🥛 The '92 Bulls of macro just split 🥊

GM. This is Milk Road, the newsletter that knows that when two of the best macro traders of all time get into a public feud about the bond market, it’s time to lock in.

Here’s what we’ve got for you today:

✍️ Clash of the titans
✍️ Druckenmiller Druck’s back
🎙️ The Milk Road Show: The One Catalyst Bitcoin Needs to Break All-Time Highs.
🍪 Vlad Tenev: Robinhood's credit card is a dark horse.

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CLASH OF THE TITANS

Instead of our usual Milk Road Macro updates, I wanted to break down what’s going on with one of the coolest macro smackdowns in memory.

A major feud has erupted in high finance, pitting U.S. Treasury Secretary Scott Bessent against his legendary former mentor, billionaire investor Stanley Druckenmiller.

I often call these two guys the ‘92 Bulls of macro investing.

That’s because in 1992, the duo worked together under George Soros to famously "break the Bank of England" by betting against government price intervention.

Fast forward to today: roles have flipped. Bessent is running the U.S. Treasury, managing a massive $40T national debt, while Druckenmiller is calling out his former protégé for breaking the very economic principles they traded on.

Well, well, well, how the turntables.

What are they fighting about?

Bessent’s Treasury launched an unscheduled, expanded bond buyback program to pull down surging long-term interest rates. Druckenmiller publicly slammed the move as dangerous government price-fixing.

What triggered the feud?

The bond market has been flashing red as the U.S. national debt has topped $40T and the annual federal deficit hovers around 6% of GDP. With annual net interest costs surging past $1.1T and exceeding the U.S. defense budget, investors demanded higher yields to hold government bonds.

In mid-August, 30-year U.S. Treasury yields spiked to 5.33%, their highest level in nearly two decades.

Source: Milk Road

Bessent’s move: The "Treasury twist"

To cap rising borrowing costs, Secretary Bessent executed an off-cycle maneuver:

Doubling long-end buybacks: Treasury doubled its buyback cap on 10-to-30-year debt from $2B to at least $4B per operation, signaling it could go even higher.
Tapping the cash cushion: Officials hinted at using the Treasury General Account’s (TGA) near-$1T cash pile to fund yield support operations.

Bessent's defense:

Bessent framed the program as a "Treasury twist.” Swapping long-term debt for short-term T-bills to clean up illiquidity in thin summer trading.

He argued that yields were artificially driven up by temporary factors, like Middle East geopolitical headlines and massive corporate bond issuance from tech companies funding AI data centers.

Druckenmiller’s clapback:

Druckenmiller launched a direct counter-attack in a Wall Street Journal op-ed titled "Let the bond markets speak".

Source: WSJ

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DRUCKENMILLER DRUCK’S BACK

(BTW, if a lot of this looks like it was written by an AI and not Stanley Druckenmiller, that’s because it seems like it was written by an AI, not Stanley Druckenmiller. What a time to be alive, amirite? Imagine being like, “Claude, roast the Secretary of the Treasury, make no mistakes”.)

It's price fixing, not liquidity: "This wasn't liquidity management, it was price management — and a mistake far larger than $4B suggests". He noted there were no failed auctions or frozen dealer balance sheets to justify intervention.

You cannot buck the market:

"Governments defending prices against fundamentals always lose. The only variable is how much they spend before conceding".

The bond market is the only disciplinarian left:

Rising yields force politicians to confront reckless spending. Artificially lowering yields is a "subsidy to procrastination" that allows lawmakers to ignore structural deficit reform.

Fix the deficit, not the yield:

Druckenmiller argued that a credible budget-cutting package would do more to lower long-term rates than a buyback program 1,000 times the Treasury's size.

The market verdict & macro takeaways

The market quickly sided with Druckenmiller.

When the buybacks were announced, 30-year yields briefly dropped ~10 basis points. But within 24 hours, sellers flooded the market, pushing yields right back above 5.24%.

Unlike the Federal Reserve's Quantitative Easing (QE), the Treasury cannot print money. To buy long-term bonds, it must issue more short-term T-bills or drain cash, simply shifting duration around rather than creating true demand.

Do you know what Ferguson’s law is? The bond market does.

Historian Niall Ferguson noted that any major power spending more on interest payments than defense enters structural decline. Investors know administrative buybacks can't fix a $2T annual deficit.

Bottom line

Bessent tried to use debt management tools to quiet down the bond market, but investors proved that state intervention can't override raw supply-and-demand realities for long.

The solution?

I mean, the way things look right now, it seems like they're going to have to debase the dollar.

This means it’s more important than ever to own assets to protect your capital from debasement.

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I’ll see you there, but in the meantime.

Stay safe, stay educated, and stay bullish!

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