PodcastAdam Taggart | Thoughtful Money®Michael Lebowitz

False Breakout? Or Is A Wave Of New Market Highs Ahead? | Michael Lebowitz

The discussion questions whether current trade and market developments represent lasting regime changes, noting that global trade has continued to grow and that evidence for secular inflation remains limited. Labor-market weakness, subdued wage growth, and the breadth of inflation shape the outlook for Federal Reserve policy, while oil and diesel supply risks could still affect prices. In markets, rising bond supply, leverage, concentrated technology leadership, and elevated stock dispersion argue for close attention to positioning, rotation, and diversification.

Market StructureMarket BreadthMonetary PolicyInflationInterest RatesRisk Management

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Key Takeaways

The labor market is weakening beneath the headline unemployment rate: payrolls fell by approximately 23,000, revisions were downward, and unemployment declined to 4.1% largely because participation fell. Wage growth was only about 0.1% and has been trending lower for roughly a year and a half, while the prior two-to-three-month employment burst has ended.

Near-term Fed rate-hike expectations depend on whether inflation becomes broad-based rather than reflecting volatile energy prices. With rate-hike odds already falling from roughly 80%-85% to about 40%, upcoming CPI and PPI readings near 0.1%, zero, or negative could further weaken the case for a hike, especially as rents and some goods decline even while fuel prices rise.

Oil's inflation effect depends more on the direction of prices than on their absolute level: crude remaining near $80 per barrel for two to three years would create no additional oil-driven inflation. However, a diesel shortage could still raise shipping and trucking costs—and therefore delivered-goods prices—even without crude exceeding $100 per barrel.

The discussion distinguishes current market pressures from uncertain longer-term regime forecasts. Evidence does not yet confirm a shift from globalization to deglobalization, while Lacy Hunt's move from a deflation concern to a secular-inflation forecast is presented as a major, unconfirmed prediction rather than an established trend.

Higher long-term yields are being attributed more to bond supply and sentiment than to rising long-term inflation expectations. Government borrowing, debt rollovers, AI data-center financing, and anticipated corporate bond issuance can increase supply, while reduced issuance or oil falling toward $60 could improve sentiment and produce a durable yield decline.

Financing choices by large technology companies can change the pressure placed on different parts of the Treasury market: equity issuance or reduced data-center spending may limit debt demand, while short-term borrowing could reduce pressure on long-duration Treasury supply. Japan's potential use of Federal Reserve repo facilities to buy yen would likewise support the currency without requiring outright Treasury sales.

GEO-POLITICS

Trade Resilience — Current evidence does not confirm a shift from globalization to deglobalization. Despite President Trump's actions and international responses, global trade growth has increased since he took office. Because macroeconomic regime changes can unfold over five to 40 years, the effect of one administration remains uncertain.

“Are we going away from global globalization to whatever deglobalization?…”—

ECONOMY

Labor Weakness — Payrolls fell by approximately 23,000 in a five-sigma miss, while downward revisions showed a weaker labor market than previously reported. Unemployment fell to 4.1%, but the decline reflected a lower participation rate and more people leaving the workforce. A two-to-three-month employment burst has ended, and wage growth was only about 0.1% while trending lower for roughly a year and a half.

“Payrolls were down…”—

Inflation Breadth — The speakers say a Federal Reserve hike is unlikely unless CPI and PPI show that inflation has become broadly based rather than driven mainly by volatile oil effects. Declines in rents and other goods should be weighed against increases in diesel, eggs, or gasoline. Higher fuel costs could force lower-income consumers to cut other purchases.

“I just don't see it, barring some sign in the CPI and P report, CPI and PPI report that inflation is more widespread than we've seen.”—

MARKETS

Oil Inflation — Oil's inflation impact depends on price changes, not its absolute level. If crude remains near $80 per barrel for the next two to three years, it would create no additional oil-driven inflation, even though it remains about $20 above its pre-Iran level. The speakers view the immediate risk as event-driven, while structural pressures may keep prices elevated before eventually resolving.

“And again, we're at, you know, crude's at about 80 bucks a barrel. So if crude just stays at 80 bucks a barrel for the next three years, right?…”—

Diesel Shortage — Diesel supply shortages could raise diesel and transportation costs even if crude does not rise above $100 per barrel. Because diesel is used in shipping and trucking, higher costs could feed into prices for delivered goods.

“Been reading a lot that the biggest shortage kind of in the petroleum market is in diesel…”—

Bond Supply — Government borrowing, debt rollovers, and hyperscaler borrowing for AI data-center construction are increasing bond supply. The speakers say greater supply can push bond prices lower and yields higher. Stable long-term inflation expectations suggest that deficit, supply, and sentiment concerns are important drivers of the recent yield increase.

“there is a there's a supply demand imbalance growing in the bond market where we're seeing a lot more supply just in bonds in general…”—

FORECASTS

Rate-Hike Odds — Softer upcoming CPI and PPI readings—around 0.1%, zero, or negative—could eliminate the case for a Federal Reserve rate increase. Rate-hike odds had already fallen from roughly 80% to 85% for the September meeting to about 40%, although the speakers stress that the Fed could still hike after additional data.

“At the same time, the last CPI report was negative.4, PPI was negative.3, expectations for next week are plus.1 on both…”—

Secular Inflation — Lacy Hunt has reversed his longstanding concern that deflation posed the largest economic risk and now forecasts secular inflation as the bigger issue. The speakers characterize this as a prediction of a major macroeconomic regime change, not an established development, and note that evidence remains limited.

“There's sort of the very notable reversal of longtime deflationist Lacy Hunt who had been concerned that deflation was the biggest risk to the economy and he recently has come…”—

Weak Payrolls Report

The payrolls miss and downward revisions suggest labor-market stagnation beneath a deceptively lower unemployment rate, as participation falls and discouraged workers leave the workforce.

Fed Hike Odds

Subdued wage growth and softer employment are shifting evidence toward a Federal Reserve pause, although upcoming inflation and jobs reports could still change the decision.

Lacy Hunt Inflation Thesis

Lebowitz is reviewing Lacy Hunt’s secular-inflation argument as a possible macroeconomic regime change, while emphasizing that current evidence remains limited and global trade continues growing.

Oil Supply Risks

Oil could remain elevated because of geopolitical and structural supply risks, but Lebowitz argues inflation depends on price changes over time rather than an isolated high level.

Diesel Inflation Concerns

Diesel shortages could raise transportation costs, but falling rents and other goods, together with constrained consumer spending, may offset isolated energy-price increases.

Treasury Supply Pressure

Rising government and hyperscaler borrowing is increasing bond supply, while Japan’s yen intervention and Treasury financing choices add complexity to long-term yield dynamics.

Real Yield Support

Lebowitz sees unusually attractive real yields and argues that bond yields are being driven more by deficit anxiety and term-premium sentiment than by inflation expectations.

Hyperscaler Crowding Out

Technology companies can substitute equity issuance, shorter-term debt, or reduced spending for expensive long-term borrowing, potentially easing crowding pressure on Treasury yields.

S&P Breakout Test

The S&P 500 has returned to record highs after consolidation, but overbought conditions and a possible retreat to former resistance leave the breakout vulnerable to failure.

Leverage And Volatility

Diverging realized and implied volatility, heavy options activity, and leveraged positioning reveal substantial underlying market turbulence despite a relatively calm index surface.

Situational Awareness Collapse

The collapse of a highly leveraged AI-focused fund illustrates how momentum reversals and forced selling can amplify losses, reinforcing the risks of leverage and overconfidence.

Rotation Analysis Tools

Lebowitz explains how relative and absolute rotation scores identify stretched relationships between value, mega-cap growth, sectors, and individual securities.

Precious Metals Rotation

Gold and silver are benefiting from weaker payrolls and renewed real-yield sensitivity, while comparing mining shares with gold may offer a more informative rotation signal.

Portfolio Rebalancing

RAA is rebalancing thematic and core portfolios after sharp divergences, with diversification helping performance catch up as concentrated technology leadership moderates.

Glacier National Reset

Adam describes disconnecting from digital demands during a Glacier National Park trip and finding renewed connection with nature, his wife, and deeper personal priorities.

Mindful Living

Both speakers argue that quiet time reduces mental noise, improves mindfulness and productivity, and helps people distinguish meaningful priorities from constant digital distractions.

Financial Conference Preview

The episode closes with thanks, viewing guidance, adviser resources, and an announcement of the upcoming Thoughtful Money online conference.

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Important Disclaimers

Not Investment Advice: For education only — not financial, tax or legal advice.

AI-Generated: Made by AI from source transcripts and may contain errors.

No Guarantees: Past performance does not predict future results; investing carries risk.

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