BNPL (buy now, pay later?)
May 25, 2025 – Weekly comment
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Gold is money. Everything else is credit.
–JP Morgan
Luke Gromen cites the oil/gold ratio, noting that an ounce of gold now buys around 55 barrels of oil (WTI). From 2010 to 2020 the range was mostly 12 to 28 bbls. Here’s a chart that’s the other way, ounces to buy a barrel over the past five years. Oil is dirt cheap (if you own gold).
One of the Trump administration’s goals is a consistent and reliably low-priced supply of energy. In the futures market, all WTI contracts through 2026 are currently around $60. Front month July settled 61.53.
But it’s not just oil. On Friday, “Trump signed an executive order to rapidly deploy advanced nuclear technologies to support national security objectives, including powering AI computing infrastructure and national security installations.” [Insert picture of Homer Simpson here]
On Friday Sprott Uranium URNM gained 12% (I own) and Cameco CCJ jumped 11%.
The other big announcement – that Trump threatened the EU with 50% tariffs – is what dominated price action and news headlines Friday. SPX down 0.7% Friday. 10y yield fell 3.8 bps to 4.511%
However, the administration is clearly pressing on several fronts to juice the economy while transitioning to focus on the Americas. Here’s another quote from a speech titled ‘Building the Future of Energy’:
First, we will identify and fast-track Projects of National Interest. These are the projects that matter — to our economy, our environment, and our sovereignty. No more five-year reviews — decisions will come in two years for all projects.
To be strong, we will build things in this country again.
Another guy in the Trump admin right? Nope. Canadian Energy Minister Tim Hodgson (speech flagged by Javier Blas of Bloomberg). Carney’s looking to work with Premier Danielle Smith and raise Alberta’s profile and importance in Canada (ENERGY). Hodgson also mentions in the speech that Canada has “…one of the world’s largest supplies of high-quality uranium.”
https://www.canada.ca/en/natural-resources-canada/news/2025/05/speech-minister-tim-hodgson-at-the-calgary-chamber-of-commerce.html
I would bet the US/Canada relationship has seen its lows and will improve going forward.
Back to US administration efforts: 1) energy 2) tax bill and deficit spending 3) SLR 4) Fannie Freddie.
The previous administration juiced the economy with massive deficit spending. I am not following the tax bill closely, but it doesn’t seem to close the door on deficit spending. And we’re hearing a lot less about DOGE.
My father used to have a saying about a big difference between men and women in business. When a company’s costs were going up, and perhaps getting out of hand, men say: “We’ll cover it by growing; selling more.” While women fret, “We have to cut costs.” Can’t say stuff like that these days without at least getting an eye-roll. But what if you just called it GROUP A and GROUP B? We have GROUP A in the White House. Grow out of the financial problems; change the trajectory. The question is whether we go bankrupt first.
So, who’s going to finance it all? Who’s going to buy all these bonds? Enter Treasury Secretary Scott Bessent. From BBG: “Bessent says US regulators may ease the Supplementary Leverage Ratio (SLR) rule, which constrains banks’ trading in the $29 trillion treasuries market, this summer.” All we need is a Fed that provides strong forward guidance (overtly or with a wink and a nod) that funding costs will stay well below the 10y yield and the banks will absorb that supply like a sponge.
What else? Oh yeah, another Trump announcement that Fannie and Freddie could be taken public. This idea was already floating around. In Nov FNMA stock was around $1.75. In Q1 it ranged 5 to 8. A week ago Friday (5/16) it was 6.78. On Friday (5/23) it closed 10.99. Now imagine the spread below tightening significantly. (Ten year treasury yield vs 30y mortgage). For example, what if it gets back to 2013-2019 levels, 1.5 to 2%. Consider two more Fed eases to 3.75-4.00% and a repo rate of 3.85% and 10s at 4-4.15% which would mean a 30 yr mortgage at around 5.75%. Stimulative?
It sounds like this plan could come together (A-Team style) and work. The problem is massive current imbalances. No matter what, the transition is going to be choppy.
Here are a couple of clips regarding current imbalances, spanning low- to high-end consumers:
NEW YORK (AP) — More Klarna customers are having trouble repaying their “buy now, pay later” loans, the short-term lender said this week. The disclosure corresponded with reports by lending platforms Bankrate and LendingTree, which cited an increasing share of all “buy now, pay later” users saying they had fallen behind on payments.
https://apnews.com/article/buy-now-pay-later-missed-payments-regulation
Booz Allen Hamilton, a consulting firm, said Friday it is planning to cut 2,500 jobs as the Trump administration seeks to reduce government spending levels by discontinuing federal contracts.
The federal shift is projected to decrease Booz Allen’s fiscal 2026 revenue by 3 percent, as most of the company’s earnings are rooted in government contracts.
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News this week:
Tuesday Consumer Confidence (last at 86, around the covid LOW).
Wed FOMC minutes
Thursday GDP 2nd revision
Friday PCE Prices. Yoy expected 2.2 from 2.3% with Core 2.5 from 2.6%. Also UofM inflation exp.
TRADE THOUGHTS
On Friday, SFRU5 and Z5 were both -1.5 to 9587.5 and 9614.5. SFRZ6, the peak contract on the strip, was +5.0 at 9668.5. SFRU5/U6 settled at a new low of -77.0 and SFRZ5/Z6 at a new low -54.0. There have been a lot of option trades predicated on Z5/Z6 rolling lower, and those worked out this week as Z/Z on the previous Friday was -45.5. SFRM5 settled 9568.0, down 1.5 on the week and FFN5 settled 9568.5 down 1 on the week. These prices indicate NO EASE at the June 18 FOMC. The following FOMC is 30-July. FFN5/Q5 spread is -5.0 (9568.5/9573.5) so there’s around 20% odds of an ease at the July mtg. SFRZ5 is 9614.5 and FFF6 is 9616 or 3.84%. By the end of the year, two 25 bps cuts are currently being priced. Current EFFR is 4.33% and FFF6 is 3.84%.
30-yr bond yield ended 5.037%. The high yield in October 2023 was 5.115%. A move above 5.11 would likely target 5.4 to 5.5%. Just prior to the end of the 2004-06 hiking cycle the 30yr yield in May 2006 hit 5.31%. A year later in June 2007 it spiked to 5.40% (just as we were moving into the GFC). I think these levels will be rejected if tested. As Bessent said in April of this year, we are a long way from needing to take action, “but we have a big toolkit we can roll out.”
| 5/16/2025 | 5/23/2025 | chg | ||
| UST 2Y | 398.3 | 398.5 | 0.2 | |
| UST 5Y | 406.3 | 407.8 | 1.5 | |
| UST 10Y | 443.9 | 451.1 | 7.2 | |
| UST 30Y | 489.7 | 503.7 | 14.0 | |
| GERM 2Y | 185.5 | 176.4 | -9.1 | |
| GERM 10Y | 259.0 | 256.8 | -2.2 | |
| JPN 20Y | 237.3 | 252.8 | 15.5 | |
| CHINA 10Y | 168.2 | 169.6 | 1.4 | |
| SOFR M5/M6 | -82.0 | -86.5 | -4.5 | |
| SOFR M6/M7 | -4.5 | -6.5 | -2.0 | |
| SOFR M7/M8 | 19.0 | 24.5 | 5.5 | |
| EUR | 111.65 | 113.65 | 2.00 | |
| CRUDE (CLN5) | 61.97 | 61.53 | -0.44 | |
| SPX | 5958.38 | 5802.82 | -155.56 | -2.6% |
| VIX | 17.24 | 22.29 | 5.05 | |
| MOVE | 96.70 | 100.91 | 4.21 | |
