Hope all goes well… “I Got Mine Pre-Elon Meltdown,” read the bumper sticker. My Uber whisked me through Silicon Valley; neighborhoods sprinkled with Tesla’s. “I Bought This Before Elon Went MAGA,” read another sticker. Everything is political now. Automobiles, energy policies, medicine, science, deficits, even blockchain technology. “Elon Who?” was my personal favorite. And with the Musk/Trump bromance now on fire, and with the world’s richest man teasing the launch of a new centrist political party, it’s cope time for all those new Cybertruck owners in Florida’s panhandle.

Overall: “And if we had a good Fed chairman, you would lower rates,” said Trump to reporters on Airforce One, his Big Beautiful Bill budget deficits causing turbulence. “And if inflation happened in a year or two from now, you let him raise rates,” said the President. “We’re going out for long-term debt or short-term debt, we have a lot of debt coming due because Biden had all short-term debt, mostly, and we would get a lower interest rate if this guy would lower rates.” With no Wi-Fi on my 14hr flight from Melbourne to San Fran, I watched The Godfather, read Meditations by Marcus Aurelius, thought about Ukraine’s breathtaking Operation Spiderweb attack. “We get a lower interest rate. It’s unbelievable. And he’s worried about inflation.” From well before David downed Goliath, the underdogs amongst us have dreamed of great victories, glorious triumphs against the machine. New technologies enable asymmetric warfare on an unprecedented scale. If Russia’s military fleet was this vulnerable, surely global governments will conclude that all critical infrastructure must be hardened, made redundant. So, the world just became more expensive to operate, less efficient, and the gears of this process have not yet even started to grind. “If he’s worried about inflation, all he has to do is get the lower rate, let us go out and borrow at a much lower rate, you could go down a point or two.” When I touched down in San Fran, my phone blew up with the explosive war between Trump and Elon. Tesla stock was down 14%. Epstein files, a black eye, threats, taunts, a continuation of all the sorts of things that distract us. Make us weaker, not stronger. “If in 2 years inflation comes back, he raises rates. But he keeps them the same, it’s insane.” And the only thing that really matters is that America can find a way to grow itself out of these stunning deficits, the inexorable rise in our debt relative to GDP.

Week-in-Review: Mon: China accused the US of violating their tariff truce and vowed retaliation. Trump finalized a plan to reduce capital requirements for large banks, drawing fire from regulatory hawks. Ukrainian drones hit Russian airfields in Siberia; both sides met in Turkey. US ISM manufacturing missed at 48.5, but prices-paid ticked up. UK housing, mortgage approvals, and PMI all surprised to the upside. S&P +0.4%. Tue: OECD cut global growth forecast to 2.9%. Eurozone CPI came in cooler than expected at 1.9% headline / 2.3% core. US factory orders slumped -3.7%. India and US pushed forward on trade deal talks ahead of the July 9 tariff deadline. A Ukrainian delegation arrived in DC to discuss defense support and sanctions strategy. Musk calls Trump’s BBB spending bill a “disgusting abomination.” S&P +0.6%. Wed: Global services PMIs beat across the board; US ADP jobs came in weak at +37k. Canada and Poland held rates steady. Putin warned Trump of consequences for drone strikes, rejected Zelensky talks. Mexico signaled potential steel tariffs in response to stalled exemptions. Netanyahu faced a coalition crisis over Orthodox conscription law. S&P flat. Thu: US GDP revised to -0.2% for Q1; consumer spending slowed. Jobless claims rose to 247k. Trump and Xi agreed to resume trade negotiations after settling rare earths dispute; Trump accepted China’s invitation. Trump said he’s open to cutting the SALT cap below $40k. Feud with Musk escalated as Trump threatened to pull government contracts. ECB held rates; Eurozone PPI came in soft. Circle IPO jumps 167% in its debut (US Dollar stablecoin issuer/infrastructure). S&P -0.5%. Fri: US added 139k jobs in May (125k e); unemployment held at 4.2% but labor force shrank by 625k. Trump raised pressure on Powell and demanded a full 100bps Fed cut. Fed Vice Chair Bowman laid out a sweeping plan to deregulate banks. Trump accused China of tariff violations but agreed to send a delegation to London for trade talks. Defense Sec warned of imminent Taiwan escalation. Iran’s enriched uranium stockpile rose 50% since March. S&P +1.0%.

Weekly Close: S&P 500 +1.5% and VIX -1.80 at +16.77. Nikkei -0.6%, Shanghai +1.1%, Euro Stoxx +0.9%, Bovespa -0.7%, MSCI World +0.7%, MSCI Emerging +2.2%, Bitcoin -0.8%, and Ethereum -3.1%. USD rose +1.9% vs Russia, +0.6% vs Yen, +0.4% vs Sweden, +0.1% vs Turkey, and +0.1% vs India. USD fell -2.8% vs Brazil, -1.7% vs Mexico, -1.2% vs South Africa, -1.1% vs Chile, -0.9% vs Australia, -0.5% vs Sterling, -0.4% vs Euro, -0.3% vs Canada, -0.1% vs Indonesia, and -0.1% vs China. Gold +0.9%, Silver +9.4%, Oil +6.2%, Copper +3.6%, Iron Ore +0.3%, Corn -0.3%. 10yr Inflation Breakevens (EU +2bps at 1.71%, US -1bp at 2.32%, JP -7bps at 1.53%, and UK +1bp at 3.16%). 2yr Notes +14bps at 4.04% and 10yr Notes +11bps at 4.51%.

Manufacturing PMI (high-to-low): India 57.6 (previous month 58.2), Sweden 53.6 (previous mth 54.2), Greece 53.2 (previous 53.2), Norway 51.19/46.16, South Africa 50.8/50, Spain 50.5/48.1, Russia 50.2/49.3, Hungary 50.1/50.2, Vietnam 49.8/45.6, France 49.8/48.7, Singapore 49.7/49.6, Brazil 49.4/50.3, Japan 49.4/48.7, Italy 49.2/49.3, Netherlands 49/49.2, Hong Kong 49/48.3, Taiwan 48.6/47.8, United States 48.5/48.7, Austria 48.4/46.6, Germany 48.3/48.4, China 48.3/50.4, Czech Republic 48/48.9, South Korea 47.7/47.5, Indonesia 47.4/46.7, Turkey 47.2/47.3, Poland 47.1/50.2, Mexico 46.7/44.8, UK 46.4/45.4, Canada 46.1/45.3, Switzerland 42.1/45.8. Services PMI: India 58.8/58.7, Ireland 54.7/52.8, US 53.7/50.8, Italy 53.2/52.9, Russia 52.2/50.1, Spain 51.3/53.4, China 51.1/50.7, Japan 51/52.4, UK 50.9/49, Sweden 50.8/48.7, Australia 50.6/51, Brazil 49.6/48.9, France 48.9/47.3, Germany 47.1/49.

2025 Year-to-Date Equity Index Returns: Greece +38% priced in US dollars (+25.4% priced in euros), Czech Republic +37.1% priced in US dollars (+23.3% in koruna), Poland +36.3% in dollars (+24.8% in zloty), Hungary +35.9% (+21.7%), Spain +35.2% (+22.9%), Germany +33.7% (+22.1%), Austria +33.1% (+21.5%), Ireland +31.1% (+19.1%), Italy +30.1% (+18.8%), Chile +29.3% (+21.8%), Mexico +27.8% (+17.3%), Colombia +27.4% (+19.7%), Korea +27.4% (+17.2%), Portugal +27.2% (+15.6%), Norway +27.2% (+13%), Brazil +25.2% (+13.2%), South Africa +24.8% (+17.5%), Euro Stoxx 50 +22% (+10.9%), Finland +21.9% (+11.3%), Israel +18.3% (+13.5%), HK +17.4% (+18.6%), Switzerland +17.2% (+6.6%), Sweden +17.1% (+1.5%), Belgium +16.9% (+6.3%), UK +16.8% (+8.1%), Netherlands +16.5% (+5.8%), France +16.4% (+5.7%), Canada +12.3% (+6.9%), Singapore +10.1% (+3.9%), Australia +9.5% (+4.4%), India +5.5% (+5.7%), MSCI World +4.9% in dollars, UAE +3.4% (+3.4%), Taiwan +3% (-6%), New Zealand +3% (-4.2%), Vietnam +2.7% (+5%), Japan +2.6% (-5.4%), China +2.5% (+1%), S&P 500 +2%, Philippines +1.6% (-2.3%), NASDAQ +1.1%, Indonesia +0.1% (+0.5%), Denmark -1.8% (-10.4%), Malaysia -2.3% (-7.6%), Russell -4.4%, Saudi Arabia -8.4% (-8.6%), Turkey -13.1% (-3.5%), Thailand -15.2% (-18.8%), Argentina -26.2% (-14.9%).

Debt Trap: “Are bond vigilantes back?” asked my favorite strategist, the two of us looking out over the horizon. “Surging real yields in Japan and the US wave a red flag. There’s simply too much debt,” he continued. When a government issues bonds, it stakes a claim on future national income. “No country borrowing in its own currency will default - but it might repay in devalued money. Gold has been flashing warning signs for nearly three years, and now bond-market enforcers are sounding the alarm by pushing real yields higher.”

Debt Trap II: “Governments don’t aim to flirt with disaster. Bad decisions in prosperous times plant the seeds of non-creative destruction,” added the strategist. “Balance sheets never lie, keeping records for all past missteps. But they’re often ignored - growth is the mantra.” Even Elon Musk accepts “accelerated GDP growth is essential.” The catch? Real growth lifts living standards, nominal growth through inflation erodes them. “Unchecked debt fuels vigilantes, who demand higher yields to offset growing risks.”

Debt Trap III: “Vigilantes trap policymakers in a vicious cycle,” he continued. “Sure, central banks can cut rates to ease government borrowing costs. But this can spike long-term yields, tighten credit, stifle growth, and slash government revenues.” Unlike the 1980s and 1990s, when Emerging Markets faced frequent debt crisis, today’s rich nations, like the US and Japan, are in the crosshairs. “This ‘champagne problem’ demands a bold reset, like the 1985 Plaza Accord, or some sort of major policy shift to rethink debt.”

Debt Trap IV: “Japan is a global red flag,” he said. Its government debt is a ticking time bomb, at roughly 1,200 trillion yen or 200% of GDP. “But Japan is also a bank to the world, owning more foreign assets than it owes. And Japan can sell its foreign assets to ease domestic financial strains.” When the world’s bank sneezes, every economy catches the cold. “Bond vigilantes could force an overhaul of the financial system, and not just for Japan, but across all wealthy nations.”

Debt Trap V: “Here’s a radical fix - central banks convert their govt debt holdings into 100-year zero-coupon bonds,” he said. Take Japan. At prevailing 2% bond yields, a $100 100-year zero-coupon bond would be worth $14 today. If the BOJ converted its bond holdings to these zero-coupons, it would slash Japan’s effective debt-to-GDP ratio to 110%. “Government policy would have a century to figure out how to monetize those losses on the BOJ balance sheet, and private debt holders like banks, insurers and pensions would benefit from a lower debt-to-GDP ratio.”

Anecdote: “Okay, so imagine the Federal Reserve converts its US government bond holdings to 100-year zero-coupons that are worth pennies on the dollar,” I said to my favorite strategist. The two of us were thinking of ways the US government could reduce its annual interest expense and lower overall debt. “The market would consider it a desperate accounting trick – so it probably backfires.” Low interest rates did not in and of themselves reduce Japanese government deficits. Japan had the world’s lowest interest rates, held them lower for longer than any nation, and still has the globe’s highest debt-to-GDP ratio. We’ve also observed that large tax hikes and/or spending cuts tend to be self-defeating, lowering the pace of economic growth, which in turn reduces government revenues. Modest spending cuts and tax hikes can work if the economy is really humming. But in any case, this administration is determined to pass its Big Beautiful Bill, which is certain to lift future deficits and debts unless the economy accelerates to a rate of growth that seems almost impossible to attain. “Imagine the US coerces foreign central banks who hold our debt to exchange it for 100-year zero-coupons. It would be seen for what it is, which is a default, and there would be a disorderly flight from US government debt and the dollar.” It’s perhaps possible that AI productivity and scientific advances, reshoring production, tax incentives for capital investments, deregulation, and capital inflows from companies that are terrified of persistent tariffs, will lift economic growth to a rate that will lower our deficit and stabilize the debt-to-GDP ratio. But it’s such a long shot. “The reality is there’s no real way to restructure our debt without defaulting on it either explicitly or implicitly via inflation. So, if the economic Hail Mary that the administration is throwing fails to connect, things are going to get real ugly. Every jump in gold tells you that the market sees the risk of this scenario as higher. Bitcoin too.”

Eric Peters

Chief Investment Officer

One River Asset Management

Disclaimer: All characters and events contained herein are entirely fictional. Even those things that appear based on real people and actual events are products of the author’s imagination. Any similarity is merely coincidental. The numbers are unreliable. The statistics too. Consequently, this message does not contain any investment recommendation, advice, or solicitation of any sort for any product, fund or service. The views expressed are strictly those of the author, even if often times they are not actually views held by the author, or directly contradict those views genuinely held by the author. And the views may certainly differ from those of any firm or person that the author may advise, converse with, or otherwise be associated with. Lastly, any inappropriate language, innuendo or dark humor contained herein is not specifically intended to offend the reader. And besides, nothing could possibly be more offensive than the real-life actions of the inept policy makers, corrupt elected leaders and short, paranoid dictators who infest our little planet. Yet we suffer their indignities every day. Oh yeah, past performance is not indicative of future returns.