Stocks surged to a record close yesterday as investors bet that the latest inflation report all but locked in a September interest rate cut.
Big Tech carried the day again — and On Holdings, the Swiss sneaker maker, sprinted higher after crushing revenue estimates and raising its annual sales forecast.
It’s a familiar pattern: optimism in the indexes, giddy valuations, and yet… more than a few warning lights on the dash.
Corporate buybacks are charging toward a record $1 trillion for 2025 — a classic late-cycle “financial engineering” sign. (Source: S&P 500)
While each strategy is unique, corporate boards often make the decision to buy back their own shares during record rallies to keep their shares looking attractive, in this case, to retail investors… or speculators.
Of course, some boards just rubber-stamp the CEO’s buyback decisions – and all too often, a company CEO is awarded stock options based on the performance of their stock. But what looks like a conflict of interest in normal times is business as usual during a melt-up.
Meanwhile, retail options activity has hit all-time highs, with small traders now making up 21% of the entire options market — higher than at the peak of the meme-stock craze in 2021.
Even some technical traders — the ones who stare at charts for a living — are getting twitchy.
Technical analysts use charts to plot momentum in share prices, among other things, and try to apply common trade patterns to the shape of the charts.
A gentleman gambler sporting the handle “Mac10” on X warned yesterday we’re in “zona crashola”:
“The S&P 500 is in a double top of a double top. Unconfirmed by 95% of stocks. The crash will be very fast and very unexpected.”
Bessent Breaks with Convention
Treasury Secretary Scott Bessent made his most explicit call yet for the Fed to start cutting rates, telling Bloomberg Surveillance: “We should probably be 150, 175 basis points lower.” His starting bid: a 50-point cut in September, followed by more.
That’s not normal behavior for a Treasury secretary. But these are not normal times. Trump’s Great Reset plan requires both high growth – and lower interest rates to finance the national debt.
Bessent’s point: you can’t have debt this large, at today’s yields, without the soul-crushing math.
July’s budget deficit came in at $291 billion — the second-biggest July on record — a sharp reversal from June’s $27 billion surplus. Spending jumped nearly 10% to $630 billion; revenues rose just 2.5% to $338 billion, including $19.3 billion in tariff revenue.
Without tariffs, revenue would have fallen.
After 10 months of FY 2025, the gap is already $1.63 trillion — the third-largest in history, behind only the 2020 and 2021 crisis years.
What Is the True Inflation Rate?
What a mess.
Officially, July’s headline CPI came in at 2.7% and core at 3.1%. That’s largely in line with expectations — and in the Fed’s eyes, a sign inflation is “behaving itself.” In other words, a green light for rate cuts if they want them.
The CPI report also shows that so far, companies haven’t passed the full brunt of Trump’s tariffs to consumers.
But it’s not a price-stability utopia. Confusion over the data has a litany of analysts on social media offering suggestions on how the BLS might do their jobs better.
“There are real problems in BLS statistics,” analyst Jeremy Schwarz offers help on X, “particularly w/ shelter! Perhaps BLS can focus here.” (Source: WisdomTree)
At face value, the BLS print shows month-to-month core inflation ticked up 0.3%, a six-month high.
Imports like furniture and car parts got more expensive. Services hit Americans hardest: dental care rose 2.6%, medical care 0.8%, and airfares spiked 4% — the sharpest jump in over three years.
Strip out the BLS’s laggy shelter data, and headline inflation drops to 1.84%, core to 1.95%.
Which raises the question — is the official number even useful right now?
Maybe. Firing the BLS director mid-stream during a critical battle against inflation doesn’t instill confidence in the data. Expectations for a resurgence in inflation spiked after Trump’s move a week ago.
As Tavi Costa, a hard asset analyst, put it: “Inflation expectations are rising, while the share of investors who believe short-term rates should be higher is near record lows. In a normal market, this setup would lead me to expect short-term rates to rise. But in today’s environment — marked by an urgent push for fiscal dominance — I’d rather have a constructive view on hard assets.
“The combination of rising inflation and suppressed interest rates is one of the most powerful drivers for hard assets, in my opinion.” That just sounds like another argument for gold, which we’ve been pounding the table on for over a year now – a time when the metal has gained 35%.
Dalio’s Long View
Ray Dalio, who’s spent decades mapping what he calls “The Big Debt Cycle,” weighed in with a reminder that the patterns we’re seeing now are part of a much older story.
“When central governments do their jobs well, they tax and spend in ways that provide broad-based productivity and prosperity… when central banks do their jobs well, they keep the credit, debt, and capital markets in relative balance… However… the bias to create more ups in economies and markets through credit stimulation leads to long-term uptrends in debt and debt service relative to incomes until they become too large a percentage of income to be sustainable.”
Right now, Dalio would likely say we’re in the “late-cycle excess” stage — where debt is still being piled on, credit remains artificially easy, and asset prices keep climbing… right up until they don’t.
Fuzzy Data and Trump Power Plays
The CPI release landed amid growing mistrust of the official economic numbers. Trump recently fired the Bureau of Labor Statistics commissioner and installed E.J. Antoni, who floated the idea of suspending the monthly jobs report “until it is corrected.”
Meanwhile, the Trump-Powell rivalry took a new turn.
The president said he’s considering suing the Fed chair over the “grossly incompetent” renovation of the Fed’s DC headquarters.
The two clashed in person last month while touring the site in hard hats. Powell corrected Trump on the cost estimate, saying it had not ballooned to $3.1 billion.
The administration’s full-court press for lower interest rates wouldn’t have anything to do with the timing on this lawsuit, would it?
Naah.
AI Side Show
Here’s an interesting side note that may actually end up on your computer’s desktop: AI upstart Perplexity has offered to buy Google Chrome for $34.5 billion — nearly double Perplexity’s own $18 billion valuation.
Analysts doubt the bid is serious; more likely it’s a legal maneuver to show there are willing buyers if a judge orders Google to divest Chrome in the wake of last year’s antitrust ruling.
The Backdrop to Watch
With valuations stretched, buybacks at a record pace, and policy now openly bending toward rate cuts, we’re in a divergent market: tech mania on one side, a softer real economy on the other, with a strong political drama brewing over inflation data and expected rate cuts thrown in the middle for good measure.
We caution again: The trouble with a mania is that investors look at their 401(k) statements and think they’re getting rich – and not thinking about how just a few stocks are responsible for the bulk of those gains.
The time to rebalance your portfolio, especially if you’re holding any one of the 50 stocks in our MAGA Blacklist report, is now.
Nobody rings a bell at the top.
~ Addison
P.S.: This week’s Grey Swan Live! is on Friday, August 15, at 11 a.m. ET — not our usual Thursday slot. Paid members will get a free trading pick. If you’re not yet a member but want to join Friday’s Sneak Peek session, we’ve arranged a one-time VIP pass you can register for here.
