Good morning, investors. Micron, the hottest memory stock in the market of late, declined to start the week and dragged the entire Nasdaq Composite with it for a second consecutive trading day.

Yet part of the tech stock sell-off, too, could be stemming from the turmoil in the bond market.

The bond market wasted no time in telling Kevin Warsh not to cut rates.

The new Fed chair took the job intending to cut borrowing costs, but the bond vigilantes are putting up immediate resistance that could ultimately force him to turn hawkish.

Warsh was sworn in Friday and 10-year Treasury yield has since climbed to the highest in a year.

Those on 30-year and 2-year bonds also ticked above the current federal funds rate at 3.5-3.75%, pushing back on Warsh’s dovish tilt.

“The financial markets expect interest rates to remain higher for longer, notwithstanding President Trump’s demands,” Ed Yardeni, founder of Yardeni Research, wrote in a note to clients Monday.

Warsh views the inflation problem as transitory and expects an AI-driven productivity boom to fuel economic growth.

Yet most of his colleagues at the central bank have taken an opposite stance, given that inflation has accelerated since the conflict in Iran broke out at the end of February.

Indeed, headline CPI just hit 3.8% last month, the Strait of Hormuz remains closed and the labor market is still tight.

But it’s not just American bond vigilantes moving markets. Rising inflation fears have led global investors to position for prolonged higher inflation:

To Yardeni, this jump in global yields has weakened a structural anchor to US borrowing costs.

International investors have historically exported capital to US Treasuries in search of yield. But with yields abroad rising in lockstep, that incentive weakens and the US must compete for buyers of its debt on its own merits.

That setup, according to Yardeni, suggests any whispers of rate cuts must be removed at the June FOMC meeting.

Otherwise, “investors will conclude that the central bank is falling behind the inflation curve and will demand a higher inflation risk premium,” Yardeni said.

“The Fed must catch up to the bond market to avoid losing control of borrowing costs and to appease the Bond Vigilantes.”

Quantify Funds is building actively managed funds that seek to pay weekly dividends from the performance of bitcoin, gold, and US stocks. 

$1 of ISBG gives $2 of total exposure to bitcoin & gold. 

Governments print. We stack bitcoin & gold.

🤖 Elon Musk lost his court battle against Sam Altman and OpenAI. The Oakland jury rule that Musk’s claims were filed outside the statute of limitations, and the verdict lands days before the expected SpaceX IPO disclosure. (CNBC)

📊 Berkshire Hathaway tripled its stake in Google. Under new CEO Greg Abel, the conglomerate exited 16 positions and increased its stake in Alphabet by 224% in the first quarter, 13F filings show. That stake is now worth more than $17 billion. (Quartz)

⚡ The NextEra-Dominion merger creates a new utility giant for the AI age. The all-stock deal forms the world’s largest regulated electric utility. The combined entity will serve 10 million utility customer accounts and own 110 gigawatts of power generation. (Barron’s)

🗓 May 19, 2021: Bitcoin crashed 30% to about $30,000 after China cracked down on crypto and Elon Musk walked back Tesla's bitcoin payments. The one-day rout wiped out about $1 trillion in crypto market value.

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Partner disclosures:

ISBG uses Bitcoin, Gold, and Stock options and do not invest directly in bitcoin, gold, or stocks. The use of derivative instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. These risks include (i) the risk that the counterparty to a derivative transaction may not fulfill its contractual obligations; (ii) risk of mispricing or improper valuation; and (iii) the risk that changes in the value of the derivative may not correlate perfectly with the underlying asset, rate or index. Derivative prices are highly volatile and may fluctuate substantially during a short period of time. The use of leverage by the Fund, such as borrowing money to purchase securities or the use of options, will cause the Fund to incur additional expenses and magnify the Fund’s gains or losses.

The Fund is not suitable for all investors. The Fund is designed to be utilized only by knowledgeable investors who understand the potential consequences of seeking daily leveraged (2X) investment results, understand the risks associated with the use of leverage, and are willing to monitor their portfolios frequently. The Fund is not intended to be used by, and is not appropriate for, investors who do not intend to actively monitor and manage their portfolios. For periods longer than a single day, the Fund will lose money if the Target Portfolio’s performance is flat, and it is possible that the Fund will lose money even if the Target Portfolio’s market value increases over a period longer than a single day. An investor could lose the full principal value of his/her investment within a single day.

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