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The Retired Investor: U.S bond prices fall as oil prices and inflation expectations rise
This month, the U.S. Treasury plans to triple its U.S. bond purchases from $2 billion to $6 billion from Sept. 4 through Nov. 4. Given that the market value of the Treasury market is about $30 trillion, that is a drop in the bucket if the intent is to cap yields on the long end of the yield curve.
Could the Treasury do more? Yes, according to some estimates, they could spend almost $1 trillion if they wanted to use up their checking account (called the general account). That is a lot of firepower, especially on the margin when one is seeking to control the ascent of bond yields. Debt analysts argue that the actual yield of a bond matters less than how quickly the yield accelerates.
As of this writing, the U.S. Ten-year benchmark bond is yielding 4.91 percent, while the thirty-year is yielding 5.34 percent. The present back-up in yields is not only a U.S. problem. Mounting debt and aging populations hit by a trio of global shocks- higher oil prices, inflation, and government spending are coming home to roost.
U.S. Treasury Secretary Scott Bessent would deny that. He believes U.S. interest rates are going higher because investors believe economic growth is reaccelerating. That could be true, but it could also be a wishful spin given that we are just a few weeks away from midterm elections. In any case, don’t be surprised if the Treasury ups the amount of purchases they make again in the days ahead.
At the same time, Kevin Warsh said in his Jackson Hole speech that the Fed needs to do more work to get inflation down to its 2 percent target. The current Wall Street narrative is that Bessent is trying to cap long-term bond rates while Warsh is preparing to do the opposite — hike rates. On the surface, it appears that the two men are working at cross purposes. But could there be another explanation?
Consider this: what happened when Jerome Powell cut interest rates in September 2024 and then again in 2025? Long-term Treasury yields went up, not down, breaking a historical, four-decade cycle. Long bonds have almost always tracked the Fed's path lower. Why the change? Because the bond vigilantes began pricing in stronger-than-expected economic growth and persistent inflation.
I suspect that if Warsh had delivered a dovish message, those same vigilantes would have jacked yields higher than they already are! No, both men are working together, in other ways, for a good reason. Back in June, in a column on sovereign debt, I wrote this:
"Former Treasury Secretary Henry Paulson, who navigated us through the Great Financial Crisis of 2008, warned of a potential "doom loop" in the bond market. He worries that demand for U.S. government debt could collapse soon.
I warned readers that this could trigger a cycle of lower bond prices, higher yields, and rising inflation. The fact is that our government's Treasury market underpins everything from mortgage rates to corporate borrowing to equity prices. The former head of the Treasury urged policymakers "to prepare an emergency plan and have it ready if and when demand for U.S. government debt falters."
A crisis, as Paulson suggested, would leave the Federal Reserve as the lone buyer of our treasuries. Realistically, that would mean the government would be forced to "print" money in one form or another. That would trigger a fresh round of inflation, eroding valuations across most asset classes, including equity. This could cause a large (30 percent+) decline in the stock market."
That was a strong warning, and I believe both the Treasury and the Fed have taken him seriously. We are witnessing the beginning of such a plan. It is to be rolled out in stages. The Fed's credibility had to come first. The appointment of Warsh as the new chairman of the Federal Reserve Bank has triggered worries that the Fed's independence is in jeopardy.
The president, an easy money advocate, had attempted to "pack" the 12-member Fed committee with his people. He also made clear that Jerome Powell's replacement would need to tow his line. As a result, Kevin Warsh came into the job tainted with a heavy dose of suspicion from skeptics both here and abroad.
Warsh's hawkish statements thus far have largely dispelled many of those fears. His willingness to let the markets dictate where long bond rates should go, while providing less communication to the financial markets, may also be part of this plan. His study committees, which analyze and adjust government data used to determine monetary policy decisions, are also part of the plan.
We will know more about how the Fed views the economy and inflation next week. The betting markets indicate that there is now a 70 percent chance than the Fed raises interest rates at their FOMC meeting on September 15-16.
Next week, I will address how the two organizations might work together, especially in a period where the possibility of Hank Paulson's 'doom loop' appears closer than ever.
Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.
Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.
The Retired Investor: High Noon for the Bond Vigilantes
It was to be expected. Financial markets almost always confront a new Fed chair. That may still be true, but Kevin Warsh isn't the one in the firing line. It is the U.S. Treasury Secretary Scot Bessent.
The bond vigilantes have had their way in the bond market recently. When Kevin Warsh took over the Fed in May, he made it clear the Fed would take a back seat and let the markets set the proper level of interest rates, at least on the long end. OK, said the bond vigilantes, let's see what you got.
Since then, fixed income traders, or bond vigilantes as Wall Street calls them, have trashed the 10-, 20-, and 30-year U.S. Treasury bonds. They have sold or shorted bonds, sending yields on the thirty-year higher than at any time since 2007 (just before the Financial Crisis). The U.S. ten-year benchmark bond yield hit 4.50 percent as well, with strategists predicting it's on its way to 5 percent. Around the world, the same thing was happening in other countries' fixed income markets. Why?
The continued rise in oil prices, record deficit and debt levels, rising interest costs, and demand for borrowing were too much weight on one side of the scales. Up until this week, equity markets tried to ignore the moves; despite strong corporate earnings fueled by the enormous boom in AI infrastructure investment, they faltered.
Truth be told, some of that AI investment has also been an issue. Worldwide, companies that need trillions of dollars more in the AI race have been tapping bond markets globally for funds. That has set up further competition between private and public needs in the borrowing arena worldwide.
This was not what the administration wanted to see, at least here in the U.S. The stock and bond markets have become the lynchpin of success for a president already battling a multitude of negatives with midterms less than three months away. Something had to be done and fast as yields ticked higher and markets crumbled on Wednesday a week ago.
In this financial gunfight steps the government's financial sheriff, a hedge fund manager by trade, and one of the real gunslingers in town. Scott Bessent, Secretary of the U.S. Treasury, announced his department planned to double government debt buybacks, beginning in September, to the tune of $4 billion. Bond yields immediately tumbled, and the stock market surged.
The Treasury's purchases, he said, will target the long end of the yield curve where the bad guys had shorted massive amounts of long-dated Treasuries. To pay for this added expenditure, investors surmised that the Treasury will probably need to sell even more bills and bonds on the short end at their weekly auctions. And herein lies the rub.
Unlike the Federal Reserve Bank, the Treasury cannot print money. They indeed have a lot more money than any single bond vigilante, but it's not inexhaustible. The Vigilantes, after a day or two of indecision, were back to their old tricks and yields began to rise again. To gun down the guys in the black hats, Bessent would need more than a couple billion.
So, a few days later Treasury people floated the story that they could use the Treasury's almost $1 trillion General Account (the government's checking account) to finance the purchases. Nobody said they would, but the threat was enough to at least push yields down slightly on government bonds this week.
Wall Street immediately mounted up the free-market posse. From their high horse, various well-known managers decried this interference in the free-market system where price discovery is the bible in determining the worth of any asset. "Let the bond market speak," said one famed investor. Interesting how that works. It's OK for the government to buy shares in various companies, bail out industries, determine how much companies can sell and to whom, but don't mess with something so sacrosanct as the nation's Treasury markets.
Will Bessent's plan work? In the short term, he had stemmed the rapid rise in yields that had thrown the stock market into a dizzy. Both the 10-year and 30-year bond yields had moved down by about 10 basis points. However, Friday's speech at the Jackson Hole Economic Forum threw a wrench into Bessent's play.
The Fed chief made it clear that the Fed had more work to do on the inflation front. Markets took that to mean an interest rate hike could be imminent. Bond yields went right back up and are now trading at yields higher than before Bessent's announcement. It appears the Fed and the U.S. Treasury are working at cross purposes.
Critics say that without fixing the underlying causes of the backup in interest rates — government spending, inflation, debt, etc. — his efforts are no more than a pimple on an elephant's derriere. They may be right but don't be surprised that in the days ahead, Bessent decides to increase the amount of bond purchases the Treasury makes.
Next week, I will discuss where the Fed stands and why this could simply be part of a developing and ongoing plan first mentioned to readers in my columns on sovereign wealth funds back in June.
Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.
Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.
The Retired Investor: Cost of Healthcare Cuts
The U.S. and Mexico are the only countries out of 19 other OECD countries where a substantial portion of the population lacks any form of health insurance. In the U.S., about 8 percent of the population, or 27 million people, are uninsured. That number is about to grow larger.
That data is part of an independent research study conducted by The Commonwealth Fund, a private foundation. And that is despite the U.S. has spent more on health care than any other nation. In 2024, we spent 18 percent of gross domestic product on health care. That is nearly two times as much as the average OECD country.
Over a year ago, the Republican led U.S. Congress cut healthcare spending by cutting public subsidies for private health care insurance which caused millions to lose healthcare coverage. While on paper the savings seemed justifiable, in reality the cuts have just shifted the burden of paying for the uninsured patient to the hospitals, and ultimately, the taxpayer.
Before you ask, the Emergency Medical Treatment and Labor Act mandates that hospitals provide treatment to patients with emergency medical conditions, regardless of their insurance status or ability to pay. This federal law was enacted in 1986 to prevent patient dumping, where hospitals would refuse treatment to individuals based on their inability to pay or lack of insurance. This places hospitals and other health care clinics in harm's way.
This is not some dire predicament that may happen in the years to come. Some for-profit hospitals are already reporting a 20 percent increase in uninsured visits, and one company is expecting as much as $1 billion less in profits for this year. And the administration is only getting started.
As part of the "Big Beautiful Bill," the administration and Congress are cutting an additional $625 billion in Medicaid over 10 years. The CBO estimates another 7.8 million people will become uninsured as a direct result of these changes. That would bring the total number of newly uninsured Americans to almost 17 million.
And the trend is not your friend. Baby Boomers of all income levels are retiring and will need increasing healthcare regardless of their ability to pay. If you look at the demographics, those most impacted by these changes are low-income adults in Medicaid expansion states. Young adults (ages 19-34) will be hurt as well. To put that in perspective, that's 3 in 10 Gen Zers who are vulnerable, according to the Urban Institute. People with disabilities who do not qualify for federal disability benefits (2.6 million), and rural residents, where it is estimated that $155 billion in reductions of Medicaid spending will occur.
In 2025, the federal, state, and local governments collectively spent $30.6 billion to cover the medical costs of uninsured patients, according to recent government studies. The total cost to taxpayers is higher when you consider uncompensated care costs. Each newly uninsured person can generate as much as $900 in lost revenues for hospitals, two-thirds of which translates into loss profits. Uninsured patients frequently pay 2 to 5 times more for care than insured patients. And that was before the ACA reductions and the expected cuts in Medicaid coverage.
In this era of populism, where the GOP majority is already razor-thin, some might think that this kind of legislation is tantamount to political suicide. It would be, but politicians are a crafty lot. Most of the cuts in Medicaid will only become law after the midterm elections this year. In which case some of the base that Republicans depend upon the most to deliver a majority in Congress in November won't realize the devastation to their well-being until it is too late. I won't mention the potential loss of life involved since some might accuse me of valuing human life more than money.
Hospitals and emergency rooms will continue to absorb rising uncompensated care from a combination of state-directed payment cuts, much higher charity care, reduced Medicaid/ACA funding, and limited stopgap state programs. Some will attempt to pass on those higher costs to you via increased premiums on your own health care. Others will need to apply to the government to bail them out. In which case, you, the taxpayer, will pay for those bailouts as well.
Our healthcare system is a wreck. The U.S. has one of the lowest rates of physician graduates and the lowest rate of primary-care physicians per 1,000 people. Americans also have one of the highest rates of dying prematurely where men are more likely to die from avoidable causes than women.
The U.S., on average, has the poorest health outcomes of any high-income country, according to The Commonwealth Fund. The May 28, 2026, paper "U.S. Health Care from a Global Perspective, 2026" argued that a "Lack of universal coverage, weak primary care infrastructure, high out-of-pocket costs, and a complex insurance system contribute to and exacerbate the nation's uniquely poor performance relative to its peers." I couldn't have said it better.
Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.
Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.
The Retired Investor: Cuts in Healthcare Will Backfire
In an effort to reduce the growing expense of our nation's healthcare, Congress and the administration have cut or reduced benefits in program after program over the last year. The question they fail to answer is an important one. If health benefits are reduced, who ends up paying for all those who cannot afford it? The short answer is we, the taxpayers, do.
The relentless government cuts continue. In the last two weeks alone, the administration ended subsidies for Medicare drug premiums, which could impact millions of older Americans next year. At the same time, the president insisted that RFK Jr. reduce vaccinations, based on an unfounded autism link, even while U.S. cases of measles hit highs not seen since 1991.
Those are just two examples of a poorly understood effort to rein in burgeoning healthcare costs while expanding spending in other areas, like the proposed $1.5 trillion defense budget for 2027. Earlier this year, the Congressional Budget Office, which is Congress's official nonpartisan economic and budget agency, is forecasting a dramatic reduction in healthcare coverage not only this year but out into 2030.
Readers might recall the change in the Affordable Care Act (ACA) rules passed by the Republican-controlled Congress at the urging of President Trump. As part of the law H.R. 1, enhanced premium tax credits for coverage were reduced substantially. Depending on how much the insured earned, premiums for Obamacare could have doubled. As a result, more than 3 million fewer people (13 percent) signed up for health plans.
For those who faced these sudden charges, there was nothing beautiful about the One Big Beautiful Bill Act. Since then, there has been a concerted effort to cut even more government spending, leaving the states to pick up the slack. Between 2025 and the end of the Trump presidency, the number of people with ACA premium tax credits will fall from 20.9 million to 9.7 million (a 54 percent drop). If Congress and the White House continue along this path, the CBO projects that ACA health coverage options will drop by 44 percent between now and 2032.
To the uninitiated, this might sound like a great way to reduce government spending, which could be used elsewhere to reduce the deficit, for example. I only wish that were true. A look at what happens to those with no health insurance might change that view.
Let's say Joey, with a family of four, caught a steel splinter in his eye because of a part-time work accident. He has no insurance because he can't afford it. Joey uses eyewash, compresses, and whatever else he can muster, but the condition gets worse over the next few weeks. When it goes so bad that he misses work, he goes to the emergency room at the urging of his pregnant wife. By then, what could have been a simple procedure now requires major surgery to save the eye. The hospital bill is more than he makes all year. What happens?
A recent New York Times article, "Uninsured Patients Rise Sharply, Hospitals Report, Citing Obamacare Cuts," explains it all. The gist of the article is that more uninsured patients are showing up in hospitals and clinics nationwide. This is costing hospitals hundreds of millions of dollars. Any guess what the hospitals will do in an effort not to go bankrupt — raise prices.
I don't have to tell you that companies and individuals who have healthcare insurance are already faced with rising healthcare costs on what seems like a daily basis. What will Joey's dilemma mean to you and/or your company? You will be footing the bill for Joey's eye operation. Now, imagine the cost of another 30 million adults and children in this country who are uninsured. Those who will delay and delay until minor health issues become major and major issues become deadly.
Next week, I will tabulate the costs to taxpayers from those who are uninsured as well as who will be most impacted. To make matters worse, there are further reductions right around the corner that will throw even more Americans into the uninsured minefield.
Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.
Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.
The Retired Investor: El Niño Flashing Red Light for the World
As if food prices aren't high enough, climate scientists around the world are concluding that the October-December El Niño period this year could see numerous droughts, floods, and other climate catastrophes. If so, the impact on the supply of agricultural commodities could be serious.
There have been 20 El Niños recorded over the past 75 years. For those who don't know, this climate pattern occurs when unusually warm sea surface temperatures spread across the central and eastern Pacific Ocean. This causes a shift in global weather patterns that affects different regions in different ways. Some areas experience heavy rains while others wither under severe droughts.
Right now, more than half of England is already in a drought. Overall, as we watch and read about record heat in Europe and forest fires in France and Spain, something even more insidious is occurring in the Pacific Ocean. Scientists are already recording above-average sea surface temperatures for this time of the year (2.0 degrees above average). The tropical Pacific is warmer right now than at any time over the 45 years of satellite record keeping.
Consensus forecasts from scientists indicate this year's El Niño will peak at 3.6 degrees Celsius above normal. The record over 149 years of data is at most 2.75 degrees, which was set in 2015-2016. Throughout its history, only six El Niños reached the level of severity expected for this year's event.
Some are already calling it the "Super El Niño," which is expected to peak sometime this fall, at the very time of South America's planting season. As you might imagine, the weather could cause severe disruptions to planting cycles and to the harvest of food crops, including sugar, wheat, corn, soybeans, coffee, cocoa, and more.
How serious could it become? Back in 1877, the middle of the Pacific Ocean was hotter than anyone could recall. Rain did not come to India, Brazil, or China that year. The soil dried up as crops failed across five continents. Millions died, and it came down to governments deciding who starved and who ate. Fast forward to modern days.
You may remember the great run on the world's cocoa crop caused by El Niño a few years ago. The Ivory Coast, where 38% of the crop is grown, was deluged by heavy rains and extreme heat. Insects swarmed destroying the rest. Cocoa prices soared, hitting a record $10.97 a kilo in April 2024. That particular El Niño ranked fifth in modern record keeping. This one forming now is presently ranking number one.
In past El Niño events, wheat production in Australia fell dramatically and could again fall by 20-60 percent if drought becomes a factor. The same could be said for corn in Brazil, coffee in Vietnam, sugar in India, Thailand and Brazil, and grain supplies globally.
Compounding the weather threat is the impact of climate change, plus two wars at the same time, all of it disrupting the global food production system. The Strait of Hormuz has been shut to commercial traffic for five months. Aside from oil, much of the world's fertilizer production has also been choked off in the Strait, while Europe burns and crops wither. Russia and Ukraine together represent about 27-30 percent of the world's wheat crop. As their war drags on, both countries are aiming their missiles and drones at each other's wheat exports.
By this time, I think you are getting the picture. If there is a silver lining to this potential dark cloud, it is that El Niño may help grain production in the U.S. Warmer-than-normal weather conditions are expected across North America, which could benefit the growing cycle. At the same time, El Niño conditions might suppress Atlantic Ocean hurricanes. If farmers do not run out of fertilizer, the country could act as a buffer for grain markets worldwide, especially for corn and soybeans.
There is also a chance that between now and September, weather patterns change and the force of El Niño dissipates, along with rising temperatures in the Pacific waters. It is getting late in the day for that to occur, however. There could also be an end to Trump's war, and to the other war he promised to end on day one of his second term. If not, I expect that come winter, and just in time for the midterms, consumers will once again be hit with surging food prices on top of what we are already paying.
Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.
Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.
