A Rare (Earths) Trading Idea and a Bitcoin Boom
Trump fires off perhaps one tariff letter too many for the markets, the king of crypto coins goes wild and look at this rare earths play. Wow!
You're reading 0 of 1 free page.
Register to read more or Unlock Pro — 50% Off Ends Soon
All week long, financial markets have been able to overcome or perhaps simply overlook tariff-dominated headlines to keep on chugging along. Yes, there were a couple of red candle days earlier in the week, but nothing that confirmed anything by volume. Over the last couple of days, not only were equities back on track, once again making new highs, but there was indeed good demand for U.S. Treasury debt securities at auction as well.
The party, although it's early, as I do write these Market Recon morning columns while the masses sleep and the raccoons rummage audibly through nearby garbage cans, appears to have ended as Thursday night melted into Friday morning. European equities have opened on Friday in the red, which is where U.S. equity index futures are trading. To make matters worse, my beloved New York Mets dropped a double header to the last place Baltimore Orioles on Thursday evening. Boo. Hiss. Bring back Bruce Boisclair.
On Thursday evening, Pres. Trump posted a letter written to Prime Minister Mark Carney of Canada, informing our neighbors to the north that effective Aug. 1, the U.S. would impose a 35% tariff on imports from that nation. An exemption will stand in place for goods that comply with the USMCA agreement that replaced NAFTA during the president's first term. This 35% rate is up from the 25% rate that the president had previously placed on Canadian exports to the U.S. not covered by the USMCA deal.
Additionally, in a phone call with Kristen Welker of NBC News, Pres. Trump said, "We're just going to say all of the remaining countries are going to pay, whether it's 20% or 15%. We'll work that out. The president then added, "I think the tariffs have been very well-received. The stock market hit a new high today."
While it is true that both the S&P 500 and Nasdaq Composite notched record high closes on Thursday, overnight markets have not been nearly as kind. At last count, Pres. Trump has publicized 22 tariff letters written to various trading partners since the start of the week in addition to announcing a 50% duty on imported copper.
Maybe Canada was one letter too many? Maybe the 35% rate on Canadian goods has some folks rattled in regard to what's in store for the European Union? Maybe some folks are looking past this general Aug. 1 deadline toward Aug. 12 deadline, which is when the framework deal with China supposedly expires if there has been nothing more detailed agreed to by then.
Bitcoin Runs Wild
Moving in the other direction, Bitcoin surged to a new record high of more than $118,200 per token overnight. The cryptocurrency of choice for a generation, or the modern alternative to gold, which was the alternative investment of choice for my generation, has been on the move this week as regulatory tailwinds have provoked increased inflows and investors bet on a July Federal Open Market Committee policy meeting that sets up an increased probability for reduced short-term interest rates by Sept. 17.
Fed Funds futures trading in Chicago are now pricing in a 65% likelihood for a quarter-percentage point rate cut by that date and a 74% probability for a second quarter-point rate cut by year's end. These same markets are also pricing in an additional three-quarter points worth of rate cuts throughout calendar year 2026. Put bluntly, futures traders are expecting one and a quarter percentage points worth of rate cuts over the next 18 months. These expectations have taken the U.S. Dollar Index down almost 12% since its January high. Interestingly, while gold is up 26% since its January low, the yellow metal has largely traded sideways since late April.
Rare Earths
MP Materials MP surged well ahead of the opening bell on Thursday morning. The stock closed up 50.6% for the day at $45.23 as the U.S. government announced plans to take a large stake in the operator of the only rare earths mine in the U.S. (in California). Under the agreement, the Department of Defense will become the largest shareholder in MP Materials, while guaranteeing a floor price for key rare earth that will stand at nearly twice current Chinese market prices.
How'd you like to be analyst Laurence Alexander of Jefferies, rated at 1 star out of five at TipRanks, who downgraded MP earlier this week from a 'Buy" rating to a "Hold" while setting a $333 target price? Spit happens.
I'm going to go out on a limb and saying that most of us, not just Mr. Alexander, missed that move. Are there other ways to grab onto the coattails of the rare earths trade? There are. No way to know if this will spark interest in other names or not, but there are ideas worthy in my opinion, of speculation. I initiated a long position on Thursday in Ramaco Resources METC as reports circulate that appear to confirm the feasibility of large, rare earth element deposits at the company's mine in Wyoming. METC ran 30.9% on Thursday.
Other ideas might be USA Rare Earth (USAR), which is a supplier of rare earth magnets and was up 12.4% on Thursday and Lynas Rare Earths LYSDY. Lynas is an Australian miner that was up 9.2% on Thursday. The Dod interest in acquiring its own rare earths assets could also be supportive for miners of both uranium and lithium.
The Fed
A few Fed speakers actually crawled out of their holes on Thursday and made public appearances for the first time since before the holiday weekend. Fed Governor Christopher Waller, who has been advocating for reduced short-term interest rates of late and is seen as a possible successor to Fed Chair Jerome Powell spoke from Dallas.
Waller said, "I just made the argument that I think we're too tight, and we could consider cutting the policy rate in July." Waller added "That's my view. I'm kind of in the minority on this, but I've tried to lay out very clearly, in economic terms, why we could do this. It's not political." Waller was a Trump nominee to the Fed's Board of Governors during the president's first term.
For those wondering why Waller felt compelled to explain, the U.S. central bank is dominated by the Democratic party with more than 80% of Fed staff economists said to have made personal donations to candidates representing that political party.
Waller makes what sounds like a valid case: "If the Fed moved forward with a maturity-matching strategy as I suggest, it would hold about half of its Treasury securities in shorter-dated bills. We are reducing the size of the balance sheet slowly and need to consider shifting it toward more bills."
Of course, my opinion is this only makes sense if the Fed actually cuts short-term rates. With a Ten-Year Note that pays 4.39% and a Three-Month T-Bill that pays 4.36% how much sense does it make for the Treasury Department to borrow short-term when one can push out maturity dates. There was a time when fiscal and monetary policies were independent of each other. That ship had obviously sailed long, long ago, when the Federal Reserve bank literally supported the Treasury Department through its first quantitative easing program, initiated in November 2008.
Trend Continues
There was good demand at auction for the $22 billion worth of U.S. Thirty-Year Bonds on Thursday. This came after a solid auction of Ten-Year Notes on Wednesday and a rather sloppy auction of Three-Year Notes on Tuesday. The theme, though, and it does seem to be becoming a trend, is that domestic demand for U.S. paper appears to be on the rise while foreign demand appears to be waning.
The high yield awarded on Thursday was 4.889%, which stopped through where the "when issued" was trading by 0.1 basis point. Any "stop through" is considered a positive and this was the second straight one for the series. Bid to cover was down (to 2.383) but not sharply. Here's where it gets interesting, Indirect Bidders (foreign accounts) took down 59.8% of this issuance, down from 65.2% a month ago and below the 2025 average of about 63%. Direct Bidders (U.S. accounts) won 27.4% of the auction, the largest slice of the 30-year pie taken down by the home team for this series since 2011.
That left dealers with just a 12.8% stake. Overall, the auction was fine. How important is it that foreign investors appear to be backing away from US sovereign debt products? Not very, if domestic purchasers continue to show increased interest. Can that trend continue? It had better.
Note To Readers...
Have a nice weekend, gang. Sarge out.
Economics (All Times Eastern)
1:00 p.m. - Baker Hughes Total Rig Count (Weekly): Last 539.
1:00 - Baker Hughes Oil Rig Count (Weekly): Last 425.
2:00 - Federal Budget Statement (Jun): Last $-316B.
The Fed (All Times Eastern)
No public appearances scheduled.
Today's Earnings Highlights (Consensus EPS Expectations)
No significant quarterly earnings scheduled.
At the time of publication, Guilfoyle was long METC equity.
