For those of you who would prefer to listen:
Memorial Day weekend is the unofficial kickoff to Summer in America. It’s full of graduations and barbecues. Many hit the beaches and the lakes, from coast to coast. However, it seems to have become increasingly easy for people to forget the real purpose of this special day. Memorial Day is the major American holiday observed on the last Monday of May. It is dedicated to honoring and remembering our brave men and women who made the ultimate sacrifice while serving in our nation’s armed forces. Memorial Day brings both pride and sadness. It’s a day of honor. It’s a day of celebration. We mustn’t forget them. Remembering is understanding.
I visited the beaches of Normandy for the first time this Spring. I took my family. It was life-changing. It was meaning-making. For those of you who’ve been there; You know. For those of you that haven’t; You should go. It is a living landmark reminding everyone that America is indeed the land of the free and the home of the brave.
June 6th, 1944 will forever be known as D-Day. The operation took place in Nazi-occupied France. It was codenamed Operation Overlord. It involved a massive amphibious assault on five beaches in Normandy, where over 150,000 American, British, and Canadian forces landed along the French shoreline. D-Day is considered the turning point in World War II, marking the beginning of the end for Nazi Germany. The average age of the soldiers that stormed the beaches was 26. Many were barely 18. Approximately 2,500 of the bravest Americans died that day. It was an absolutely brutal day. History shows it was also a great day. It’s a rarity to combine the two.
I love meeting new people and learning their stories. The tour group was full of Americans from all over the country. We left early, before dawn in Paris. I chatted with a couple from Gainesville, Florida. The husband is a veteran. He said his father landed on the beach called Omaha. What he said next hit me hard. I made sure I wrote it down when I got back on the bus. I wanted to get it as close to right as I could. It went like this:
“We owe them something, those boys. First, we owe them a promise: That just as they did not forget their missing comrades, neither, ever, will we. What’s more, we must always remember that peace is a fragile thing. It needs to be respected and protected. Unfortunately, war can be a necessary action to protect peace. We owe those boys, who gave their lives, a promise to look at the world with a steady focus and stern toughness. There will always be adversaries who challenge us. The only way to meet those challenges and maintain the peace is by staying strong.” I could not agree more.
Memorializing is remembering. It’s honoring. It’s understanding. It’s showing respect. Disruption and conflict are not new to America. Our nation was born that way. Constant change; It’s our DNA. That’s the experience through the centuries: Colonial Revolution. Westward Expansion. Industrial Revolution. Globalization. Today we are living in the midst of enormous change with digital solutions and Artificial Intelligence. It’s a Digital Revolution. America is in the lead. It’s up to all of us to keep it that way.
These are exciting times. What lies ahead is unknown. That’s always been the case. Opportunity is endless for those willing to work hard and take chances. But it’s so important to understand from where it is that we came and remember and honor those who helped lead the path and made the ultimate sacrifice so we could live a life of liberty and pursue happiness.
Today, America is no longer an AAA credit. Moody’s downgraded the credit rating last week. It is a reflection of our government’s poor oversight of our nation’s fiscal policy. This ain’t political. It’s come from both sides of the aisle, for a quarter-century. S&P did it first, back in 2011. That followed the Financial Crisis and the resulting excess spending. The S&P downgrade was supposed to be a wake-up call. Congress didn’t learn then. Our nation’s debt is nearly $37 Trillion. It costs over $1 Trillion a year just to service it. There’s no evidence that they’re going to learn now.
Fiscal policy was the big story this week as House Republicans overcame divisions over Medicaid, SALT and IRA credits. There has been a big fight within the party about cuts and spending. The House finally passed a reconciliation bill on Thursday. Key concessions included raising SALT deduction cap to $40K, moving up start Medicaid work requirements and accelerating rollback of IRA tax credits. Despite all the headline noise, the Market figured that House Republicans would ultimately fall in line around a bill. It’s no secret the importance of extending the original Trump tax cuts. The President went to Capitol Hill to remind them.
The Senate will now go to work on its own version in June with a stated goal of passing a final bill in July. But our Washington sources expect that the Senate bill will differ quite a bit from the House version. Expect more fireworks out of Washington.
Treasuries were under pressure, following the Moody’s downgrade. It was particularly felt at the long end of the curve. The Dollar weakened. Gold rallied. Importantly, we don’t expect any forced selling of US debt. It is still the safest and most liquid asset on Earth. There’s nothing else even close. But the downgrade has further dented Treasury enthusiasm. Launching the Trade War did it earlier.
The 30-Year Treasury yield punched through 5% again. It hit its highest level in a year and a half. The 10-Year yield cleared 4.5% again. Those are levels that bring stress to the financial system. It happened fast. The 10-Year jumped a half a percent in May alone. That’s a huge move in Bond Land.
It was a weak Treasury auction that triggered the move. Demand for America’s debt slipped with what’s going on in Washington. $16 Billion of Treasuries were offered. The auction saw buyers accept a yield of 5.047% 20-Year bonds. The past six auctions averaged 4.613%. It took higher yields to get the bonds sold. Higher yields mean lower prices. This was the first time the Treasury Department sold 20-year notes with a rate over 5% since October of 2023. Boy how things have changed. Back during Covid, 20-Year Treasuries were sold for just over 1%. Importantly, it’s the 10-Year Bond that matters most. It’s the benchmark that pretty much sets the price for loans. But the 10-Year yield has risen too.
The yield spike is not relegated to America. Bond yields surged in Europe and Asia too, sending borrowing costs higher and higher. 30-Year British bonds hit the highest yield since 1997. In Japan, the long bond yield hit an all-time high; At least since they started tracking it. The Bond Market is uneasy with reckless government spending. It’s been an issue for decades. It’s finally been pushing back in 2025. The White House says the House bill will lower the deficit by increasing revenues. The math doesn’t work. The independent Congressional Budget Office analysis found the House plan would increase the deficit by $3.8 Trillion over a decade. The problem is, Washington has long been a math-free zone.
The Bond Market is back in the driver’s seat. The rising yields put an end to the Stock Market rally. The uncertainty around tariffs and trade deals continue to weigh heavy. The 5800 level on the S&P is back in play. It was resistance. Now it’s support. The Stock Market went into the Holiday weekend, sitting ever-so-slightly back above it, after punching through it Friday morning. We expect this volatility to continue a while longer. We’re used to it. Challenges bring opportunities.
Here’s something to remember: Over 400,000 Americans died in World War II. Over 600,000 died in the Civil War. An estimated 1.2 Million American soldiers have made the ultimate sacrifice since the Revolutionary War. Next year will be our nation’s 250th birthday. This relatively young nation has sure seen its share of challenges. And it keeps pushing forward. There’s a responsibility that we bear to carry on the strength and values that our proud men and women displayed. Those soldiers at D-Day and throughout World War II set the bar. They came of age during the Great Depression and rushed to service in the Second World War. Those Americans have been called our Greatest Generation. They sacrificed everything for a cause greater than themselves. That’s honor. That’s loyalty. That’s commitment. That’s the message I want to send. That’s the way I like to live. That’s the world I want my 3 girls to live in.
Have a nice weekend. Enjoy Memorial Day. When you’re at those graduations and barbecues this week, I hope you also think about our great Americans who made the ultimate sacrifice so we can live a better life. The Market will be closed on Monday, in observance of Memorial Day. Our office will be too. We’ll be back, dark and early on Tuesday.
Thanks for staying with me throughout this piece. I know I’m not the typical investment author. And I don’t try to be. This was one of those days where my fingers couldn’t stop typing. It’s the history geek in me. It made me feel proud writing it. I hope it made you feel proud reading it.
Mike
