PodcastAdam Taggart | Thoughtful Money®Stephanie Pomboy

Stephanie Pomboy: Has The Grand Game Just Changed?

The discussion centers on a possible shift from intervention-driven markets toward greater reliance on market-set financial signals, with higher long-term yields testing borrowers, equities and the Fed put. AI spending, manufacturing investment and bondholder interest income are cushioning the economy, but leverage, refinancing needs and the prospect of an AI capital-expenditure reversal remain significant vulnerabilities. Geopolitical developments involving Iran, Venezuela, China and the yen carry trade add further uncertainty, while possible Treasury actions and a future Venezuelan oil arrangement offer conditional support rather than immediate relief.

Interest RatesMarket StructureGovernment DebtMarket ValuationsGeopolitical RiskInvestment Strategy

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Key Takeaways

The speakers describe U.S. policy as a recurring pendulum: pre-election affordability measures may give way to a less interventionist approach, while a Democratic socialist shift after the midterms or by 2028 could reverse current fossil-fuel policies and access to Iranian and Venezuelan oil. They identify the midterms and resulting public sentiment as major variables in that policy risk.

Venezuela and Iran are presented as strategic energy assets in the U.S.-China contest, but Venezuelan supply would not arrive quickly: the proposed 100-year lease could require five to ten years and substantial investment before meaningful production. Pomboy also argues that oil prices may remain supported by reserve rebuilding and steady or accelerating AI-related demand, even if Iran-related supply concerns ease.

AI has recently become a major economic and equity tailwind, contributing substantially to roughly 50% earnings growth and helping offset some of the Fed’s hawkish drag, while AI capital spending is also one of the forces cushioning the economy against 30-year Treasury yields near 5.2% to 5.3%. Pomboy warns that a reversal could remove that stimulus if AI returns disappoint, with higher hyperscaler borrowing costs and credit-default-swap pricing signaling greater market concern.

The return of long-term Treasury yields to levels not seen in roughly two decades is colliding with heavy leverage: about $1.2 trillion of older corporate debt is being rolled over, high-yield borrowers pay about 7.4% versus roughly 4% during the zero-rate period, and U.S. federal debt now exceeds $40 trillion. The speakers note that the economy has so far absorbed 30-year yields above 5%, but borrowers remain more sensitive after decades of declining rates and leverage buildup.

GEO-POLITICS

Political Intervention — The speakers describe pre-election measures as attempts to gain leverage over affordability, while leaving open a post-election shift away from interventionist policy. Stephanie Pomboy says a second Trump term could theoretically tolerate short-term economic pain to cleanse accumulated excesses, though she considers that outcome unlikely.

“1st off, we have a fed that is really seemingly trying to become much more non interventionary. Mhmm. Kevin Warsh is, and he reaffirmed this at his Jackson Hole speech…”—

Oil Leverage — The speakers argue that Venezuela and Iran matter not only for oil prices but also for the U.S.-China geopolitical contest. Greater U.S. influence over Venezuelan and Canadian supplies, and potentially Iranian concessions, could restrict China’s access while giving Washington greater influence over dependable oil and strategic reserves.

“To me, to dismiss the Venezuela thing is sort of akin to dismissing that…”—

Iranian Pressure — Pomboy argues that sustained economic pressure could eventually force Iran’s regime to buckle through a populist uprising or military defections. She presents this as a conditional possibility rather than a firm forecast.

“Apparently, you know, things are going from bad to worse there inside Iran. Yeah…”—

TECHNOLOGY

AI Earnings Tailwind — AI has become a major economic and equity tailwind only within roughly the last 12 to 18 months, contributing substantially to about 50% earnings growth. Pomboy notes that AI was not driving economic activity in 2023 or 2024, while its recent strength has offset some drag from the Fed’s hawkish stance.

“When the Fed raised rates in 2022, and then we had SVB and then year after year after that, investors were looking for the Fed rate cuts…”—

ECONOMY

Less Interventionist Fed — The discussion portrays Kevin Warsh as seeking to restore the market’s role in setting financial signals rather than having markets respond primarily to Fed actions. If sustained, that approach would weaken or eliminate the Fed put associated with the framework established under Alan Greenspan in 1987.

“1st off, we have a fed that is really seemingly trying to become much more non interventionary. Mhmm. Kevin Warsh is, and he reaffirmed this at his Jackson Hole speech…”—

Rate Stress — The economy has so far withstood 30-year Treasury yields above 5%, despite earlier expectations that yields near 3% to 3.5% would cause serious strain. Decades of declining yields encouraged leverage, leaving borrowers increasingly sensitive to rate increases and contributing to a large corporate-bankruptcy wave alongside rising consumer-credit stress.

“Yeah. And obviously, the economy right now, is able to withstand, you know, 5 plus on the 30 year…”—

Treasury-Fed Conflict — Treasury Secretary Scott Bessent is described as pursuing market intervention, including yen operations and an Operation Twist-style effort to lower long-term yields. Kevin Warsh views higher bond yields as an appropriate substitute for further monetary tightening. The speakers say the effort to reduce long-end yields has not worked and may reflect different institutional mandates rather than a straightforward policy battle.

“You've got Bessent on the 1 hand who couldn't be more interventionist. You know, 1st, does the yen intervention, then that fails…”—

MARKETS

Yield Reset — Long-term Treasury yields have returned to levels not seen in roughly two decades. The reset challenges the long period in which declining yields and rising bond prices supported asset returns.

“So we now have long term treasury bond yields back up at heights where they haven't been for a long time…”—

Credit Crowding — Higher rates and heavy borrowing across government, municipalities, consumers, and AI-related companies are competing for limited capital. Hyperscalers are funding capital expenditures with debt, while about $1.2 trillion of older corporate debt is being rolled over. High-yield borrowers now pay about 7.4%, versus roughly 4% during the pandemic-era zero-rate period.

“So with, you know, the hyperscalers increasingly funding their CapEx with debt, you know, we have this dynamic where rates are going up on the treasuries for Yep…”—

Treasury Buybacks — The Treasury increased its buyback announcement from $2 billion to $4 billion, but markets did not view the move as especially powerful. Bessent subsequently emphasized the nearly $1 trillion Treasury General Account balance as potential additional buyback firepower.

“So then when he came in with a buyback announcement, which, you know, going from 2,000,000,000 to 4,000,000,000 or it may not sound like a whole lot, I'm sure on…”—

FORECASTS

Rates Versus Equities — Pomboy compares Kevin Warsh’s arrival with Alan Greenspan’s 1986 tenure, when rising long-term yields were initially ignored by the stock market. She argues that the 1986–87 pattern suggests equities may eventually be unable to defy higher interest rates.

“But thinking about Kevin Warsh's tenure similar to that of Greenspan in terms of taking the reins at a time when he is clearly articulating a very hawkish position as…”—

Fed Put Conditioning — Pomboy expects the Fed’s implicit market backstop to weaken, but says investors will not quickly abandon the expectation of intervention. Repeated stock-market declines of roughly 5% to 10% without dovish Fed commentary may be necessary to change that behavior.

“As you said, you know, 1st off, the Fed isn't going to be interventionists…”—

AI CapEx Reversal — AI capital-expenditure flows could reverse if returns fall short of current expectations, removing a significant source of economic stimulus. Rising hyperscaler borrowing costs and credit-default-swap pricing suggest that credit markets are demanding a higher risk premium over whether AI’s promise and circular financing will translate into sustainable returns.

“Yeah. It also, you know, it does beg the question or raises the question, you know, what if something happens to these AI CapEx flows, right?…”—

Has the grand game just changed?

Adam Taggart and Stephanie Pomboy frame the discussion around whether markets are moving away from intervention-driven pricing toward a more consequential role for market signals.

Kevin Warsh and a less interventionist Fed

They examine Kevin Warsh’s stated desire to restore the bond market’s informational role and make the Federal Reserve less interventionist.

Ending the Fed put: the Greenspan parallel

Pomboy compares Warsh’s hawkish intentions with Alan Greenspan’s 1987 experience, when rising yields eventually produced the Fed put rather than durable restraint.

Long-term Treasury yields at two-decade highs

Long-term Treasury yields have returned to roughly two-decade highs, challenging investors who have treated higher rates as manageable rather than existential.

Are we in a secular higher-rate era?

The speakers debate whether the economy has entered a secular higher-rate era and how much further yields can rise before leverage causes broader economic damage.

Bankruptcies, private credit marks, and hidden stress

Pomboy points to corporate bankruptcies, consumer stress, and private-credit markdowns as evidence that higher rates are already creating hidden financial pressure.

Why no crisis yet: Fed-put psychology

They argue that repeated expectations of future Fed support have allowed borrowers and investors to extend and pretend, delaying but not eliminating a potential crisis.

Mixed signals from Warsh and Bessent

Warsh’s market-oriented message conflicts with Scott Bessent’s Treasury interventions, leaving investors uncertain about whether policymakers share a coherent plan.

Why the economy hasn’t buckled yet

AI investment, manufacturing activity, and bondholder interest income are cushioning the economy, allowing it to absorb higher long-term rates more easily than expected.

AI capex risk and 2007 credit-market echoes

The speakers warn that an AI capital-expenditure reversal could remove a major economic support, especially if expected returns fail to justify current spending.

Crowding out and debt rolling at 7.4%

Pomboy draws parallels with 2007 commercial-paper stress, noting that credit markets are demanding more risk premium from highly indebted AI infrastructure companies.

Treasury intervention: buybacks and the yen

Private borrowers face crowding out as government, municipal, consumer, and AI-related demand competes for capital while large volumes of older debt must be refinanced.

The 1921 depression and letting markets clear

Bessent’s Treasury buybacks and yen intervention are presented as attempts to restrain yields, but their limited scale and questionable durability undermine the strategy.

Has the put moved from the Fed to Treasury?

The 1921 depression is used as an example of allowing liquidation, lower prices, and capital reallocation to clear excesses without modern-style bailouts.

The TGA “trillion-dollar” bluff and midterms

Pomboy favors free-market cleansing in principle but assigns low odds to policymakers accepting the short-term pain required to achieve it.

Revaluing the U.S. gold reserve

They suggest the Fed put may temporarily be shifting toward the Treasury, with intervention aimed at improving affordability before the midterm elections.

Japan’s soaring yields and the yen carry trade

Pomboy argues that the Treasury General Account’s supposed trillion-dollar buyback capacity is largely a timing illusion because the funds are already committed against a huge deficit.

How seismic would a carry-trade unwind be?

Revaluing the United States gold reserve from its official price could theoretically create sustainable Treasury firepower, though Pomboy says it remains an unlikely near-term policy.

Leverage, margin debt, and corporate balance sheets

Japan’s rising bond yields threaten the yen carry trade, but the outcome depends heavily on whether policymakers can prevent further yen weakness.

Venezuela oil: game changer or nothing burger?

A carry-trade unwind could affect leveraged positions worldwide, although it may be less systemically explosive than before the COVID-era period of abundant dollar liquidity.

Venezuela, Iran, and the China angle

Extreme global leverage, record margin debt, and rapidly repricing bond markets leave financial assets vulnerable even beyond the specific yen-funding channel.

Canada, Iran, and America as the world’s gas station

Corporate balance-sheet strength is highly concentrated among the largest firms, while many other companies face negative free cash flow, refinancing pressure, and bankruptcy risk.

The biggest if: midterms, 2028, and policy reversal

The Venezuela oil arrangement offers long-term strategic value and possible future supply, but infrastructure constraints mean little immediate effect on prices or consumers.

Where to follow Stephanie + conference wrap

Venezuela, Iran, Canada, China, and control of energy supply are discussed as interconnected geopolitical levers, with any benefits dependent on policy continuity through future elections.

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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.

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