Governments around the world are issuing staggering amounts of debt to “paper over” any weakness in the private sector with public spending. As Bloomberg notes, collectively, the U.S., U.K., E.U., and Japan will issue $2 trillion in new debt this year.
This is keeping the world from entering a recession, while simultaneously setting the stage for the next round of inflation. Remember that the first wave of inflation (2021-2023) was triggering by egregious levels of public spending/ stimulus during a time of private sector weakness.
In the U.S., it is clear the Biden administration is implementing policies to prop up the economy and financial markets for the 2024 election regardless of the consequences the policies will bring down the road.
Case in point, the U.S. is running the levels of deficit you usually see during a recession, at a time when the economy is technically still growing. Indeed, the only periods in which the U.S. was running a larger deficit as a percentage of GDP in the last 100 years during World War II, and the Great Financial Crisis.
As you likely know, deficits are financed via the issuance of debt. And because the U.S. is constantly having to roll over old debt into new debt while also issuing new debt to finance its deficit, the country has added some $2 TRILLION in debt in the last seven months alone!
My question to policymakers: what if all this spending brings back higher inflation when the U.S. finally rolls over into recession? What’s the plan, then?
Gold has figured it out already. Other asset classes will soon, too.
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The U.S. passed a debt ceiling resolution in May of 2023. Both the GOP and the Democrats claimed victory for the deal, but the reality is the government won and Americans were screwed.
How do I know this?
It took the U.S. 232 years to generate its first $10 trillion in debt. It added another $10 trillion in debt in just nine years once the Fed pinned interest rates at zero and cornered the bond market with Quantitative Easing (QE) from 2008 to 2017.
The U.S. then added another $10 Trillion in debt in just five years when the Fed reintroduced ZIRP and QE in NUCLEAR fashion in response to the pandemic. Obviously, you’re beginning to see the trend here: the U.S. added $10 trillion in debt in 232 years, nine years, and five years.
But the “debt deal” has really added fuel to the fire.
The U.S. has added another $4 trillion in debt since 2022. But~ $2 trillion of this was added in the seven months since the debt deal was passed! And thanks to the debt deal removing the debt ceiling until 2025, there is little chance that the pace of debt issuance will slow anytime this year.
How will this end? With a debt crisis of some sort. The details, for now, are unclear.
What isn’t unclear is that investors can potentially make a LOT of money from this situation. Those who invested in the right assets at the right times during the last 20 years while the U.S. has engaged in a debt bonanza have seen some truly OBSCENE returns.
And no, I’m not talking about gold. The precious metal has traded sideways for four years, while the U.S. has tacked on another $10 trillion in debt.
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Since early 2023, numerous pundits and gurus have been calling for a recession. And despite numerous indicators flashing that one is coming… the recession has yet to arrive.
Why?
This:
The U.S. is running a GARGANTUAN deficit equal to 5.5% of GDP.
To put this into perspective, it’s larger than the deficit the U.S. ran during EVERY recession in the last 100 years except for the Great Financial Crisis and when the economy was shutdown in 2020.
Put simply, the U.S. is running the kind of spending that we usually see during periods in which the private sector is in a total free-fall… at a time when the private sector is weak, but not yet collapsing.
This has managed to keep the economy positive. But it’s a short-term fix.
Ultimately, the U.S. cannot stay out of recession forever as no amount of government spending can replace the economic impact of the private sector (we learned this during the shutdowns when the Fed and Uncle Sam spent $8 trillion in 12 months but the economy still collapsed).
Moreover… this situation presents us with a MAJOR problem down the road: if the U.S. is already spending at a pace usually associated with recessions while the economy is still growing, what is going to happen when the economy finally does roll over into recession? How much spending will it be doing then? 8% of GDOP? 10% of GDP? More?
And bear in mind, this spending is being funded by debt (it is a deficit after all). What happens to the bond market if the U.S. cranks up its spending to 8% or more of GDP when the actual recession hits?
Gold has started to figure it out. Other assets will figure it out soon.
As I keep stating, you CAN outperform the overall market, but it takes a lot of work and insight!
If you’re looking for someone to guide your investing to insure you crush the market, you can sign up for our FREE daily market commentary, GAINS PAINS & CAPITAL.
As an added bonus, I’ll throw in a special report Billionaire’s “Green Gold” concerning a unique “off the radar” investment that could EXPLODE higher in the coming months. It details the actions of a family of billionaires who literally made their fortunes investing in inflationary assets. And they just became involved in a mid-cap company that has the potential to TRIPLE in value in the coming months.
As I keep telling you, it IS possible to time the market. The key is to put in the work to do so.
For me, one of the best means of predicting stock market moves is to focus on “market leading” indicators, or assets that typically lead stocks to the upside and the downside during market turns.
One of my favorite such indicators is high yield credit, or junk bonds.
Bonds/ credit are senior to stockholders. If a company goes bust and needs to liquidate its assets, bond/ credit holders will be paid out long before stockholders see a dime. And generally speaking, bond investing is more sophisticated than stock investing largely due to bonds’ greater sensitivity to Fed policy, the economy, and more.
As a result of this, credit, particularly high yield credit, or credit for companies that are at a greater risk of going bust, typically leads stocks when it comes to pricing future risk on or risk off moves.
You can see this clearly in the following charts which depict the High Yield Corporate Bond ETF (red line) and the S&P 500 (black line). Sometimes the two assets move in tandem, but other times, credit leads stocks clearly to the point that you can accurately predict the next market move for stocks.
The first chart concerns the risk on move in assets that occurred from late 2022/ early 2023. At that time, HYG lead the market to the upside, rallying aggressively even when stocks would dip for a day or two. I’ve illustrated this with a purple rectangle below. Throughout that time period, the ongoing strength in HYG was a reliable indicator that the stock market would continue to rally.
Another example concerns the risk off move in assets that occurred from July 2023 through November 2023. During that period, high yield credit failed to confirm any rally in stocks, with the red line (credit) rolling over quickly even when the black line (stocks) bounced aggressively. I’ve illustrated this with a blue rectangle in the chart below.
So, what is high yield credit telling us about the future of the stock market today?
HYG is leading stocks to the downside, though it is doing so in a very controlled manner. Right now, HYG is suggesting that the S&P 500 will drop to 4,700 or so. Obviously this can change as things develop, but for now, HYG is telling us that any stock pullback should be relatively shallow.
As I keep stating, you CAN outperform the overall market, but it takes a lot of work and insight!
If you’re looking for someone to guide your investing to insure you crush the market, you can sign up for our FREE daily market commentary, GAINS PAINS & CAPITAL.
As an added bonus, I’ll throw in a special report Billionaire’s “Green Gold” concerning a unique “off the radar” investment that could EXPLODE higher in the coming months. It details the actions of a family of billionaires who literally made their fortunes investing in inflationary assets. And they just became involved in a mid-cap company that has the potential to TRIPLE in value in the coming months.
The S&P 500 is ~5% above its 50-Day Moving Average. Historically, this degree of extension above the primary trend has marked a temporary top. It doesn’t mean that stocks will collapse, rather is suggests the upside is limited and consolidation/ correction is the high probability scenario.
The question now is how deep the correction will be…
For that analysis we turn to bonds and the Fed.
The yield on the 2-Year U.S. Treasury has declined from 5.25% to 4.2% where it is now. This decline has been driven by the Fed pivot, in that the Fed will no longer be raising rates, but instead will begin cutting them in the near future.
This will be a boon for stocks as this declining yield means:
1) Stocks will be priced at a higher future Earnings Per Share (EPS) multiple.
2) Money will begin to flow out of bonds and money market accounts into stocks as yields have peaked.
All of the above suggests that any and all dips in stocks will be relatively shallow. Put simply the coming decline is an opportunity to “buy the dip” in a new bull market.
In terms of specific price points, the S&P 500 has major support at 4,700. I would be very surprised to see the market drop much below that level. The S&P 500 might decline into the upper 4,600s to “run the stops” for stock bulls, but a drop below 4,680 is unlikely.
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On Monday I told you that the S&P 500 was headed for 4,700. At that time, the market was hovering around 4,600. And given all the risks in the world (turmoil in the Middle East, slowing economic data in the U.S.), I’m sure many people thought I was bonkers to predict that stocks would continue higher.
Fast forward 48 hours and it looks as if the S&P 500 will hit my target before the week ends. As I write this, the S&P 500 futures are at 4,656.
The gains won’t stop there either. I believe the market will reach new all-time highs before February 1 2024. The former high was 4,818 set in October of 2022. I believe we’ll break that within six weeks’ time.
The long-term chart is clear… I’ll tell you what it portends tomorrow. But for now, here’s a hint.
As I keep stating, you CAN outperform the overall market, but it takes a lot of work and insight!
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The S&P 500 has been trading in a 40-point range since mid-November. I know that sounds difficult to believe, but it’s true. For all the issues in the world (conflict in the Middle East, the ongoing war between Russia and Ukraine, economic data weakening in the U.S., political issues/ potential impeachment for the Biden administration), the stock market has gone nowhere.
See for yourself. I’ve illustrated this with a blue rectangle in the chart below.
Having said that, the market DID reveal something MAJOR in the last month… but it’s what DIDN’T happen as opposed to what happened.
What didn’t happen?
Stocks didn’t break down.
In spite of all the issues and potential risks in the world right now, the bears couldn’t generate enough selling pressure to push stocks down more than 1%. And considering the market was EXTREMELY overbought going into this period, it REALLY suggests the bears are weak right now.
Which means…
The Santa rally is about to hit. Indeed, just last week, the market managed to break out of its trading range and stay there. I’ve illustrated this development with a purple circle in the chart below.
If stocks hold this today, then the door opens to a Santa rally that sees the S&P 500 hit 4,700 before year-end. Take out 4,600 on a weekly basis and you’ve got an opening to 100 points higher relatively quickly.
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Yesterday’s market action could not have illustrated the current market rotation any better.
As I recently outlined:
1) The S&P 500 is currently consolidating after one of its best monthly performances in 30 years.
2) This consolidation has consisted of large tech correcting while laggard sectors and indices (small caps/ the Russell 2000, industrials/ the Dow Jones Industrial Average) catch a bid.
Yesterday’s price action illustrated this perfectly: microcaps (the Russell 2000) caught a major bid relative to tech (the NASDAQ) as the Russell 2000 ROSE over 1% while the NASDAQ fell nearly 0.9%.
If you heeded yesterday’s missive you did quite well! Again, you CAN outperform the overall market, but it takes a lot of work and insight!
This trend is likely to play out over the next two weeks until the Russell 2000/ NASDAQ ratio reaches its 200-day moving average (DMA) sometime around the Fed’s next FOMC (December 12th-13th).
At that point the overall market should complete its consolidation/ correction and begin its next leg up. I’ve said previously that the S&P 500 will hit 5,000 sometime in the 1Q24. The setup is clear in the longer-term Cup and Handle formation.
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The S&P 500’s performance for the month of November 2023 was one of the best single month performances for stocks in the last 30 years. Stocks finished the month up 9.5%, a truly incredible return.
The big question is “what’s next for the markets?”
The answer is “rotation.”
Tech led the rally as Big Tech blasted higher throughout November while much of the rest of the market lagged behind. We are now seeing capital flowing into some of of the laggards, specifically small caps.
The ratio between the NASDAQ and the Russell 2000 has been in a downtrend for most of 2023 as Tech stocks outperform small caps. We are now seeing a break of this downtrend to the upside as small caps finally catch a bid and Tech consolidates
This rotation is allowing overall breadth to improve as non-Tech stocks catch up to Tech leaders. You can see this clearly in the chart below in which breadth (red line) is catching up to the Tech sector (XLK).
After this rotation/ catch up is finished, stocks go to new all time highs. The Cup and Handle formation in the long-term chart for the S&P 500 is clear.
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The S&P 500 is consolidating after one of its best monthly performances in the last 30 years.
Thus far in November, the S&P 500 is up 8.5%. If the month ended today, it would be one of the top 10 monthly returns for the S&P 500 in the last 30 years. We rode this rally the entire way up, having told our clients to buy stocks aggressively when the S&P 500 was down at 4,200. Suffice to say, they’re quite happy.
And their #1 question today is: so what’s next for stocks?
The S&P 500 is quite overextended, having rallied to a level that is 4% above its 50-day moving average (DMA). Throughout the last 12 months, an extension of this magnitude above the 50-DMA has marked a temporary top for stocks.
The big question now is if stocks correct… or if they simply consolidate here, thereby allowing the 50-DMA to catch up to price, before the market make its next push higher.
Thus far the market is opting for #2: consolidating.
The S&P 500 has traded within a 20 point range since November 22nd. The key issue here as far as I’m concerned is that the bears have failed to push stocks down in any significant way, even though there was very low trading volume due to the Thanksgiving holiday.
Think of it this way… stocks are finalizing one of their most aggressive single month rallies in 30 years, and the bears can’t even generate enough selling pressure to push the S&P 500 down 1%.
This suggests that the next move for stocks will be up once this consolidation is over. And given that the market is less than 5% from its all-time highs, I believe we’ll see the S&P 500 hit NEW all-time highs some time in the first quarter of 2025, likely before February 1st, 2024.
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It is widely believed that you cannot time the market. This is a myth. You can time the market, but it takes a lot of work and knowledge.
Case in point, as I outlined in yesterday’s article, I accurately called for the S&P 500 to run to 4,600 back on November 2, 2023 when the market was still just at 4,200.
The S&P 500 hit a high an intraday high of 4,557 yesterday. Modesty aside, this was an incredible call, made within a few days of the market hitting its absolute lows before the rally.
This wasn’t luck either.
Prior to this call, I had been warning clients for weeks that stocks would break down to the 4,100s on the S&P 500 and that this would be a MAJOR buying opportunity. Heck, the literal title to a research note to private clients on October 5th was “Bonds Stabilize… But I Expect a Final Flush for Stocks.”
What happened next is illustrated in the chart chart. Again, I called for the S&P 500 to drop to the 4,100s weeks in advance, then predicted the S&P 500 would run to 4,600 weeks within days of the market bottom in late October.
So my point remains the same: you CAN time the market, but it takes a lot of work and knowledge.
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The following are excerpts from my Private Wealth Advisory market update to private clients written on 11-2-23. At that time the S&P 500 was trading in the 4,200s. It’s at 4,531 today.
The door is open to a Santa Rally to 4,600 or even higher on the S&P 500.
Why?
The Treasury just removed the single largest concern for stocks for the remainder of the year.
As I’ve noted previously, one of the most difficult aspects of stock market investing is that the market is a discounting mechanism for millions, if not billions, of pieces of information. The stock market represents the collective decisions of millions of individuals all of whom are thinking about a myriad of data points/ issues… and all of whom have literal money on the line.
However, out of all the millions or billions of pieces of information that the market is discounting at any given time, it typically only really cares about two or three issues at a time.
Sometimes it’s inflation. Other times it’s what the President is doing (or tweeting). Other times it’s China. Other times it’s what the Fed is doing or about to do. Other times it’s the economy. And so on and so forth.
What makes things even more difficult is the fact that the market changes its focus all the time. It might be really focused on inflation for a few weeks only to then ignore inflation for months on end. Similarly, the market might go weeks without acknowledging anything Fed officials say, only to then care a great deal about a single statement made by a single Fed official during an hour-long Q&A session.
I bring all of this up, because since late-July/ early-August 2023, the #1 thing the market has cared about has been the size of the Treasury’s long-duration debt issuance…
On July 31st 2023, the Treasury announced its financing needs for the third quarter (July through September). The Treasury announced it would:
1) Need to borrow $274 billion more than previously expected.
2) Increase its issuance of longer duration Treasury bonds for the first time since 2021.
Regarding #2, the actual increase in dollar terms of long duration bonds that the Treasury needed to issue was relatively small ($102 billion vs. $96 billion). However, the fact that there was increase in long duration issuance, combined with the increase in total debt issuance ($274 billion) was a surprise.
And the bond markets HATE surprises.
Since that time, bond investors have been dumping ALL long duration bonds. This has resulted in long-term Treasury yields rising (bond yields rise when bond prices fall). And because the stock market is priced based on long-duration Treasury yields, this has meant a sell-off in stocks.
The chart bel shows the yield on the 10-Year U.S. Treasury and the S&P 500 from the last QRA announcement on July 31st 2023 until last week. As you can see, the two items have been moving in lockstep.
Which brings us to this week (week of 10-30-23).
On Monday the 30th of October, the Treasury issued its QRA for the fourth quarter of 2023. It surprised the markets (in a good way) by stating that it would borrow only $776 billion (this was $76 billion less than previously expected).
Then, on Wednesday (11-1-3), the Treasury released its Report to the Secretary of the Treasury from the Treasury Borrowing Advisory Committee.
In it, the Treasury Borrowing Advisory Committee wrote the following (emphasis added)
The Committee supported meaningful deviation from the historical recommendation for 15-20% T-Bill share.While most members supported a return to within the recommended band over time, the Committee noted that the work Treasury has done to meaningfully increase WAM over the past 15 years affords them increased flexibility with T-Bill share in the medium term.
Source: Treasury.gov
As I explained to clients in the remainder of this market update, the decision of the Treasury to rely extensively on short-term T-bills to finance the deficit would ignite a “risk on” rally that will likely last into year-end.
Since that time, the S&P 500 has done this:
For more market insights and analysis, join our free daily market commentary Gains Pains & Capital. You’ll immediately start receiving our Chief Market Strategist Graham Summers, MBA’s briefings to your inbox every morning before the market’s open.
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Treasury Secretary Yellen wants stocks and bonds higher.
The reason is simple.
Next year 2024 is an election year. And Yellen is a playing politics for the Biden Administration. After all, it’s hard to convince voters to re-elect someone when their 401(k)s are shrinking by the week.
This is why Secretary Yellen chose to have the Treasury shift its issuance from its traditional breakdown of 15%-20% short-term debt/ 80%-85% long-term debt to favor issuing more short-term debt for the foreseeable future.
Doing this alleviates some of the pressure on long-term Treasuries as well as stocks which are priced based on the former’s yields. This is THE reason why both assets (stocks and bonds) erupted higher last week after declining for most of the last three months.
The BIG problem with this is that Secretary Yellen is choosing to rely heavily on short-term debt at a time when the Biden Administration is running its largest deficit as a percentage of GDP outside of WWII.
The U.S. has added nearly $2 TRILLION to the debt in the last 12 months alone. This is happening at a time when the Treasury is ALSO rolling over trillions of dollars worth of debt.
By relying on short-term debt (12 months of less in duration), Secretary Yellen is setting the stage for an absolute disaster in late 2024/ early 2025.
Why?
All of this short-term debt will be coming due between now and then. By late 2024, the U.S. will have nearly $35 trillion in debt. And if inflation hasn’t collapsed by then, all of the new short-term debt will need to be rolled over when rates are HIGH.
Interest payments on the debt are already at $800 billion. What do you think will happen to them when the U.S. has $35 trillion in debt and needs to roll over a large amount of this while rates are still in the 4% range or higher?
The long-term end of the bond market has figured it out. Stocks will too eventually.
As I keep warning, the Great Debt Crisis of our lifetimes is fast approaching.
In 2000, the Tech Bubble burst.
In 2007, the Housing Bubble burst.
The Great Debt Bubble burst in 2022. And the crisis is now approaching.
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Both stocks and bonds caught a bid mid-week on announcements that the Treasury has decided to issue less long duration bonds that previously expected.
This is GREAT news for risk assets in the short-term. It’s EXTRAORDINARILY BAD NEWS for EVERYTHING in the long-term.
Let’s me explain.
The recent sell-off in both bonds and stocks was driven by one primary concern: that the Treasury would need to issue a gargantuan amount of long-term debt to fund the Biden administration’s profligate spending.
In its simplest rendering:
1) The Biden administration is running the largest fiscal deficit as a percentage of GDP outside of WWII.
2) All of this spending requires the Treasury to issue massive amounts of debt.
Historically, the Treasury’s debt issuance consisted of 15%-20% short-term debt, and 80%-85% long-term debt. The reason for this was to avoid a rate shock should rates change dramatically in a 12-month period (all the short-term debt would come due at a time when rates were much higher).
It was this heavy reliance on long-term debt issuance that resulted in the 10-Year U.S. Treasury collapsing from late July through late October. And since stocks are generally a long-duration asset class, this pulled stocks down as well.
The below chart shows the 10-Year U.S. Treasury (red line) plotted against the S&P 500 (black line). As you can see, the two were trading in lock-step as soon as the Treasury announced its long duration debt issuance needs for the third quarter of 2023 on July 31st.
The Treasury took note of this collapse, which is why it announced a shift in focus for its 4Q23 debt issuance from long-term debt to short-term debt.
In its very simplest rendering, the Treasury intentionally removed the #1 concern for the stock market… thereby opening the door to a Santa Rally into year-end. Unfortunately, the cost of this is that the U.S. debt markets will be in VERY serious trouble a year from now.
Why?
Because this is a “one time” trick that cannot be repeated. Sure, it puts a floor under bonds for the time being, but unless the government cuts spending in a BIG WAY, sometime in the next 6-12 months all of this short-term debt will come due and the Treasury will once again need to issue long-term debt.
Mind you, the U.S. is currently adding debt at a pace of nearly $2 TRILLION per year. So you can only imagine the yield investors will require to lend money to Uncle Sam for any time period a year from now when our debt is over $35 trillion and we’re still running a ~$1 TRILLION deficit.
The below chart needs no explanation. Long-term Treasuries have broken their multi-decade trendline. They are now sitting on CRITICAL support. Once that green line goes, the debt crisis begins.
As I keep warning, the Great Debt Crisis of our lifetimes is fast approaching.
In 2000, the Tech Bubble burst.
In 2007, the Housing Bubble burst.
The Great Debt Bubble burst in 2022. And the crisis is now approaching.
If you’ve yet to take steps to prepare for what’s coming, we just published a new exclusive special report How to Invest During This Bear Market.
It details the #1 investment to own during the bear market as well as how to invest to potentially generate life changing wealth when it ends.
Normally this report would be sold for $249. But we are making it FREE to anyone who joins our Daily Market Commentary Gains Pains & Capital.To pick up your copy, swing by:
Japan’s central bank, the Bank of Japan (or BoJ for short) is currently engaged in an open-ended Quantitative Easing (QE) program. In its simplest rendering, the BoJ starts buying the 10-Year Japanese Government Bond any time that bond’s yield rises to 1% or higher.
It’s possibly the boldest QE program in history: a definitive “line in the sand” drawn by a major central bank as far as bonds are concerned. Again, this is an open-ended, unlimited QE program through which a MAJOR central bank does whatever it takes to keep is country’s bond yields from rising.
However, even this program is proving inadequate.
The BoJ has had to engage in previously unscheduled bond market interventions SIX TIMES in the last four weeks. And yesterday, it finally gave in and announced that its “line in the sand” of 1% for the yield on the 10-Year Japanese Government bond is now a “loose upper bound” instead of a definitive cap.
The below chart needs little explanation.
In response to this announcement, Japan’s currency, the Yen, broke to new lows. The Yen hasn’t traded at this level since the late 1980s!
This is the end game for every major central bank: the gradual losing control of the bond market… and having to sacrifice your currency in order to stave off a debt crisis. But even that won’t work eventually as the weaker the currency, the less value bonds will have.
As I keep warning, the Great Debt Crisis of our lifetimes is fast approaching.
In 2000, the Tech Bubble burst.
In 2007, the Housing Bubble burst.
The Great Debt Bubble burst in 2022. And the crisis is now approaching.
If you’ve yet to take steps to prepare for what’s coming, we just published a new exclusive special report How to Invest During This Bear Market.
It details the #1 investment to own during the bear market as well as how to invest to potentially generate life changing wealth when it ends.
Normally this report would be sold for $249. But we are making it FREE to anyone who joins our Daily Market Commentary Gains Pains & Capital.To pick up your copy, swing by:
Yesterday, the Treasury announced that it would “only” need $775 billion to fund the budget for the fourth quarter of 2023.
This was considered to be good news.
Back in July, the Treasury had announced it would need $852 billion for the fourth quarter. So the fact the Treasury surprised the markets by needing less was used as an excuse for traders to gun the markets higher.
There’s just one small problem with this…
The Treasury QRA was an obvious lie. There is no way on earth the Treasury only needs $775 billion in refunding for 4Q23. Heck, it needed $500 billion in the last month alone!
Moreover, it’s not as if the government is suddenly becoming careful about spending. The Biden Administration has added $4.6 trillion in debt since taking office. And the pace is actually INCREASING, not decreasing: they added almost $1 TRILLION in new debt between 1Q23 and 2Q23.
So again, the idea that the Treasury can somehow fund everything with just $775 billion in refunding needs in the 4Q23 is a joke. The real amount will be MUCH larger than that.
As I keep warning, the Great Debt Crisis of our lifetimes is fast approaching.
In 2000, the Tech Bubble burst.
In 2007, the Housing Bubble burst.
The Great Debt Bubble burst in 2022. And the crisis is now approaching.
If you’ve yet to take steps to prepare for what’s coming, we just published a new exclusive special report How to Invest During This Bear Market.
It details the #1 investment to own during the bear market as well as how to invest to potentially generate life changing wealth when it ends.
Normally this report would be sold for $249. But we are making it FREE to anyone who joins our Daily Market Commentary Gains Pains & Capital.To pick up your copy, swing by:
The fate of the stock market is in the hands of Treasury Secretary Janet Yellen this week.
Every quarter the Treasury announces its financing needs via its Quarterly Refunding Announcement (QRA). In the QRA, the Treasury announces:
1) How much debt it will need to issue total to fund the government for the coming quarter.
2) The amount of new debt the Treasury will need to issue as opposed to simply rolling over old debt.
3) The breakdown of the debt issuance: short-term T-bills versus longer-term Treasury Bonds.
These three items are the MOST IMPORTANT issues for the markets today.
If you think I’m exaggerating this, consider that the last time the Treasury made its QRA was July 31st 2023. That was THE day that stocks topped and bond yields began to skyrocket.
The Treasury will announce the basics of the #1 and #2 in the list above today. But we won’t get the full breakdown of debt (#3) until Wednesday.
Historically, the Treasury tries to keep the amount of short-term debt issuance to just 20% of total issuance. The reason for this is that if the Treasury relies too heavily on short-term debt to fund spending, it opens the door to a rate shock.
Consider what would have happened if the Treasury had issued 80% of total debt in short-term T-bills in 2021 when rates were at 0.25%. At the time, the move would have looked quite clever as the Treasury would be taking advantage of the fact that rates were so low. However, fast forward a year to 2022, and the Treasury would need to roll over that same debt at a time when rates were now ABOVE 4%! Interest payments would have been EXPONENTIALLY higher and a debt crisis would arrive.
So again, the Treasury usually keeps T-bill issuance to just 20% of total issuance… unless it’s intentionally trying to calm the markets and juice stocks higher for political purposes.
Which brings us to today.
Janet Yellen is ACUTELY aware of the impact that her decisions will have on the stock market. Indeed, the hallmark of her tenure as Fed Chair from 2014-2018 was to implement monetary policy that benefitted stocks, even if the economic data didn’t warrant it.
So the odds favor her doing something to prop the markets up… especially as we enter an election year in 2024.
However, doing this only sets the stage for a debt crisis down the road. If the Treasury relies extensively on T-bills to finance the budget now, that same debt will come due in a year… which opens the door to a MAJOR rate shock at that time, especially if inflation rebounds.
Again, the fate of the stock market is in Treasury Secretary Janet Yellen’s hands today. If she chooses to game the debt markets for political purposes it only delays the inevitable debt crisis… and not by much.
As I keep warning, the Great Debt Crisis of our lifetimes is fast approaching.
In 2000, the Tech Bubble burst.
In 2007, the Housing Bubble burst.
The Great Debt Bubble burst in 2022. And the crisis is now approaching.
If you’ve yet to take steps to prepare for what’s coming, we just published a new exclusive special report How to Invest During This Bear Market.
It details the #1 investment to own during the bear market as well as how to invest to potentially generate life changing wealth when it ends.
Normally this report would be sold for $249. But we are making it FREE to anyone who joins our Daily Market Commentary Gains Pains & Capital.To pick up your copy, swing by:
Japan is slowing losing control of its bond market.
The Bank of Japan (BoJ) is currently engaged in an open-ended Quantitative Easing (QE) program. In its simplest rendering, the BoJ starts buying the 10-Year Japanese Government Bond any time that bond’s yield rises to 1% or higher.
It’s possibly the boldest QE program in history: a definitive “line in the sand” drawn by a major central bank as far as bonds are concerned. Again, this is an open-ended, unlimited QE program through which a MAJOR central bank does whatever it takes to keep is country’s bond yields from rising.
However, even this program is proving inadequate.
The BoJ has had to engage in previously unscheduled bond market interventions SIX TIMES in the last month. The below chart needs little explanation. You can see that yields broke above critical resistance in mid-2023 and have gone vertical ever since.
At this point, the BoJ is now having to engage in direct interventions in its bond market more than once a week. And this is happening at a time when the Japanese currency (the Yen) is about to break to new lows.
As I keep warning, the Great Debt Crisis of our lifetimes is fast approaching.
In 2000, the Tech Bubble burst.
In 2007, the Housing Bubble burst.
The Great Debt Bubble burst in 2022. And the crisis is now approaching.
If you’ve yet to take steps to prepare for what’s coming, we just published a new exclusive special report How to Invest During This Bear Market.
It details the #1 investment to own during the bear market as well as how to invest to potentially generate life changing wealth when it ends.
Normally this report would be sold for $249. But we are making it FREE to anyone who joins our Daily Market Commentary Gains Pains & Capital.To pick up your copy, swing by:
2) The October lows at 4,223 (purple line in the chart below).
3) CRITICAL support at 4,200 (blue line in the chart below).
This happened as the yield on the 10-Year U.S. Treasury breached 5% for the first time since 2007. As I’ve noted before, a close above this level would induce a collapse in risk assets, including stocks.
That’s when “someone” or “someones” MANIPULATED the stock market, by PANIC buying stocks, forcing the ENTIRE MARKET up by 35 pts in the span of 40 minutes. From that point until 1PM, every single dip was bought with PANIC buying.
How do we know this was manipulation or an intervention?
NO ONE panic buys stocks the moment they break below critical thresholds. There isn’t a single trading shop or trading team in the world in which the head screams “GO ALL IN ON STOCKS” as soon as the market violates a critical level of support.
In the simplest of terms, the manipulators staved off a crisis… for now. But the fact remains that the U.S. Treasury bubble burst in 2022. And the crisis is now approaching.
If you’ve yet to take steps to prepare for what’s coming, we just published a new exclusive special report How to Invest During This Bear Market.
It details the #1 investment to own during the bear market as well as how to invest to potentially generate life changing wealth when it ends.
Normally this report would be sold for $249. But we are making it FREE to anyone who joins our Daily Market Commentary Gains Pains & Capital.To pick up your copy, swing by:
The yield on the 10-Year U.S. Treasury is about to break 5%.
As the below chart illustrates, this is a major level. Once we take it out, there’s little if any overhead resistance until 5.25% and then 6%.
The 10-Year U.S Treasury is the single most important bond in the world. It is the bond against which all long duration risk assets (real estate, tech stocks, etc) are priced. So if it collapses in a panic (meaning its yields skyrocket) then the ENTIRE financial system will panic.
Stocks are already completely disconnected from the realities of the bond market. They won’t be for much longer if bonds continue breaking down.
Is the Great U.S. Debt Crisis about to begin?
In 2000, the Tech Bubble burst.
In 2007, the Housing Bubble burst.
The U.S. Treasury bubble burst in 2022. And the crisis is now approaching.
Smart investors are already taking steps to prepare for this.
If you’ve yet to take steps to prepare for what’s coming, we just published a new exclusive special report How to Invest During This Bear Market.
It details the #1 investment to own during the bear market as well as how to invest to potentially generate life changing wealth when it ends.
Normally this report would be sold for $249. But we are making it FREE to anyone who joins our Daily Market Commentary Gains Pains & Capital.To pick up your copy, swing by: