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Lawrence McDonald

@Convertbond

Jul 8

Japan was planet Earth's bond yield anchor for decades. When central bankers distort the true cost of capital over longer and longer periods of time, there's a price to pay for this charade; it's not free.

Japan, government spending as a percentage of GDP - The fiscal deficit was projected to widen to 3.6% in FY2024 from 2.9% in FY2023, despite the "gradual phase-out of some economic support packages."

*Central bankers have been financing (buying bonds) the masquerade for decades.

When interest rates rise, existing bond prices fall. The Apple $AAPL 2.55% bonds due in 2060 have been trading in the bid 50s (cents on the dollar) for nearly 3 years, which begs the question. Where are all those other bonds trading globally - the ones issued from 2011 to 2021?

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Lawrence McDonald

@Convertbond

Jul 1

Summer Read - Book Ideas

A Core Thesis Laid Out in "When Markets Speak" - Fiscal Dominance Regime and the death of the 60-40 era.

amazon.com/Listen-When-Ma…

"Could it be that Fiscal Dominance is replacing Monetary Dominance. Conversations about asset allocation in a changing world. If the secular regime has shifted from the Great Moderation of the 2000’s and 2010’s to one of Fiscal Dominance in the 2020’s and beyond, then in my view that calls for a refresh of the 60/40 paradigm that most of us grew up in."

Jurrien Timmer, Director of Global Macro at Fidelity Investments, June 30, 2025

"The risk-return moderation chart below shows that the Great Moderation was driven by robust returns for both US equities and bonds, boosted by a negative correlation between those two benchmarks. The result was a simple 60/40 that produced returns well above the inflation rate with a manageable risk. This was the era of risk parity, with long-term Treasuries producing 6% returns while also sporting a negative correlation to equities. With correlations swinging from negative to positive in 2022, and bonds now potentially impaired by a rising term premium, the days of the simple 60/40 may be over. "

Fidelity, Timmer.

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Lawrence McDonald

@Convertbond

May 26

There is a price for higher for longer - it's NOT free. Interest rates up, bond prices down.

*Top Four Japan Insurers See $60 Billion in Unrealized Bond Losses - Bloomberg.

**Q: Mark to market losses on this one Apple $AAPL bond?

A: $805M.

In October of 2023, Bank of America $BAC equity traded near $24 ($43 last week), with the U.S. 10 year Treasury yield at 4.91% (4.51% last week). Thank God for the Fed's Bank Term Funding Program (BTFP), but a lot of these losses are now sitting on the Fed's balance sheet.

(2)

CMBS issuance in 2021 totaled around $119B, $65B in 2020, $96B in 2019, $171B in 2018, $95B in 2017 - Trepp, Bloomberg data. Everyone knows, the larger, more sophisticated banks in the USA use interest rate hedges, that's NOT the base for regional and super regional banks.

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Lawrence McDonald

@Convertbond

May 24

Book Ideas - "When Markets Speak" - Top Themes --Nuclear Power - AI Infrastructure - Think of this . The $NUKZ ETF is up 25% in May, top 3 holdings are only worth $250B vs. $3300B for Nvidia $NVDA

*Passive investing (Indexing, S&P 500) has everyone's capital in the wrong trade.

A Historic week. This is a WW2 like initiative. National security, the USA is WAY behind China. Friday, executive orders were signed. The White House wants to 4x domestic production of nuclear power within the next 25 years, @elonmusk has been making this point for 36 months.

@elonmusk EIA - last 10 years, more than 34 gigawatts (GW) of nuclear power capacity were added in China, bringing the country’s number of operating nuclear reactors to 55 with a total net capacity of 53.2 GW as of April 2024. An additional 23 reactors are under construction in China.

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Lawrence McDonald

@Convertbond

May 21

.@SpeakerJohnson warning, you guys are smoking in the dynamite shed.

The Limited Life Cycle of a Democracy

Bondage
Spiritual faith
Great courage
Entrepreneurship
Private property rights
Liberty
Abundance
Complacency
Apathy
Dependency
Bondage

*Book - “When Markets Speak”

The next few days is all about Speaker Johnson's levers attempting to appease the Freedom Caucus (austerity faction). Poor Bond Auctions - The USA needs more global bond buyers. Once the debt ceiling is lifted there is a colossal bond selling catch up process coming soon.

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Lawrence McDonald

@Convertbond

Apr 7

What do Bonds Know?

*Last 20 years, large equity market risk-off events have -- always -- brought in "flight to quality" buyers of long duration U.S. Treasuries. Not this time.

**Book Ideas - "How to Listen When Markets Speak" on Amazon.

Largest Destruction of Equity Capital in the US

2022: Wars / Inflation -$10T (11 months)
2025: Trump tariffs: -$9T (6 weeks)
2020: COVID: -$9T (1 month)
2008: Lehman: -$8T (12 months)

*A powerful, colossal secular shift with a HIGH impact on your portfolio is developing.

When equity market (S&P 500) investors were struck by the Lehman (-55%) and Covid (-35%) drawdowns, they were blessed with long-term bonds. As yields plummeted, bond prices soared. We estimate the bond offset in capital destruction saved investors $7T. (3)

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