Financial markets have been swinging on President Donald Trump’s executive orders, off-the-cuff statements, and social media posts, but traders can flex their muscles too.
The lesson was not lost on Nouriel Roubini, an economist and CEO of the consultancy Roubini Macro Associates, who remains bullish on the U.S. because its fundamental advantages will remain in place, regardless of who is president.
The perceived power of bond vigilantes was famously illustrated in the early 1990s, when U.S. yields jumped as investors dumped Treasuries amid fears about federal deficits in what became known as the Great Bond Massacre.
James Carville, who was an adviser to President Bill Clinton at the time, mused that he would like to be reincarnated as the bond market: “You can intimidate everyone.”
While the U.S. budget deficit is in even worse shape than it was back then, the bond market has also been sensitive to concerns that Trump’s aggressive tariffs will inflict long-term damage to the attractiveness of U.S. assets like Treasury debt.
Any reduction in demand for U.S. bonds would come as the supply has been soaring, with the Treasury Department needing to find buyers for a massive amount of debt to cover annual deficits that have exploded to $1 trillion and more.
For his part, Roubini sees tariffs weighing the U.S. economy and a short, shallow recession by the end of the year. But over the longer term, that impact will be more than offset by technological advances in emerging areas like artificial intelligence, robotics, quantum computing, and fintech, among others.
A critical part of Roubini’s thesis is that the nature of innovation itself is shifting from producing an “initial growth spurt that fizzles out over time” to exponential growth that accelerates and gives first-movers enduring advantages versus followers.
He pointed to DeepSeek’s AI model that shocked Silicon Valley earlier this year, saying it’s not a revolution but an evolution that owes its existence to U.S. companies like OpenAI and their years of outsized investments.
“MAG-7, hyperscalers and tech firms (in Nasdaq) could not care less about tariffs,” he added. “They gotta continue and increase massive Ai capex to avoid becoming obsolete relative to each other.”
