Finance’s big guns are betting on bonds and chaos

Plus: Martin Scorsese, Texas textbooks and more. [Bloomberg]( This is Bloomberg Opinion Today, a passion project of Bloomberg Opinion’s opinions. [Sign up here](. Today’s Agenda - [Jamie Dimon]( calls out [the Fed](. - [The Osage]( should tell their stories instead. - [Israel-Hamas]( fallout will be widespread. - Texas textbooks are light on [climate dread](. ‘100% Dead Wrong’ Illustration: Jessica Karl Ooopsies: “In a year when the US economy exceeded almost everybody’s expectations, the underlying [federal deficit]( roughly doubled, spotlighting a dire fiscal trajectory likely to only worsen the partisan budget battles in Washington,” Christopher Condon and Chris Anstey wrote in Bloomberg News this morning. A $2.02 trillion deficit in a single year is bad no matter which way you slice or dice it, obviously. But it feels as though we’ve entered some sort of demonic death spiral, where long-term Treasury yields continue to climb to [heights]( not seen in ages and the government is forced to issue even more debt to cover the shortfall of revenue relative to spending. How can we possibly escape from all of this unscathed?: Sure, a lot of the underlying issues here have to do with taxes (which Karl Smith says the US is [notoriously bad]( at collecting) and [Medicare]( (which Bloomberg’s editorial board says comes at [an exorbitant cost]( to the government). But if you look at the above chart, you’ll see two red circles — one for our net interest on debt and another for Fed remittances — which are also worth noting. That’s because the Federal Reserve has a role in this ruinous rodeo, too. You see, the Fed used to be able to take allllll the interest it earned on its pretty little bond portfolio and hand it back to the Treasury, no problem. But they can’t do that anymore. The era of near-zero interest rates is over!! Now they gotta pay back the interest on all the cash sitting at commercial banks. So there goes $106 billion to the deficit. Adding to the pickle is the fact that the Fed’s rate increases have also driven up yields on the debt that the Treasury issues, a figure that has climbed to more than 3% this year, the [highest since 2009](. That slaps an additional $184 billion to the deficit. This is happening at a time when Fed officials are keeping [a closer eye]( on stock and [bond prices](. Former New York Fed President Bill Dudley [says]( this increased focus is “a welcome development for monetary policy” because the relationship between financial conditions and short-term interest rates is loosening. “Monetary policy has become much more transparent, with public statements, news conferences and Fed forecasts. Markets shift based on what participants expect the Fed to do, so financial conditions move faster and well before the central bank acts,” he writes. But when central bank officials open their mouths, they also open up more opportunities for criticism. Today, we saw Jamie Dimon — CEO of JPMorgan Chase — [call out]( the Fed for getting its forecasting “100% dead wrong” about 18 months ago. “Fiscal spending is more than it’s ever been in peacetime and there’s this omnipotent feeling that central banks and governments can manage through all this stuff,” he said on a panel at the Future Investment Initiative summit in Riyadh, Saudi Arabia. In the same discussion, Ray Dalio — CEO of Bridgewater Associates — said he’s taking a similarly “pessimistic” approach to 2024, pointing to the aforementioned public debt as a major boo-boo on the economy. (He also recently predicted a 50% chance of World War III, which would put bond market forecasts into some perspective.) And then there are the Bills. Yesterday, Pershing Square founder Bill Ackman said there’s “too much risk in the world” to remain short on bonds, arguing that the economy is “slowing faster than recent data suggests.” And Bill Gross — Pimco co-founder and “bond king” — said [he was buying futures]( tied to the secured overnight finance rate. Both comments led to a “sugar-rush of a rally,” in Jonathan Levin’s [words](, “pulling yields around 13 basis points lower in the space of about two hours.” “There is no chance that either Ackman or Gross is in possession of exclusive evidence that the recession is about to hit. But what the two famous investors did do was provide a big prompt that bonds were beginning to look like good value again,” John Authers [writes](. Normally, in a staring contest, one side is gonna have to blink first. But in this vicious cycle, will it be the bond market or the politicians who control the spiraling deficit? “The risk that fiscal spending could finally ‘break’ the bond market and push yields up way further is greater than it has been in a generation,” John concludes. “However, that’s not an inevitability.” Box Office Blues Oooof. This has gotta hurt: Martin Scorsese spent an eye-popping $200 million “to indulge in a passion project, resulting in a sprawling, three-and-a-half hour saga that gets [clobbered in the box office]( by a movie about a concert tour. What’s more, Taylor Swift: The Eras Tour reportedly [cost south of $20 million](,” Bobby Ghosh writes. But what’s arguably worse is that many of [the people]( who went to see Killers of the Flower Moon — an extremely sobering tale about murders in the Osage Nation a century ago — in theaters had to share a wall with [singing and dancing]( Swifties. “Imagine watching an intense scene between Leonardo DiCaprio and Robert De Niro and suddenly [hearing]( ‘KNEW HE WAS A KILLER FIRST TIME THAT I SAW HIM’ through the walls,” one unhappy theatergoer [wrote on X](. Source: @Jabartender via X And then there’s the actual movie, which Bobby [was disappointed with](, to say the least. He writes that “the performances by its main actors are too unidimensional” and it felt “like an abuse of directorial star power as much as an imposition on the patience of the audience.” Naturally, the film’s mixed reviews have some people wondering whether putting such a devastating narrative in the hands of a White director — and from a book written by a White man — was a good idea in the first place. Some [may disagree](, but one of Scorsese’s advisers [wished the movie]( had been from the perspective of Mollie Burkhart, the main Osage character, rather than of Ernest Burkhart, her White husband. But hiring [a Native American filmmaker]( and basing the movie on the words of an [Osage author]( would be unrealistic — Apple probably wouldn’t be willing to [splurge $200 million]( on such a project, as actress Lily Gladstone, who plays Mollie, has noted. It’s a shame, knowing how many other Native American communities have stories they want to tell. Crash Course "Netanyahu is the political version a dead man walking. So it’s a question of time before he’s gone because the anger at what is, above all, an extraordinary security failure, will fall on him." Marc Champion Bloomberg Opinion columnist On the [latest episode]( of [Crash Course](, Tim O'Brien speaks with two Opinion columnists with deep experience covering the Middle East and international affairs. Bonus Israel-Hamas War Reading: How can Gaza be fixed? “There is only one person that can give you the answer, only one, me,” Israel’s former Prime Minister Ehud Olmert told Marc [in an hourlong interview]( at his Tel Aviv office. “My vision was clear-cut, explicit, without any doubts: a two-state solution.” Telltale Chart If you’re sending your kid to school in Texas, chances are they’re not learning about climate change in the classroom. A [recent study]( from Scientific American found that the state’s newly proposed science textbooks contained a SINGLE chapter about climate change. Mark Gongloff [says]( (free read) “the thin gruel in these books is largely the result of a tortured approval process that requires input from a politically elected [Texas State Board of Education](.” But if you’re sending your kid to school in a different state, you’re fine, right? Haha nope: “A previous set of books written for Texas — with far more [inaccurate language]( about climate change — ended up in classrooms as far afield as New York and Massachusetts,” Mark writes. We need our kids to learn about the dangers of particle pollution, not the merits of the Permian Basin!! Ugh. Further Reading Free read: Economists made [some mistakes]( on the Great Recession — but not in the way you think. — Tyler Cowen No wonder why Elon Musk is [trash-talking]( Wikipedia: It’s the antithesis of X. — Dave Lee China is making [the same mistakes]( the Soviets did, but with technology instead of nukes. — Minxin Pei Iron billionaires are [duking it out]( in a remote and mineral-rich corner of Australia. — David Fickling The UK Labour Party made its [first economic mistake]( before even gaining power. — Marcus Ashworth The true size of China’s [municipal debt]( is unknown, but some claim it’s nearly 50% of GDP. — Shuli Ren After the UK [scraps the cap]( on bank bonuses, will bosses cut base salaries for employees? — Matt Levine ICYMI [Cocoa prices]( are historically high. Pediatric opioid [poisonings]( are on the rise. Meta [got sued]( for harmful youth marketing. An Alaska Airlines [pilot]( may have been [on mushrooms.]( Kickers Would you take [a cold plunge]( with co-workers? Bret Michaels [adopts]( Bret Michaels the dog. (h/t Ellen Kominers) How to win the [reservation gauntlet](. [Jump scares]( are a dying art form. [The moon]( is a lot older than we thought. Your biological age is a [booming business](. Notes: Please send a dog named Jessica Karl and feedback to Jessica Karl at jkarl9@bloomberg.net. [Sign up here]( and follow us on [Threads](, [TikTok](, [Twitter](, [Instagram]( and [Facebook](. Follow Us Like getting this newsletter? [Subscribe to Bloomberg.com]( for unlimited access to trusted, data-driven journalism and subscriber-only insights. Before it’s here, it’s on the Bloomberg Terminal. Find out more about how the Terminal delivers information and analysis that financial professionals can’t find anywhere else. [Learn more](. Want to sponsor this newsletter? [Get in touch here](. You received this message because you are subscribed to Bloomberg's Opinion Today newsletter. 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