Breaking Down Warning Signals from the Bond Market — ft. William Cohan
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Today's number 60. That's the percentage of general admission Coachella attendees who use Buy Now, Pay Later to finance their tickets. Ed, have you ever had sex at a music festival? No. It's fucking intense. No.

I don't know why I like that one. For some reason, I like that one. I think I like the pun jokes. Yeah, it's cute, right? A little bit of a dad humor twist, yeah. How are you, Ed? What's going on with you? I'm doing very well, Scott. My dad's visiting, so I've been hanging out with him, which has been very nice, yeah. What are the Elson men doing together? Like, what did you do with your dad? What did you take him to see? We had lunch uptown, and we walked around Central Park, which was nice. We had lunch uptown, and we walked around Central Park,

We're mostly just getting meals together, which is sort of what we like to do. I'll be having lunch with him tomorrow. We're having dinner together on Thursday. During lunch, I know my dad and me... Oh, you can always... You guys can already hear it coming. Everyone's like putting their hands over their... When my father used to come visit during lunches, he would pause and he would reach across the table and he'd look at me and he'd say, you're such a disappointment. And...

Has that happened to you? I'm still waiting on that one. Anyways. How are you? You're in Palm Beach, right? I'm at Palm Beach. Why? I'm not sure. Probably, I forget. Either my sons have friends here or my partner has friends here. I don't even, why am I here? I have no fucking idea why I'm here. Seriously, why am I here? I don't know. Anyways, we're at this new hotel called the Colony Hotel, and it's what I call a 64 hotel. Six-star prices, four-star service. It's a

And they just throw people at everything. And it's all these nice young people who have no desire to be in the services business who are waiting to go, I don't know, what people do in Florida. Find a bale of cocaine. What do people do here in Florida? Open a nightclub? Fight crocodiles. They have gators here, not crocodiles. That's Africa. But it is actually a really—I mean, first off, it's spectacular here. It's spectacular. I'll put up with—

Especially Florida's passed a law such that like eight-year-olds can work now. I'll put up with that for this weather. Is Trump there? I know he was there last weekend. He must have left because the traffic got noticeably better last night. When he's here, they shut down A1A. Apparently it's ruined that town, the traffic. As soon as he arrives, the traffic just gets unbelievable. Well, it cuts off. They basically close an artery. One of the most beautiful drives, I think, in the U.S. is up to A1A here. And they just close it down because Mar-a-Lago's on the beach.

Although, oh, I got some gossip. I ran into my friend Mehmet Oz. I was at, I think it was at Bibloque, which is a great restaurant here. And I was with a bunch of people. Mehmet, the new head of, I think it's Social Security and Medicare or Medicare or Medicaid. Anyways, overseeing like $2 billion. Who I like, I think is a good man. Came up, said hi. And he said, let me introduce you to Bobby Kennedy. And I'm like, oh, I know. I met Bobby on Bill Maher thinking that we'd like. And he came up to me and RFK Jr. shook my hand and then walked away.

So he's mad at us, Ed. Something you said. Something you said. He's mad at us. Probably something you said. So you've been pretty outspoken about your dislike of Bobby Kennedy, right? That's not fair. I just said there are a few people in modern history that are going to cause more death, disease, and disability. But I'm not sure. He's handsome. I've also said that. He's handsome. It's just, you know.

This whole rubella and measles and kids having limbs amputated unnecessarily, I think that's a bad thing. I think that's a bad thing. Shall we dig into our episode for today? Thank you for the lifeline. Get to it. Okay, let's get to the headlines. But before we do that, I just want to remind everyone, today is the last day to vote for Profiteer Markets in the Webby Awards. So please vote for us. Go to vote.webbyawards.com. Type in Profiteer Markets.

Click business, really holding your hand here, and then vote for ProfitGMarkets, please. We really want to win this. Thank you very much. Now is the time to buy. I hope you have plenty of the wherewithal. President Trump announced smartphones, computers, and memory chips would be exempt from the latest round of tariffs. That news sent the major indices and tech stocks such as Apple and Nvidia rallying on Monday.

Auto stocks also climbed after Trump said he was considering potential tariff exemptions for imported vehicles. The dollar fell to a three-year low against the euro, continuing its downward slide since Liberation Day. Investors remain uneasy over the administration's unpredictable approach to trade policy. As JPMorgan Asset Management's chief investment officer puts it, quote, there is now a very good case for the end of American dollar exceptionalism. And finally,

Wall Street just had its best quarter ever for trading stocks. Trading revenues at Bank of America, Morgan Stanley, Goldman Sachs, and JP Morgan all came in at record highs, helping the banks beat expectations across the board.

So, Scott, let's start with these tariff exemptions. Smartphones, computers, memory chips are now exempt from these new tariffs. This, of course, benefits the big tech companies. It also, of course, benefits Apple. You called this to a T last week. This has probably been your most on-the-nose prediction so far this year. Let's just quickly listen to your prediction from last week. Tim Cook is the CEO or the business person that Donald Trump thinks he is.

He's going to figure out a way to give an exemption to all Apple products. Your reactions? Let me just say I'm really enjoying this podcast so far. Look, this is an easy one. And this is a form of corruption. And that is whoever has proximity to the president or is a popular company or is a big company, this is a transfer of wealth from small business and medium-sized business to big business.

The company that could probably – it would be hugely damaging, but let's go to the other side of the spectrum. I spoke to a fraternity brother of mine from UCLA who built this really nice little specialty products company that – so, you know, if you go to a conference, the mugs, the logo mugs, the fleeces, the signage, it all says, NetSuite by Oracle, and the water bottles at conferences when you go speak somewhere. Yeah.

So that's a big business. And he has built this nice business. I would imagine it's 10 to 20. I mean, small business, right? He doesn't give a million dollars to inauguration. He's not on Trump's radar. No one, you know, it's not an, it doesn't have a cult like Apple does. And I talked to him over the weekend. Basically, his business has been shut down. It's like COVID, but worse. And that is he has to come up with a bunch of additional revenue to get stuff off a ship, a tanker that's on its way that's going to land. He has told all of his suppliers in China to stop producing and shipping.

And there's no way he can turn around to, you know, call it, say Coachella had branded merchandise. He can't turn around and go, oh, I got to increase the amount I was going to charge for those branded stage signs by 145% because of what Trump did. He has these contracts he has to live up to. So he doesn't think the market's going to be able to absorb that type of price increase.

So he has two choices. He can either go out of business or try and reroute all this supply chain madness that's taken him 20 years, slowly but surely, to reroute to China. And you might say, well, he should have known better. He shouldn't have been that concentrated. Well, guess what? The majority of these businesses are very concentrated in China, including Apple. But Apple gets a reprieve. But the 98% of companies who depend upon import and export are small and medium-sized business. They're shit out of luck.

So when it's the richest companies, the companies with proximity to the president, the companies that can give him money for his inauguration, get quote-unquote exemptions, that's corruption. And this is – I mean, there's so many points of light I've been absorbing over the last week here.

I spoke to another, I spoke to the CEO of a pretty well-known Cadillac company, and this person said, okay, I have, whatever, $20 million on a boat of outdoor furniture or sweaters or what have you. I've got to show up with $29 million to get the stuff off the boat. I've got to pay a tariff of $29 million. I said, when the merchandise left Cadillac,

I didn't think I was going to have to pay. So I got to walk into my CFO and say, can I, I need $29 million in 72 hours.

They don't just have that lying around. That's going to hit earnings massively. And then the one I just didn't consider was this person said, and now I've got to figure out a way to get dozens, if not hundreds of people down to the port of Long Beach to re-tag and re-label every single item. Because what people do now or what companies do now is when they order stuff in China, they attach the labeling and the pricing in the factory.

He's like, I've got to reprice and relabel everything. So I've stopped all shipments from China. It's going to take my inventory down. I'm going to have to pass on as much as possible of these prices to consumers, meaning inflation. But at the same time, I'm ordering less merchandise, which means prices go up, sales go down.

I'm looking at charging consumers higher prices. Meanwhile, my earnings are going to get absolutely kicked in the nuts. So every point of light I've seen is small and medium-sized businesses are getting really hammered here. My friend who runs that small business is saying...

He said, Scott, this is like COVID times 10, but I'm not getting any relief. Business has just shut down for me. I think we're going to see the next two cycles of earnings calls, even if they decide all bets are off, which quite frankly, I think they're going to do. I think they're going to back down on almost everything. You wait every single CEO, any weakness in their earnings calls, of which there's going to be a lot, they're just going to say,

The tariffs absolutely wreaked havoc on our business on so many different dimensions, and it took our earnings down. I wonder if this is—we kept talking about a rewriting down of stocks. I think this is the catalyst, and I don't even think we've seen—

The real damage here is like an iceberg. The vast majority of it is below the waterline. We don't even see it. What this has also officially revealed is how this tariff policy has now devolved into basically a game of whack-a-mole, where you just selectively roll back the tariffs based on how the market reacts and based on who gives you a phone call. I mean, it is completely on-the-fly policy at this point. The yields go up.

And the tariffs come down and the yields go down. And he says the tariffs are going to come back up. Now the tech stocks go down and the tech tariffs go down. And now we even see what's happening in the auto market where the auto stocks are hurting. And Trump is saying to the Wall Street Journal that he might make some exemptions for the auto industry and roll back those car tariffs. So

I think what we're seeing now is he has officially surrendered to the markets. He has surrendered to Wall Street, to big tech, to Tim Cook, to Jensen Huang. They've all got his number now.

He's this idea that he's folding left and right and basically signaling to the markets that he has now become a candle in the wind. I mean, there is no strategy at this point. And I think that's a very unique predicament for the markets to digest now, because, yes, these big tech companies, they are seizing back control of the narrative. They are getting more favorable conditions. But is it

a good thing? Is it a bullish or a bearish signal that the president is now

unequivocally bending his knee to the dynamics that are unfolding in the markets. I don't really know. And I think that's the thing that we're going to have to keep an eye on over the next couple of weeks. But there is no doubt that the people who are getting hit hardest here are the small to medium-sized businesses, the very businesses that Trump said he would bring back to life. I haven't heard anything you said since you used the term candle in the wind. Jesus Christ, you're so Princeton.

Let me ask you this. Do they make that university for a man? Do you think any of my colleagues from UCLA have ever used the term a candle in the wind? Let's talk about what's happening to the dollar here. Dollar hit a three-year low last week against the euro. We've talked before about how unusual it was that after the tariffs, we saw the stock market go down and the yields on treasuries go up.

And that's strange because usually when stocks go down as much as they did last week, you see this flight to safety, which means that investors start buying into treasuries, which brings the yield down. And instead, we saw the opposite. Yields went up, which was an indication that the investment community believed that treasuries were not safe. And that's very rare and very alarming, as we discussed last week. So what's happening to the dollar right now is the same dynamic that

but to the power of three. Because in the same way that when investors dump stocks and they usually buy treasuries, in the same way that that's the common dynamic,

When investors start dumping treasuries, usually what happens is they go and they buy dollars. Because for governments and for large institutions, the dollar is generally considered to be the ultimate safety asset, safer than stocks and even safer than treasuries. And we can talk about gold and we can talk about Bitcoin, but throughout modern history, this has been the dynamic. What we're seeing this week is once again the opposite.

the yield is going up and the dollar is going down. So investors are dumping their dollars, they are converting into other currencies. They do not consider the dollar to be

a safe investment. And so this is a continuation of what we discussed last week. We're now seeing a flight away from the US stock market, away from the US treasury market, and now away from the US dollar. So from top to bottom, from stocks and all the way down to dollars, the world is essentially selling America. And the implications here are again enormous because if this continues, if everyone keeps selling their dollars,

then we will lose our position as the world's reserve currency. And you ask anyone who knows anything about economics, they will tell you our reserve currency status is basically the number one reason our country is as powerful as it is today. And it's been described as the exorbitant privilege. And we can get into why it's so useful. The long and short of it is it makes borrowing a lot easier and a lot cheaper for us. But if we lose that, and now people are beginning to talk about that, you saw that

That quote from the chief investment officer of J.P. Morgan, this could be the end of American dollar exceptionalism. If we lose that, then America is really in trouble. We're not there yet, but I just want to explain that, you know, this is the direction we're seeing. This is the conversation that investors are beginning to have. And yes, it is on the table. If people lose faith in our company's ability to pay money back, they're less likely to loan us money, meaning companies and the government have to increase their

the interest rate they offer to people who loan us money in order to justify the increased risk. So our costs go up. And at the same time, our dollars, our remaining dollars, have less purchasing power overseas. So our costs go up and our purchasing power goes down, both in terms of the interest rate we have to offer and also just the remaining dollars we have even after that become worth less. So that's a reduction in prosperity. That means we're no longer going to

we're going to Knott's Berry Farm or King's Island. It means we no longer have 10 gifts under the Christmas tree for our kids. We'd have eight. And if these tariffs hold, given that 77% of toys under the Christmas tree are about to double or go up two and a half X, then you're talking about four gifts under the Christmas tree. So this is an immediate decline in prosperity. When I moved to London, one of the reasons I wanted to buy in London was

was I wanted to diversify out of the dollar. I thought, okay, I'm going to put, I'm going to have some money in another currency. And of course, the moment I did that, I think I bought my place and I converted dollars at, I think, $1.26.

And then it immediately went to $1.10. I remember moving in and thinking, this house is worth 15% less than I paid for it 30 days later. Now it's back to $1.32. And I like the idea of having some assets in foreign currencies. And it just goes back again to this notion of diversification. But the way you grow an economy is you're able to borrow more than deposits on hand, right?

You can borrow $120, a bank can borrow $120 from depositors and lend out $150 because as long as they don't ask for it back at the same time.

You kind of have this great leverage and you can lend more than you would if you were just only lending the money that's been provided to you. And basically, the U.S., because it has the lowest interest rates and the most trust, has the lowest cost of capital in history, meaning we can be more aggressive. And so when the cost of that capital goes up, much less the cost of human capital, think about how difficult it is to get people to come here now.

I mean, people just don't need this shit. Let's move on to this third headline here, which is these big bank earnings. We had earnings from JP Morgan and Bank of America, all the big banks. And just by the numbers here, it was a great quarter for the banks. JP Morgan beat on estimates. Their profits rose 9%. Bank of America also beat. Profits up 11%. Goldman Sachs beat. Profits up 15%. Citigroup beat.

up 21%. Morgan Stanley beat Provis up 26%. I mean, a huge, huge quarter, incredible quarter of these banks. And as usual, they're all kind of telling the same story here. And this is

generally what we see in banking. It's a very cyclical business. Whatever's going right or wrong at J.P. Morgan is usually the same thing that's going right or wrong at Bank of America. You know, last year it was this rise in net interest income. The year before that, it was this downturn in investment banking, etc., etc. So what is the theme today?

Well, it's actually something we predicted, and that is that trading revenues, the money that these banks make from facilitating and executing stock trades, that business is exploding.

It was a record quarter for most of these banks. For Morgan Stanley, the trading revenue was up 45%. And the reason this is happening is volatility. The administration is causing chaos in the markets, which is causing investors to reshuffle their portfolios. They're buying and they're selling, and the banks are profiting off of that. And this is what I said way back at South by Southwest.

The people who are being rewarded here are not the value investors. It's not the people who are investing long term into the real economy in America. In fact, they're getting burned. The people who are winning in the stock market are the traders, the gamblers, the speculators. It's basically the people who want to make a quick buck off of

Scott, your reactions to what we're seeing from the big banks? Very simply, when there's tumult in the market, people want to take moves. A company says, whether it's Mercedes that wants to hedge its exposure to the dollar or whether it's a company that needs to come up with another, you know, another $100 million to offload their products, they're going to have to pay a tariff on they weren't expecting. They have to either raise money, go to a bank or a consumer, right?

I freaked out about this. I'm retiring in two years. I'm going to take down my equity exposure. I'm going to sell stocks. But anything in the news like this just creates more urgency and more action and just more trading. I mean, we've all been, everything we're talking about in terms of diversification, all the moves require a certain or induce, if you will, a certain level of action. What we've been saying is don't do panic selling anymore.

And there's friction in that activity in the form of commissions and trading commissions for investment banks. So whenever there's activity like this and tumult in the marketplace that inspires a lot of actions, buying and selling, the volume of commissions go up. In addition—

There's going to be more exotics and more derivatives and more margin and more kind of sophisticated trading vehicles that clients and corporations will call on. They'll say, I'm worried about the U.S. market. Can you hedge my dollar exposure? And those types of products tend to have much higher margins.

In addition, that sense of urgency, quite frankly, creates pricing power on behalf of the provider, specifically the bank riding those types of vehicles. Calm as she goes, steady as she goes, is not good for these guys, I mean, in terms of trading, because there's just less trading and less sophisticated kind of vehicles that are lower margin. So,

When the bullets are flying, these guys are the arms dealers. But the only thing I would argue is that I think it's a sugar high because I think this is probably suppressing a lot of kind of systemic capital raising like IPOs, debt market offerings. I would think M&A has kind of come to a standstill. The price discovery here is really difficult. What do you pay for something? Well,

The buyer's going to think, oh, it should be 20% less expensive than what I offered you 30 days ago. And the seller is like, no, I'm not buying that. So I think this is a sugar high. I don't think this is going to last for these guys. That's another argument for why...

today as a bank, you have to be massively diversified in terms of your businesses, which is why JP Morgan has been such an outperformer. You know, when we see a downturn in M&A, they have a huge trading desk and they can generate and make up for it in times of volatility like we're seeing today, and they make the money off of the trading. And then, you know, in calmer times, they'll make their money off of the interest.

So the banks will be fine, especially the larger, more diversified banks. And in this case...

the banks are winning. But I just do want to just re-navigate us to what Trump's promises were and also to whom those promises were made. This was all supposed to be a win for regular people, for small, medium-sized businesses, for Main Street, for 401k holders. And again, what we're seeing here is

with these bank earnings, the dynamic we're seeing is actually the reverse. The winners here are the traders on Wall Street. The winners here are the people who are clients of these big banks who can afford to give them a call and take advantage of all of those exotic instruments that you just talked about that generate that higher margin. The losers here are

are regular investors on Main Street, the people who get no benefit from markets going up and down and up and down and up again. You know, there's no benefit from having a volatile market if you're a long-term investor who simply has their assets in a 401k and it's invested in the S&P. At first, it looked like Trump was just kicking both Wall Street and Main Street in the stomach. What we're seeing over the past week

is that he is bailing out or figuring out a way to make his rich friends happier than they were before. But meanwhile, everyone else, all the regular people, they're going to get burned. And just one interesting note, Goldman on their earnings, they didn't mention the tariffs once. They didn't say the word tariff a single time.

I think they probably want to position themselves as calm and unfazed by what's happening. But I think you have to assume that they probably are, to an extent, also actually a little bit unfazed by what's happening. Because I think they have this backstop that regular people don't have, which is that volatility can be a boon for them in the form of trading revenues. And that's what we saw this last quarter.

It's funny, my interpretation of that was it's a giant reach around to Trump that they don't even want to engage in the argument and they're worried about his wrath. So they don't use the term. They just talk about volatility rather than saying the ass clown has created economic uncertainty for all of us. I mean, I know David Solomon. I like him a lot. I think he's a great leader. I am incredibly disappointed that.

Yeah.

And the key attribute of a president is leadership. And leadership kind of comes down to one basic fucking thing, and that's doing the right thing, even when it's hard. And none of these guys are doing the right thing because it's hard to call out just how ridiculously damaging this is to America. There is such a lack of leadership across our Fortune 500 CEOs. We keep waiting. Everyone assumes that, you know, our corporate leaders are the best in the world. They're the best in the world at making profits. They have not demonstrated themselves to be great leaders.

We'll be right back after the break for our conversation with William Cohen. If you're enjoying the show so far, be sure to give the ProfitGMarket's feed a follow wherever you get your podcasts.

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Welcome back. Here's our conversation with William Cohen, New York Times bestselling author and founding partner of Puck. Bill, thanks for coming on. Great to be here. Thank you for having me again. So we talk a lot about the stock market. I think everyone talks a lot about the stock market, especially on this show. We talk a lot less about the bond market.

which despite being much larger in terms of just asset size, I think is quite misunderstood compared to the stock market. So we wanted to have you on today to talk to us about bonds. You've been writing a lot about the bond market in the past couple of weeks. What we saw last week was a fluctuation in yields.

we saw this explosion in the yield on the 10-year, and this was the thing that everyone was very concerned about. So give us an explainer on what happened to the yield on the 10-year, what happened to treasury yields in general last week, why it's important, and why everyone is so concerned about this. Markets are a confidence game. The financial system is a confidence game. And I don't mean that in a negative way. I mean that in a positive way. It only works if people...

continue to have confidence in it. Stock market is all about confidence. You generally believe that a stock is going up or else you wouldn't invest in it, or you'd short it if you believed it was going down. But you have to have confidence that the financial statements are

accurate, and, you know, that's why we have an SEC. We have regulators, you know, that's why they have to file and certify the financial statements. The bond market also relies on confidence. So when the tariffs shenanigans begin, what I call the tariff palooza, began in earnest, there was an initial flight to quality. And what I mean by that is

People sort of ran from the equity markets because they didn't know what the effect of these tariffs would be on corporate profits and people's confidence in the equity market and in the economy generally, whether we're going to have inflation and a recession or stagflation, whatever it was going to be. And so the initial impulse was to run to the safety of the treasury bond market and to

And when this tariff palooza started, the yield on the 10-year Treasury was around 4%. And the next day or so, it rallied and the yield fell to like 3.85%, which is relatively low, especially over the last few years. And so there was this sense that people were seeking the safety of the Treasury bond market. But then once...

People began to realize what these exorbitant tariffs were all about and how convoluted it all seemed and how poorly thought out and how much inflation it might result in. The yield on the bond market began to move up precipitously and got to like 4.5%.

which was basically the largest and quickest move up in the 10-year treasury in like 37 years.

So it really shook people's confidence in what is supposed to be the most sanctified, safest market that there is. While that was all happening, we're describing confidence being shaken. I was watching CNBC, I was glued to the TV, and everyone was talking about the possibility of a credit crisis or a credit crunch. That's sort of the endgame, right?

it sounds like. You know, if yields explode, then it could trigger this credit crisis. Explain to us what actually is a credit crisis. What does that look like? What does it mean on a technical level? And why would it be so bad for our economy? The whole world runs on debt. I mean, you know, borrowings.

And the availability of borrowings, lending money that you can borrow to buy a car, a house, finance an LBO, just finance your business on a day-to-day basis. And as long as there's the debt available at a price you're willing to pay, then the whole system works pretty well.

What happens during a credit crisis or a credit freeze is that that availability of debt capital just dries up. Can't get it.

you know, you can get it at exorbitant rates of interest. But, you know, most people won't pay that exorbitant rate of interest. So just pass on the purchase, pass on doing the deal, pass on the refinancing, whatever it is. And, you know, you know, the markets, I mean, one of the reasons I love the debt markets is because it

shares so much information with you so quickly about risk. You know, it's a place where sort of risk hangs out and you can see it developing on a minute-to-minute basis, like, you know, when it became apparent. And I especially love, you know, the high-yield bond index because that's where a

high-yield bonds, junk bonds are issued by companies with less than stellar credit rating, who have real risk to their credit, but can still get access to capital. That was the great innovation of Mike Milken at Drexel Burnham, providing capital to companies that otherwise wouldn't have been able to get it, and doing it in the junk bond market by issuing these bonds publicly to a large extent.

But they don't have AAA credit ratings. They often don't have investment-grade credit ratings. They have below-investment-grade credit ratings, which means that they have to pay a higher rate of interest to borrow the money than, say, Johnson & Johnson would have to pay or the government would have to pay, assuming we don't default on our debt or we lift the debt ceiling or we don't get too crazy, which...

We happen to be going through a crazy phase now, which is why everybody gets so nervous. And so when the yields in the junk barn markets spike up, you really get the sense that people are...

really risk off, as they like to say on Wall Street, that they'll borrow money or these companies can borrow money, but they really have to pay up for it. So what happens in the junk bond market can tell you so much about

how people are feeling about risk. And last week, the yield in the junk bond market, which was already trending up because interest rates had been rising and people were worried about the economy generally, had been about 7.5%, leapt up to 8.5% like in a day or two. I mean, another huge jump in a very short period of time. So people are really nervous. And that's just the average rate

junk bonds. Some junk bonds are yielding, you know, 20% or more. There's a general sense that last week that either intentionally, you know, using the debt markets as a weapon, and that is people are fed up with Trump and these sort of what they believe are reckless, mutually, you know, assured mutual destruction tariffs, and that they went, the Japanese and potentially the Chinese, went into the bond market and

did some short, you know, fairly abrupt, pulsed sales that took the tenure up to basically say, hey, boss, you fuck with us, we're going to fuck with you. Do you get the sense that's what happened? Personally, I think that's what happened because it's a way to quietly say,

fuck with us, if you will. You know, fuck with us. You know, you're going to do these tariffs? Yes, we'll match you tariff for tariff. We'll play that long game. We've been around for 5,000 years. You've been around for 250. We'll play that long game with you. And in the meantime, we'll drive up the cost of money. Not only, you know, because if you drive up the cost of the government borrowings, which is exactly the opposite of what

you know, the Trump administration was hoping would happen, then it costs more to refinance, it drives up your budget deficits, it drives up the cost of all other borrowings by corporations and individuals because bonds are priced off of a spread to treasuries. And while that spread had narrowed, then in the last few weeks, it's widened again.

So that's what I thought happened, Scott. And that and it was also like a signal that, you know, you need to refinance six trillion dollars of Treasury securities by June. We may not plan that, you know, Scott Besant, the Treasury secretary. So, you know, good luck trying to refinance at anything like, you know, four and a half percent rate. It might be even higher. But, you know, the other day I noticed that Besant came out and said that's not what happened.

Personally, I'm not sure I believe anything that comes out of the Trump administration, so I don't know that I believe that. But something has to account for the largest move up in the 10-year bond in 37 years. If you're a banker, if you were hired by the Chinese Communist Party, if you were hired by the CCP with the mandate of quietly, elegantly devastating the U.S. economy— I can't tell if this is going to be a question or a comment. Well, most of my questions are comments, just discuss it.

I think that Trump, before the thesis of Bill and I are friends, I think the Trump administration has vastly overplayed their hand and has absolutely no sense of how powerful or vulnerable we are. That if China wanted to, they could seriously fuck with us. That they could go into the market, sell their $700 billion, invest.

in treasuries and spike the 10-year and maybe inspire just like a crazy panic here. But they're not stupid. They realize that if they kneecap their third biggest partner, trading partner, behind the EU and Asian nations, that would be bad for them. So they're showing more restraint than we are. Am I overestimating, underestimating their ability to wreak havoc on our economy, given that they're now kind of, I think, one of our largest creditors? Yeah, I think they're our third largest creditor.

with Japan being, I think, a bit bigger. So the two of them could certainly subtly send a message, and you're right,

you know, you don't want to dump your 760 billion worth of treasury securities because that, you know, just like you wouldn't dump, you know, your big position in, in, of stock in a company, uh, without a, you know, proper underwriting or dribbling it out over time because that'll drive the price down. Uh, and you know, you, you won't obviously get as much for them. Uh,

But I think it was a very effective signal. Yes, the Americans buy a lot of goods from the Chinese. But, you know, look, they just said, we're not going to sell you any more rare earth minerals. So they control the rare earth mineral market, and we need those rare earth minerals now.

for all sorts of things. It's like, you know, electric cars for starters. So that's another way that they can be very effective in getting their message out. So to get back to your original observation, yes, of course, it's Trump. He's overplayed his hand in the most ridiculous way

conceivable way possible. I mean, even if you were like a Hollywood script writer, you could not possibly imagine this kind of scenario that Trump has come up with to destroy or to begin to destroy the confidence that people have in our capital markets, which is like

You've talked about so often, Scott, you know, universities are, you know, one of our greatest American assets. Another one of our great American assets is our financial markets. You ruin those. You ruin the confidence that people have in those financial markets. You know, it's a self-inflicted wound. We'll be right back.

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You know, you talk about the idea that what we're seeing in the surge in these yields is a result of an action from the Chinese government, maybe the Japanese government, to fuck with us, as you said. And I feel like these are the two options here. It's either this one-off event-driven situation where the Chinese government has said, hey, we're going to dump our treasuries today just to remind you that you can't fuck with us.

Or it is a larger and more structural change where the entire world is turning away from the U.S. debt markets, away from U.S. treasuries, much like they're turning away from the U.S. stock market. And in that case, what we could see is higher yields for even longer. And I think those are two very different paths, right? In one case, the yield spikes up.

and then it comes back down. In the other case, it continues to slide up and up and up. One is more of a one-off event, and the other is a structural change that is going to last for a long time. I'm wondering, in your view, which path you consider to be more likely. Is this just, you know, premature, trying to...

intervene with Donald Trump? Or is this a structural change and the world is turning away from U.S. debt? You know, honestly, both things can be true. I think both things can be happening. If you look at the 2008 financial crisis, it was caused by a huge flaw in the architecture of Wall Street. This whole idea that

depository institutions, whether consumer deposits or institutional deposits, you know, we're borrowing short and lending long.

And, you know, giving creditors, I mean, Bear Stearns at the end was borrowing in the overnight repo market, basically giving their creditors a vote every day, every night about whether to do business with them anymore. And finally, in March of 2008, they said, you know, enough, I'm not doing this anymore. I'm not rolling over the $75 billion of debt.

overnight repo that you want, and basically, you know, you're out of business. Same thing happened with Lehman, Merrill, almost happened with Morgan Stanley and Goldman Sachs. So that is an inherent flaw in the fractional banking system, in our banking system generally. We saw it again with Silicon Valley Bank and Republic Bank. So we have a basic flaw in the architecture of the system. So that's why that happens, and that's

That's why historically there's been financial crises in this country, usually once every 20 years. As a society, we've said, okay, we can live with a blow-up once every 20 years because, you know, we like banks and private banks, and if we didn't have them, our economy would basically be tiny, and we wouldn't have the dynamism that we do in the economy, generally speaking.

In 2020, we had the pandemic, which was an exogenous factor, freaked everybody out. Economies got shut down all around the world, concerned for a recession. The Fed had to jump in and flood the zone again. And then in 2025, April 25, we have the actions of a single madman who happens to be in the White House.

who can, by executive order, thanks to Congress's inability to seize back that right to implement tariffs or not—I'm still wondering why they haven't seized it back—but they've ceded this to the executive, and he's just going hog-wild with it, loving being the center of attention, as we know. He himself is the one who is causing these fluctuations in the markets, this loss of confidence.

So people are like thinking to themselves, this mad king, we don't have a parliamentary system. We can't vote him out of office. We can't have a vote of no confidence. We can't impeach him. We tried that twice. That doesn't seem to work. We're stuck with this guy for four years. So you're asking if this is a longer term situation. The answer is as long as Donald Trump is in the White House.

and Congress does not take back the power of the tariffs, which is rightly theirs, which they don't seem to be in any hurry to do, this is why there's this massive loss of confidence. And once that confidence is lost—

especially when it's a factor driven by this kind of a factor, it's going to be very hard to get it back. Not impossible. We got it back after 2008, even with the architectural flaws in the system.

but this is such a self-inflicted wound. It doesn't have to happen. A normal person might say, okay, I had this idea. I was wrong. And now I'm going to correct it because I've seen the damage I've done. But we're dealing with somebody who never admits that they're wrong and will never do something without trying to save face. And I don't know how you save face in this situation without just sort of abandoning the whole stupid idea to begin with.

The big question is ultimately, okay, then where does all the money go? Like, I think we could reframe it not necessarily in terms of alpha, but just as a basic question. You know, if capital is leaving the U.S. stock market, it's also leaving the U.S. bond market, it's also leaving the U.S. dollar. I mean, we've seen the dollar at a three-year low compared to the euro. Then it has to go somewhere else, right?

And I think the question we have to address is where will the money go eventually if that rotation is to fully materialize? Does it go to Europe? Does it go to China or to gold or maybe even to Bitcoin, maybe to other foreign debt markets? If you had to make a very long-term prediction as to where the money ultimately goes if this rotation materializes, then

What would you predict? This is not completely black and white. There's a lot of shades of gray here. I mean, the money isn't leaving our bond markets or even our equity markets. What's happening is everything's being re-rated. Everything's being repriced. So you can still get capital, which is why we're not yet in a credit crunch or credit freeze. You can still get capital. It's just going to cost you a lot more.

You can still invest in NVIDIA. You're just going to it's going to cost you a lot less. So, I mean, as Howard Marks said, the great distressed bond investor, he said, you know, if suddenly you go into Bloomingdale's and everything's 25 percent off, you're not going to run out of the store and say, oh, my God, I'm not going to buy anything. Everything's 25 percent off.

you're going to say, oh, let me get out my shopping cart here and pull as much as I can that I wanted to buy and put it in there. So, you know, the time to back up the dump truck in the equity markets is when there's a major correction, which is, you know, why Warren Buffett moved into cash in such a big way at the end of last year and the beginning of this year. And now it's like 350 billion of cash. You know, he's the only, if you look at the billionaire list of

the Bloomberg billionaire list, which I love to look at. He's the only billionaire, I think, in the top 10 whose net worth has increased since the first of the year. And he's up like $25 billion because he's sitting on this pile of cash that's earning whatever it's earning, 4% or 5% in the bond market.

So, as usual, he's much more brilliant than everybody else, even though he's 92, 93, 94, not being ageist here, Scott. But I think that, you know, it's just we've got the for sale sign on.

And you can't catch a falling knife, so you have to be careful. You know, it could go, it could get worse. But basically, the message always has been in the past, when markets correct, I always say that's a good thing and that's a time to invest. So I think the majority of the people, at least the circles we run, think that this is, one, bad, but two, a lot of the damage has yet to be felt. Now, obviously, we see the markets because they get marked every day.

But a lot of this damage, the way I would describe it is Trump pausing the tariffs has just pulled the knife halfway out of the back of the economy. But the damage is going to take years to heal. Any sense for where the next manifestations of this damage will pop up? Is it hiring? Is it more market tumult? Is it earnings calls? Is it reduction in tourism? Like, what do you—

What are you waiting on for sort of the next card to be turned over? Well, I think we're already seeing the reduction in tourism into this country from all over the world. Yeah, it's huge. Huge. It's fascinating, really. I've never seen anything like that. You know, the bankers I talk to, the M&A bankers I talk to who are talking to, you know, gobs of CEOs, they're worried about earnings in the third and fourth quarter. Yeah. Because they see...

you know, inflation rising, you know, tariffs being on, everything costing more, demand will start to, you know, be affected, and their earnings will be affected. That, you know, people like to say, well, you know, the stock market isn't Main Street, and, you know, I get that concept, but it actually is...

Exactly.

part of the reason we've lost this 10 or 15% so quickly is because investors are saying, hey, you know, these tariffs and the result of them, this loss of confidence and people holding onto their wallets, we are a consumer-driven economy. And if the consumer closes the wallet, you know, we're going to see a decline in earnings in the third and fourth quarter. And that's what I think

CEOs are expecting. And that's why you're not seeing any M&A business on Wall Street or much financing business. You know, all this anticipated regulatory relief that you that Trump was going to usher in is all for naught now because, you know, he's he's screwed the pooch.

by destroying the confidence that we had in the markets and that corporate CEOs had in their own businesses. And they're just not going to do things when they don't know where all this is going to settle out.

William Cohen is a New York Times bestselling author, financial journalist, former M&A banker, and a founding partner of Puck, where he writes about what's really happening on Wall Street. I love Bill's newsletter. I highly recommend you go subscribe to Puck. It's really informative. And he keeps things spicy, which I appreciate, especially in financial news. Bill, this was a pleasure. Thank you so much for joining us. Thanks, Bill. Thank you both.

This episode was produced by Claire Miller and engineered by Benjamin Spencer. Our associate producer is Alison Weiss. Mia Saverio is our research lead. Isabella Kinsel is our research associate. Dan Chalan is our intern. Drew Burrows is our technical director. And Catherine Dillon is our executive producer. Thank you for listening to Profit Markets from the Vox Media Podcast Network. If you liked what you heard, give us a follow and join us for a fresh take on markets on Monday. Lifetime. Family.

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