We believe great financial advice starts with truly understanding your goals, needs, and circumstances. Schedule a meeting with our Client Relations Director to discover if Guild Investment Management has a solution that will work for you.
This week we offer some thoughts inspired by our colleague, the redoubtable Larry Jeddeloh of The Institutional Strategist. We are often asked what research we follow and who we read. Larry’s work is very good and is helpful in our process as we pay attention to the macro. In money management, there is a lot of money being managed by people who ignore the macro, as it is full of complex relationships and nuance, and requires study and experience; in short, it is more work. It might not be actionable in your portfolio today, but ignoring the macro seems lazy. Don’t be lazy.
The Shifting Map
U.S. equities remain in a rising trend, though increasingly feeling “tired,” with near-term signals pointing to a modest pullback. With that said, however, the S&P’s late-April breakout has pushed any chatter about a “generational top” much further out, and the main current engines of U.S. outperformance — industrial policy, AI-enabled productivity gains, and capital flowing back home — have, in our view, only just started to do their work.
Three quieter bull markets deserve attention. Energy is one. Defense technology is another, where the action sits with newer entrants rather than the legacy “primes” (that is, the large, established contractors). Mining, especially precious metals, also looks early. None of these carry enough index weight to move the broad market, which is exactly why those who manage their portfolios actively — should care.
A stark imbalance in markets today is the gap between paper and hard assets. U.S. public equity is worth roughly $75 trillion. The front-month value of gold, copper, platinum, palladium, oil, and silver combined sits near $1 trillion. That ratio is near a 55-year low for commodities relative to stocks. The rotation toward real assets — first out of bonds, then out of equities lacking tangible backing — appears to be in early innings, and as the oil story below shows, that rotation can accelerate without much warning.
AI is of course an intimate part of the same story. The buildout is moving from chips to infrastructure: grid, transmission lines, uranium fuel, LNG terminals, turbines, cabling, etc.; power has become the binding constraint. The era of pearl clutching about carbon emissions is fading, giving way to a new era, one where governments and companies around the globe step on the AI accelerator pedal. Sorry, Greta.
Treasuries Get Sold as Oil Prices Bust Budgets
If anyone doubted the hard-asset thesis was already in motion, the past sixty days have offered evidence in real time. Elevated oil prices, driven by disruptions around the Strait of Hormuz, are forcing governments into actions nobody had on the radar two months ago: selling U.S. Treasuries to defend currencies, selling gold to buy oil, cutting taxes to lure foreign capital.
Since the Iran war began, price moves have been dramatic — WTI up roughly 60%, Brent up 50%, gasoline up 52%, jet fuel up 58%. For oil-importing countries, the import bill has ballooned. Local currencies sag, inflation imports itself, and bond yields climb.
We believe great financial advice starts with truly understanding your goals, needs, and circumstances. Schedule a meeting with our Client Relations Director to discover if Guild Investment Management has a solution that will work for you.
When the U.S. 10-year marches toward 5%, the reflex is to call it a domestic inflation signal, but one major less visible force may be foreign selling — countries unloading Treasuries not because they want to, but because oil and currency stresses leave them little choice. Foreign official holdings have declined, led by Japan trimming $47 billion and China at its lowest level since 2008.
Turkey reported a record $43.4 billion drop in March reserves, much of it from gold sales to finance oil imports, and Turkey is leaning harder on a gold-backed bond program that it originally introduced in 2017. This program is, in plain terms, a gold-collection scheme dressed as a sovereign bond. Turkish households hold an enormous informal hoard — somewhere between 2,200 and 3,500 metric tons by various estimates, much of it jewelry and coins kept at home rather than in banks.
The bonds let citizens turn over that physical metal in exchange for an interest-paying instrument denominated in, and redeemable for, gold. The state gets bullion onto its balance sheet; the depositor gets yield (in lira, or course, pegged to the current gold price), theoretically without giving up gold exposure. Turks have long preferred metal in hand to paper claims on it, of course (as you would too if you lived in a country with Turkey’s track record of currency management) — but lira pressure and the oil import bill have raised the stakes on both sides. This is an interesting attempt of a country with big privately held gold reserves to leverage those — now especially for the purchase of oil.
Turkey’s push indicates the pressure that energy importers are under. For most central banks, U.S. Treasuries are a source of liquidity when conditions demand it, as they do now. We must remember that because of global U.S. dollar hegemony, U.S. long bond yields are, in fact, a global market, and their behavior will reflect it.
U.S. Rates and “Treasury QE”
Memorial Day opens summer driving season at $4.53 per gallon average nationwide, with $5 viewed as the threshold for demand destruction (fellow California residents, we feel your pain). A supply response or de-escalation of Iran war tensions would ease import pressure, stabilize currencies, slow the forced Treasury selling, and let yields drift down — welcome ahead of the midterms.
If neither materializes, the Treasury’s toolkit comes off the shelf: shorter-maturity debt issuance (which reduces the duration risk the market has to absorb), more aggressive buybacks that swap older bonds for fresh paper, and, ultimately, jawboning the Federal Reserve toward long-end purchases. If the Treasury’s actions succeed in reducing bond volatility, that’s a significant overall liquidity booster — as less bond volatility means more collateral value in the system.
Worth noting: some observers now argue that the Treasury has quietly become a more important driver of day-to-day financial conditions than the Fed itself, with “Treasury QE” — the liquidity effect of skewing issuance short and running active buybacks — projected to deliver on the order of $1.3 trillion of duration relief in 2026, comfortably more than anything the Fed is likely to do over the same period. That may overstate the case; the Fed does remain the “lender of last resort,” and the FOMC still matters. Still, investors long trained to watch the Fed exclusively may want to start checking in on Treasury issuance and announcements with similar attention.
Conclusion
The pattern running through these stories may be the early-cycle behavior of a world tilting less towards paper and more towards things. None of this argues at all against equities so much as it argues for particular kinds of equities that have perhaps, in recent years, faded too much from investors’ attention and from visible presence in the market-cap weighted indexes. It argues for renewed attention to companies that own, produce, refine, or build the physical economy: energy, mining, the grid, the infrastructure layer beneath AI, the newer entrants in defense — without neglecting the attention that is due also to the world of AI-driven businesses that will emerge as this technology develops and matures.
Thanks for listening; we welcome your calls and questions.
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