Prof G Markets: Breaking Down Warning Signals from the Bond Market — Featuring William Cohan

Release Date: April 17, 2025
Hosts: Scott Galloway & Ed Mylett
Guest: William Cohan, New York Times Bestselling Author and Founding Partner of Puck

Introduction

In this episode of Prof G Markets, hosts Scott Galloway and Ed Mylett delve deep into the recent tumultuous movements in the bond market, featuring insights from financial journalist and author William Cohan. The discussion centers around alarming shifts in bond yields, the impact of presidential tariff policies, and the broader implications for the U.S. economy and global financial stability.

1. Tariff Exemptions and Market Impact

The episode kicks off with an analysis of President Trump's recent decision to exempt smartphones, computers, memory chips, and potentially imported vehicles from the latest tariff increases. This move primarily benefits large technology firms like Apple and Nvidia but has disproportionate negative effects on small and medium-sized businesses.

Scott Galloway criticizes the administration's favoritism towards big corporations, highlighting the inherent corruption in transferring wealth from smaller enterprises to giants with close ties to the president. He states:

“This is a form of corruption and that is whoever has proximity to the president or is a popular company or is a big company... it’s a transfer of wealth from small business and medium-sized business to big business.”
[07:09]

Galloway underscores the vulnerability of smaller businesses that lack the political clout to secure similar exemptions, leading to potential shutdowns and severe financial strain.

2. Bond Market Turmoil

William Cohan provides a comprehensive explanation of the recent spike in the 10-year Treasury yield—an increase not seen in 37 years. Initially, yields fell as investors sought the safety of bonds amid tariff-induced market uncertainty. However, as the ramifications of the tariffs became clearer, confidence waned, causing yields to surge unexpectedly.

“The yield on the bond market began to move up precipitously and got to like four and a half percent, which was basically the largest and quickest move up in the 10-year treasury in 37 years.”
[31:44]

This sudden hike indicates a loss of confidence in U.S. Treasuries, traditionally viewed as one of the safest investments.

3. Potential Credit Crisis

The conversation shifts to the looming threat of a credit crisis. Cohan explains that a credit crisis occurs when the availability of debt capital dries up, forcing borrowers to abandon investments or expansions due to exorbitant interest rates.

“The whole world runs on debt... What happens during a credit crisis or a credit freeze is that the availability of debt capital just dries up.”
[34:51]

Such a scenario would severely impact everything from consumer loans to corporate financing, potentially triggering a widespread economic downturn.

4. The Declining U.S. Dollar

A notable concern discussed is the U.S. dollar's decline to a three-year low against the Euro. Ed Mylett highlights this trend as a significant indicator of eroding confidence in the U.S. currency as a global reserve.

“What's happening to the dollar right now is the same dynamic, but to the power of three... people are converting into other currencies. They do not consider the dollar to be a safe investment.”
[13:58]

This decline threatens the U.S.'s status as the world's primary reserve currency, known as the "exorbitant privilege," which facilitates cheaper borrowing costs and economic dominance.

5. Big Bank Earnings Amid Volatility

Despite the economic headwinds, major banks like JP Morgan, Bank of America, Goldman Sachs, Citigroup, and Morgan Stanley reported record trading revenues. Scott Galloway attributes this to increased market volatility, which benefits banks through higher trading commissions and sophisticated financial products.

“When there's tumult in the market... it inspires a lot of actions. Buying and selling, just their volume of commissions go up.”
[21:16]

However, Galloway cautions that this is a "sugar high," suggesting that the temporary surge in trading profits may mask underlying systemic weaknesses that could emerge as the situation evolves.

6. Analysis and Predictions by William Cohan

Cohan delves into the structural flaws exacerbated by the current tariff policies, comparing the situation to past financial crises driven by loss of confidence. He emphasizes that the ongoing policies are a "self-inflicted wound," damaging the foundational trust required for robust financial markets.

“He [Trump] is overplaying his hand... destroying the confidence that people have in our capital markets.”
[46:45]

Cohan warns that as long as Trump remains in office and continues these policies unchecked, the U.S. could face prolonged economic instability, potentially leading to a significant reassessment of the global financial order.

7. Future Outlook: Where Will Capital Flow?

The hosts explore potential destinations for capital fleeing the U.S. markets. Cohan suggests that while immediate reactions might include increased investments in distressed assets, long-term shifts could see capital moving towards more stable or emerging markets in Europe and Asia, or even alternative assets like gold and Bitcoin.

“You have to be careful. It could get worse... When markets are corrected, that is a good time to invest.”
[53:53]

Galloway adds that the true extent of the damage remains to be seen, with future indicators likely to emerge in sectors like tourism and corporate earnings.

Conclusion

The episode underscores a critical juncture for the U.S. economy and its financial markets, driven by contentious tariff policies and diminishing confidence in traditional safe havens like Treasuries and the U.S. dollar. With major banks temporarily benefitting from market volatility, the long-term outlook remains uncertain, hinging on political decisions and global economic responses.

Prof G Markets provides listeners with an in-depth understanding of the nuanced interplay between governmental policies, market confidence, and economic stability, urging vigilance as these warning signals unfold.

Notable Quotes:

• Scott Galloway on Tariff Impacts:
  “This is a form of corruption... a transfer of wealth from small business and medium-sized business to big business.”
  [07:09]

• William Cohan on 10-Year Treasury Yield Spike:
  “The yield on the bond market began to move up precipitously and got to like four and a half percent...”
  [31:44]

• William Cohan on Credit Crisis:
  “The availability of debt capital just dries up.”
  [34:51]

• Ed Mylett on the Declining Dollar:
  “People are converting into other currencies. They do not consider the dollar to be a safe investment.”
  [13:58]

• Scott Galloway on Bank Earnings:
  “When there's tumult in the market... buying and selling, just their volume of commissions go up.”
  [21:16]

• William Cohan on Structural Flaws:
  “He is destroying the confidence that people have in our capital markets.”
  [46:45]

For those looking to navigate these complex financial landscapes, this episode offers valuable insights into the underlying forces shaping the markets and the broader economy.