Is there a way out of the U.S. debt issue? Goldman Sachs traders: There are three paths, gold and digital currencies have already reflected this

What is the way to break the vicious cycle of U.S. Treasury bonds and U.S. stocks? Recently, due to increasing market concerns about the U.S. fiscal outlook, the market situation took a sharp turn downward after a poor 20-year Treasury auction on Wednesday. Deutsche Bank analyst George Saravelos pointed out that there are currently two solutions: one is to make "significant revisions" to Trump's massive tax cut plan and implement stricter fiscal policies (which means higher taxes and could even lead to an economic recession); the other is to devalue the dollar, increasing the attractiveness of U.S. Treasuries to foreign buyers. Goldman Sachs trading department head Rich Privorotsky further stated that the surge in U.S. Treasury yields has put pressure on overall risk assets, and this crisis may ultimately evolve into a devaluation of the dollar and the rise of non-traditional assets (such as gold and cryptocurrencies). Privorotsky previously argued that the relationship between yields and the stock market is non-linear—once the former exceeds a certain threshold, it begins to have a substantial impact on the latter. Breaking the Vicious Cycle: The Rise of Gold, Cryptocurrencies, and Non-U.S. Stocks Privorotsky believes that the market may fall into a "reflexive cycle" around the fiscal budget. If fiscal spending levels continue and the U.S. economy remains resilient, pressure will focus on two key "pressure valves": long-term interest rates (not directly controlled by the Federal Reserve) and the dollar. In Privorotsky's view, there are three paths to solutions: Massive cuts in government spending (politically almost impossible) Financial repression, i.e., controlling the yield curve through monetary policy (similar to Japan, but would undermine the independence of the Federal Reserve) Intervention by the Federal Reserve or the Treasury in the dollar (which could trigger a currency war) None of these options are easy, and none support a stronger dollar, which explains why funds are flowing into two types of non-traditional assets: gold and cryptocurrencies. Privorotsky further pointed out that the strong performance of gold, cryptocurrencies, and non-U.S. stock markets will send signals that the market may have begun to price in these structural pressures, and the path to achieving the third step (non-U.S. stock markets) is being outlined in real-time. Tariffs Weigh on Fundamentals, U.S. Stock Market Outlook Worrisome So, what does this mean for the U.S. stock market? Privorotsky suggests taking a step back to look at the issue. He believes that in recent weeks, it has been clear that there is a lot of technical demand driving the market that is unrelated to prices, and of course, the net amount is not high, and without an increase in volatility, this compression of volatility will drive stock demand. Considering that a large portion of the high tariff rates will be indirectly paid by U.S. consumers, Privorotsky believes that the risk-reward ratio for the stock market looks poor: "Tariffs are equivalent to a new tax. Interest rates are higher, not lower... It is hard to say that fundamental growth will benefit, and most of the temporary demand pull-forward has now ended. Volatility has been reset and has room to rise."