In this live market commentary, Kenny Polcari opens with a brief personal greeting before diving into the recent turbulence in the U.S. bond market. He explains how Treasury Secretary "Scotty" (Janet Yellen) announced a dramatic increase in long‑dated Treasury buybacks on Wednesday, which temporarily drove bond prices up, yields down, and stocks higher. By Thursday, market participants re‑evaluated the move in light of the $40 trillion national debt, a 6 % of GDP deficit, and looming new issuance, causing a sharp sell‑off in bonds (TLT down 8 %, TLH down 6 %) and a reversal of the equity rally (Dow down 1.3 %, S&P down 0.9 %). Polcari argues that technical fixes cannot solve the underlying fiscal imbalance and outlines the administration’s parallel “fiscal consolidation” plan aimed at reducing deficits and debt growth. He then links rising oil prices (WTI $86.37, Brent $93.80, up 18 % since Aug 5) to higher inflation expectations, which pressure long‑term yields and equity valuations. He discusses the broader market picture, including Walmart’s earnings, short‑term technical support levels for the S&P, and the historically weak September performance. Polcari offers a complimentary portfolio review, mentions an upcoming Fox Business interview with Stuart Varney, and concludes with a detailed, elevated mac‑and‑cheese recipe as comfort food for a stressful day. The overall message is that while short‑term market moves may fluctuate, the fundamental story of debt overhang, fiscal policy, and energy‑driven inflation remains unchanged.
Chapters
Well, good morning. Yes, it's me, Kenny Polcari, and I'm coming to you today live from Jupiter, Florida. It is a gorgeous day. Looks a little bit cloudy out there, but it doesn't look like rain. Anyway, today is Friday, August 21st, 2026, and here are the things that you need to know to get your day started. Well, Scotty's magic lasted for all of 24 hours, and the market says slow down, big boy. Monday, though, is supposedly economic D-Day for Iran. Oh boy, let's see what that happens. Uh, oil is up, bonds are down, yields are up, and gold is up. And US futures, well, they're pointing a little bit higher this morning. And what do we have for dinner tonight? We're gonna have the macaroni and cheese. It's classic, it's delicious, it is so good. So, well, good morning. And apparently Scotty's magic lasted all of about 24 hours, and stocks and bonds got slammed after that. So put the cork back in the champagne bottle because there is a story here. So let's talk about it. Let's remind ourselves about what happened on Wednesday, right? Scotty stepped in, stepped into the bond market, and he surprised investors by announcing minutes before the opening on Wednesday that the Treasury was going to go out there and at least double the size of its buybacks of longer-dated securities in an attempt to improve liquidity at the long end of the curve after the 10-year and the 30-year yield surged to what I have been calling the danger zone. Markets loved it. Investors loved it. Traders loved it. And algos loved it. Bonds rallied, yields fell, and stocks moved higher on Wednesday. Gold surged. And for one full minute, it looked like Scotty— well, he was on to something. And then Thursday happened, and everyone took a second look at what the Treasury was proposing. They looked at the $40 trillion in national debt. They looked at the federal deficit running near 6% of GDP. They looked at the enormous amount of Treasury and corporate debt. that's coming to the market and they looked at oil which was surging again and apparently they decided, yeah, no, not happening. And what happened next wasn't so pretty. They sold bonds and they sold stocks and yields went right back up. For bonds, the TLT lost 8/10 while the TLH lost 6/10 and that sent yields higher. The 10-year went right back to 4.69%, the 30-year went right back to 5.24%. essentially wiping out most of the gains that Scotty had manufactured just one day earlier. And stocks, not so good. The Dow got whacked, right down 704 points or 1.3%. The S&P gave up 66 points or 9/10. The NASDAQ lost 265 or 1%. The Russell lost 40 points or 1.4%. The transports lost 78 points. The equal weight S&P lost 75 points or 8/10, while the Mag 7 lost 380 points Or just over 1%. So, so much for the best of bonds. And that is the message. Yesterday, the bond market rejected the idea that a technical fix will solve a fundamental problem. Yes, Scotty, he can increase buybacks, he can improve liquidity, he can even change the maturity profile. He can tell investors that yields don't reflect the underlying fundamentals, and he can tell us that anything that happens in a 24-hour period is just noise. Noise, noise. How about a cacophony? Because what we got yesterday was loud, confused, and anything but harmonious. So think about it: you intervene on Wednesday, markets rally, and then they completely reverse course on Friday, on Thursday, because that's what we saw. That's not noise; that's the bond market saying, "Ah, not so fast, big boy," because while we understand what you're doing. We're not convinced that it's going to work. And Scotty heard that message because then he came right back yesterday and he upped the ante again. Now, does that start to feel a little bit desperate to you? Maybe. Because suddenly he's telling us that the buybacks could even be larger than the $4 billion operation that he had already planned. While revealing that the administration is preparing a new initiative also focused on fiscal consolidation. Fiscal consolidation? What's that, you ask? Well, it's a completely different animal than the bond buybacks, so let's explain the difference. Bond buybacks are debt management. Fiscal consolidation is deficit management. You see, Wednesday's announcement attempted to manage the existing debt, improving liquidity, changing maturity profile, and potentially taking some pressure off of the long end of the curve. Yesterday's announcement is attempting to address the reason the bond market is upset in the first place. There's too much spending, enormous deficits, too much debt, and too much new issuance. And the fiscal consolidation part plans to address that— spending less, collecting more, growing the economy faster, reducing the deficit, and borrow less. Because if Washington can credibly reduce the annual deficit, and that's the big question, then we don't need, uh, uh, to issue enormous amounts of debt every year. Which brings us right back to the supply-demand narrative, right? Less supply means less competition for capital, means potentially less upward pressure on yields. But there's something else that's got— that, that would really help here, and it's credibility. Because if investors become convinced that Washington is actually serious about changing the trajectory of deficits and debt, they may then demand less of a risk premium to own these long-dated Treasuries, right? So therefore, yields would naturally come down, and that's what Scotty really needs. He doesn't just need buyers, he needs buyers who don't demand higher yields. And remember, Scotty isn't the only guy standing at the window. Looking for money. We talked about this yesterday. Corporate America is standing right next to them. Bessin acknowledged that, in the— that the enormous wave of corporate debt issuance is creating also short-term competition for capital. So bingo. And we discussed that in yesterday's note. It was the whole supply-demand narrative and the clearing price. So go back and look at it if you didn't see it. And if that wasn't enough, oil just made the job even harder yet again. As it surged higher yesterday. WTI gaining $2 or 2.4%, ending the day at $86.37. Brent is up at $93.80. Oil is now up 18% since August 5th. Oh boy, think about what that's going to do to the CPI and PPI next month. Now, the latest move is because Trump turned up the heat again, threatening other countries— Oman just one— that continue to support Iran. In addition, next Monday, he announced, is being called economic D-Day for Iran because we're supposed to find out how he intends on economically isolating Iran from the global economy. Okay, but here's the problem. Bessin continues to tell us that the underlying US economy remains strong and argues that the only meaningful inflationary issue is energy, something he continues to tell us is temporary. Nightmares of transitory come to my mind, and how'd that work out? Now, large amounts of oil are still getting through the straits, so that's the positive. And that is one of the reasons that Brent and WTI are not trading above $100. But what happens if Trump's economic D-Day changes that calculus? What happens if shippers and insurers and banks and buyers decide that the risk isn't worth it? And what happens if Brent moves up through $100 a barrel? Now Scotty has a new problem because while he's trying to push long-term borrowing costs down, rising oil is threatening to push inflation expectations up and then long-term yields higher. So he can try all he wants to lean into the long end of the curve. He can try to change a maturity profile. He can increase the buybacks, but he can't simultaneously tell us that the energy inflation is temporary while the administration is pursuing a policy that could potentially make energy inflation less temporary. In gold, it gained another $27 to settle at $4,516, leaving it up more than $150 in just 2 days. And it's up again this morning. So think about the message: stocks are down, yields are up, oil's up, gold is up. It's not exactly the market screaming everything is fine. Gold is telling you that fiscal inflation and geopolitical risks remain alive and well, right? So think about once again the safety trade. And that takes us right back to the bond market and then the stock market as we Connect all the dots. Oil moves up, inflation pressures move up, the Fed gets squeezed, long bonds get crushed, yields move higher. And higher yields do what? They put pressure on equity valuations, and thus stocks sell off. And sitting right in the middle of all this is the bond market. And what we learned yesterday, uh, what we learned yesterday again was that the bond market takes no prisoners. And there it is. It's not any more complicated than that. And by the way, Walmart didn't help. The company beat on both earnings and revenues, but US comp sales disappointed, and management pointed to consumers beginning to make trade-offs as gasoline prices rise. And that matters. Why? Because higher oil isn't just a bond market problem anymore. It's now becoming a consumer problem if you listen to what Walmart says. Remember our line from Monday: cooling is good, cracking is not. Now this morning, US futures are up. Dow futures up 200, S&P's up 25, NASDAQ's up 183, and the Russell is up 15 points. The early explanation is that we're in for a bounce because we're short-term oversold. Okay, but I'm not really buying that argument. The RSI isn't saying we're oversold, the data is not saying it, and the chart isn't saying it. So my gut says that this early bounce is more about traders testing the waters after yesterday's beating, uh, um, looking for, uh, looking for a change, but there was no change in the fundamental story. And while the trader types may find a short-term opportunity or 2, I continue to think that the near-term risk is lower as we move into September. Trendline support is down at 75.30, which is down 1.3% from here. Hardly anything to write home about. The issue is, will that level hold or not? If not, then 73.50, which is intermediate trendline support, becomes the bullseye. And a move there would be about a 5.7% move off the August high of 7,800. Now, if that doesn't hold, then we can have a whole different conversation, but I'm not going to go there just yet. Now, this morning European markets are slightly positive. They're up about 2/10 of a percent with the exception of Spain, which is up 3/4 of a percent. Now, eco data today includes the August US manufacturing and services PMIs, and both are expected to remain in the expansion zone. That's a positive, yes. It is a positive. The S&P closed at 7,641, down 66 points. Now, while I think the move— we're going to move lower in the short term, I am still upbeat long term. Yes, it's a bit uncomfortable right now when the market comes under pressure. Everyone gets a little bit nervous, but it should not be a surprise. Remember, Scotty can buy bonds and he can up the ante to buy more. But what we learned yesterday is that just buying bonds is not going to solve the issue. And remember, September, as we move into September, it's the worst performing month for stocks in historical standards. So again, don't be surprised. Now, if you'd like to discuss the goals or evaluate the risk in your portfolio, give me a call at 561-931-0190 because I'm always happy to provide a complimentary portfolio review and risk assessment. Also, I'm going to be on with Stuart Varney at 9 o'clock this morning on Fox Business, so you should tune in. Okay, so what are we having tonight? We're having mac and cheese. But this again is not your kids' mac and cheese. This is a rich grown-up version, right? It's a combination of Gruyère and American cheeses that makes it creamy and flavorful. And it's got buttered breadcrumbs on top with Parmesan topping, and you broil it in the oven and it gets nice and crispy on top. It is classic. It is comfort food. The method that we use to cook the pasta is milk-infused water, right? Which is a great trick because it gives it some extra creaminess. Without needing like a, like a roux, right? It's pure comfort food. It's got an elevated twist. It's warm, it's indulgent, and it's absolutely perfect for a stressful day. So here's what you need. You need 2 cups of whole milk that you're going to add to the boiling water. You need a pound of elbow macaroni, shredded American, shredded Gruyère, Dijon mustard, breadcrumbs, butter, salt and pepper, finely, freshly grated Parmigiano-Reggiano cheeses. Now, he put the oven on broil so that it's ready when you need it. You're going to cook the pasta in water and the milk, right? You're going to add about 3 and a half cups of water and 2 cups of milk, right? You're going to add the macaroni. You're going to reduce the heat to medium-low, cook it for about 6 minutes, stirring it occasionally. You want it to cook until it's al dente. Don't cook it all the way through. The pasta should absorb most of the liquid. If there's excess water and milk, just strain it off, right? Then you're going to melt the cheese. Once the pasta is ready, You're going to add the shredded American cheese and the Dijon mustard. Mix it, mix it until the cheese is fully melted. Might take you a minute or so. Then take it off the heat and stir in the Gruyère cheese. Again, mix it, mix it, mix it until it gets creamy. Now transfer the whole thing to a Pyrex baking dish that you've buttered. Right. Pour the mac and cheese in there. Right. Lay it out nice. Now you're going to take your breadcrumbs, put it in a frying pan, add some butter over medium heat. Get the breadcrumbs all toasty with the butter. And then you're going to take the breadcrumbs, you're going to put it all over on top of the mac and cheese. And then you're going to sprinkle the fresh grated Parmigiano-Reggiano cheese on top of that, on top of the breadcrumbs. Don't overdo it, but make sure you put enough. And then take the whole thing and put it under the broiler and just let it broil for 1 to 2 minutes. Just watch it because it'll turn nice and crispy very quickly and then it'll burn. It will. If you don't watch it. So just make sure you're standing there. Do not leave the oven. When you take it out of the oven, let it rest just for a minute or 2 before serving, just so that it comes together a little bit. Cut it up, serve it, enjoy it. Sit down, watch a movie with your family and the kids, whatever. Everyone, everyone, everyone will enjoy this dish. It is really great comfort food. Now, until Monday, I'll be in New York City, but until Monday, take good care. Thank you, Kenny.
