The Frontier

Secretary Scott Bessent announced that the US Treasury is doubling its weekly liquidity support buyback operations for nominal long-dated coupon securities. The maximum operation size in the 10-to-20-year and 20-to-30-year sectors will rise from $2 billion to at least $4 billion.

Farley notes that funding these buybacks by issuing short-term Treasury bills effectively removes duration from the public market. This dynamic replicates the stimulative impact of the Federal Reserve's 2011 Operation Twist, accelerating currency debasement.

A 2024 paper titled Activist Treasury Issuance by Stephen Miran and Nouriel Roubini provides the framework for these actions. Miran and Roubini showed how the Treasury can bypass the central bank to inject liquidity by altering its issuance mix.

Following the buyback announcement, the US dollar dropped 75 basis points and gold rose over 3.5 percent, while the Nasdaq-100 remained flat. Bitcoin experienced massive short liquidations totaling $1.27 billion as hard assets reacted strongly to the liquidity injection.

Joseph Wang observed that dollar weakness poses a potential headwind for foreign investors allocating to US equities. Although six-month net foreign purchases of US equities recently reached peak levels, rising FX hedging costs may force a capital rotation.

Farley warns that global crude reserves are being depleted while the Strait of Hormuz remains unresolved under Iranian pressure. Once emergency stockpiles run dry, a significant oil price shock is likely, especially if China's suppressed import demand rebounds.

Farley projects that AI hardware spending is nearing its cyclical peak as frontier laboratories struggle to justify extreme valuations. An upcoming Anthropic IPO in October could mark a local market top, mirroring the historical SpaceX IPO timing.

Moderna's clinical trial results, which caused its stock to surge 150 percent, serve as a prime example of successful AI integration in biotech. Farley favors defensive rotations into healthcare and pharmaceuticals over chasing high-multiple semiconductor equities.