You can’t turn your back on this market.

Stocks are surging left and right, and it doesn’t matter what sector, industry group, or whether it’s a micro-cap or a mega-cap.

It doesn’t even matter if you're buying shares of a real company. You can’t miss!

Well, not exactly…

One asset lurking on the edges of the quoteboard is a toxic deviant that’ll happily burn through your investment account.

Or worse, it’ll grip your chest, restrict your breathing, and replace it with stress and the pain of loss. Emotional drawdowns are real. Not enough traders talk about them.

But if you accidentally buy U.S. Treasury bonds, you’ll be talking to your therapist for months.

Here’s why…

The Downtrend

Let’s start with the most important reason you should avoid T-bonds: the six-year downtrend.

Long-duration bonds took the low road at the end of 2020 and never looked back. The iShares 20+ Year Treasury Bond ETF (TLT) shed roughly 48% since the summer of the COVID-19 pandemic, an unprecedented return for a safety trade that had posted a steady rally for forty years.

Up until this afternoon, the bond market has shown no signs of a significant price reversal.

Most traders and analysts are trodding through uncharted territory. Investors who entered the market in the early 80s lack anything to compare with today’s bond selloff.

You’d have to go back to the 1970s to find anything remotely similar to the last five years in U.S. T-bond prices.

Which brings us to my second point…

Inflation

The rising rate environment that began as transitory quickly became a sticky mess. Today, it’s the norm.

In fact, the Fed appears unfazed by a 3% inflation rate. Mike McKee’s question nailed it on the head during Powell’s presser last week:

“...Every year since 2015, the SEP [Summary of Economic Projections] has forecast that you would hit your target two years later. And this year, this SEP says you're going to hit your target two years later. Two percent does not seem to be in sight. Does that suggest that the 2 percent target is not really achievable? And does this present any credibility problems for you in telling people that that's what you're going to do, if you can never reach it?”

Powell responded, “Well, I mean, you're right… You know, we don't – no one really knows where the economy will be in three years…”

Well, there you go!

It sounds to me like the Fed is waving a white flag in surrender. I think it’s safe to say we can throw any hopes of disinflation out the window.

Rate Cuts

I’ve said for a few years now that the market is in the midst of a commodity supercycle on par with the 1970s, including bone-crushing inflation.

What some investors and fellow analysts previously viewed as a bold call becomes more mundane with each passing month.

Just take a look at the coffee, cocoa, or cattle chart. Gold isn’t the only commodity tearing toward record highs like it’s 1977.

Commodity rallies will only become more explosive and widespread as the Fed continues to cut interest rates. The same applies to other risk assets such as stocks. On the other hand, long-term Treasuries will suffer.

I hit on interest rate cuts in last week’s note, explaining that the Fed directly impacts the shortest end of the yield curve. They decrease operating costs for small lenders when cutting the Fed funds rate, allowing regional and community banks to lend more capital to small businesses.

These cuts ultimately drive economic growth and typically increase interest rates at the far end of the yield curve. Stocks tend to rally, bonds sell off, and yields rise — a description of today’s market to a T.

Check out the 30-year T-bonds' reaction to last September’s initial rate cut.

The first rate cut of 2024 — also the first cut since the Federal Reserve entered the hiking cycle in April 2022 — sent bonds packing right at a multi-year downtrend line. Coincidentally, last week’s cut halted the bond rally at the trendline.

The T-bond downtrend persists. And it will only intensify with each additional rate cut.

It wouldn’t surprise me one bit to witness the 30-year T-bond hit a new low before Christmas. If not, you can schedule it for Q1.

Powell has thrown in the towel. Inflation has won. The only thing for you to do is avoid long-term bonds like the plague.

In this market, you can close your eyes, type any three-letter combination, and then take a peek and click “buy” — any three-letter combination except TLT.