary policy, triggering the inflation eruption in the ‘70s

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The Joy of Confirmation Bias

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Let’s be honest: Who doesn’t rejoice when someone agrees with your viewpoint, particularly if that person happens to be an expert? That’s the emotion I experienced recently when I listened to a podcast the uber-popular Adam Taggart did with Jim Masturzo from the investment advisory juggernaut, Research Affiliates (RA).

RA, which boasts nearly $160 billion in assets under management, was founded by one of the superstars of the investment industry, Rob Arnott. Jim Masturzo runs their fixed-income assets; thus, it is no exaggeration to consider him a bond market maven.

Fittingly, for a fixed-income specialist, Jim made a bullish case for U.S. Treasuries during his chat with Adam. He’s got some strong data behind his views, particularly the high level of negative bets against the 10-year T-note in the futures market. As this newsletter has repeatedly noted: when this is the case, rallies typically are near at hand.

Actually, he’s got other bright people in his camp, too. One of those has become a regular on Adam’s Thoughtful Money show, the telegenic and cerebral Stephanie Pomboy, the MacroMaven herself. Her current bullish-on-bonds outlook is heavily predicated on the present level of intense bearishness on the part of the investment community at large, and the hedge fund segment in particular.

Candidly, I have to admit I share that negativity… and, Lord knows, I hate being aligned with the majority. Look what happened to me – and Stephanie – back in 2022 when we reluctantly were in sync with the consensus regarding the high probability of a recession.

Interestingly, though, both Stephanie and Jim articulate a downbeat long-term view of the U.S. dollar (USD). The interesting part is because a weaker USD and higher T-bond prices don’t usually go together. This is due to the fact there continues to be many trillions of Treasuries still held by foreign investors.

When the USD is entering an extended bear market, as it appears to be doing this year, overseas investors tend to flee, especially from U.S. government bonds whereby a depreciating currency is an unmitigated negative. This is in contrast to stocks where a weaker USD can be offset by the positive earnings impact from a depreciating greenback. (A softer USD helps U.S. companies compete against foreign rivals, as well as embellishes profits from overseas operations.)

Even when the USD was rising, as it mostly has over the past five years, international investors were turning their collective backs on Treasuries, other than of the shortest maturities. Now that the tide seems to be going out for the greenback, this offshore divestment of U.S. Treasuries (USTs) should logically accelerate.

This is why I’d treat any bond rally as one to rent not own, as they say on Wall Street. Actually, that’s what Stephanie is anticipating; she’s looking for what she calls a “Pavlovian” rally, a characterization shared by the Bond King Jeff Gundlach and one I’ve shamelessly borrowed (okay, stolen). In other words, she feels the mounting evidence of risks to the U.S. expansion should produce a near-term pop in longer term UST prices. But, after that, the outlook is much less rosy.

Speaking of, even die-hard bond bull, David Rosenberg, popularly known as Rosie, is beginning to have his doubts about the durability of any distant-maturity bond rally. In his case, he’s increasingly alarmed by the threats to the Fed’s independence and, particularly, its ability to tighten monetary policy when conditions warrant. It’s becoming difficult even for Rosie, whose research I’ve read almost daily for over 20 years, to ignore the inflationary inclinations of the Trump administration.

Despite his putative bond optimism, Jim Masturzo is apparently skewing his bullish bond bets to what is known as the “belly” of the yield curve. This generally involves five- to seven-year maturities. Frankly, this is another confirmation-bias bell ringer for me.

That’s been my preferred way to play falling short rates and a steepening yield curve (i.e., shorter rates moving well below longer rates; the opposite of the inverted status that ran from 2022 through most of 2024). Based on the fact that longer Treasuries have actually moved down in price and up in yield over the last year, even as the fed funds rate was slashed by a full percentage point, that’s been a good call. To my mind, the belly of the curve remains a preferred way to lock in yield and position for a small amount of capital appreciation should the Fed reduce rates considerably more, a move I fully expect.

For those willing to take on more risk to generate much higher potential total returns, I continue to like AGNC, one of the leading mortgage REITs. It’s moved up a couple percent in price since the tout I gave it back on July 21st, but it’s still yielding over 14%.

Should the Fed acquiesce to President Trump’s ardent (obsessive?) desire to force short rates down by 2% or 3%, that may allow it to actually raise its payout. That has been the pattern in past Fed easing, and yield curve-steepening, phases.

This edition of MH(A)M is focused on the Haymaker Income ETF Model. Accordingly, there is a diversified vehicle that provides broad exposure to the mortgage REIT (mREIT) space……