As I’ve posted in previous topics, the US government cannot afford to pay the interest rates on US treasury long bonds that the bond market is currently demanding. Not only this, but the market is actually still in price discovery mode so the yields on government debt are STILL RISING. However, even at current levels the government cannot afford to refinance its debt at those levels. It will trigger a DEBT SPIRAL that actually INCREASES INFLATION. So Bessent has intervened and tried to manipulate the bond market thus preventing market price discovery.
However, people don’t understand that Bessent has essentially exhausted almost all of his options as Treasury secretary to stop the bleeding in the bond market and it’s ALL FAILED because the Treasury simply doesn’t have enough money to throw at the problem but there’s someone who does: THE FED.
However, the Fed isn’t just going to start buying US government bonds to help save the US government from entering a debt spiral just because Bessent or Trumps asks them too. This would give the appearance that the Fed has lost its independence and also go against their mandate of price stability. Instead what will happen is rates on yields will continue to rise until either credit freezes, the stock market crashes or both forcing the Feds hand into QE. This will provide the Fed for an excuse to start QE while inflation is still high.
For those who are skeptical I say just RUN THE MATH. Currently the US government pays $1.2T on its interest annually, second only to Social Security. That debt was financed at 1% to 2% rates. Trillions of dollars of debt will have to be refinanced every year at 4% to 5%+ yields massively inflating the US governments interest expense. To pay for this increased interest expense the US will be forced to issue MORE DEBT. This is the debt spiral which is actually inflationary. This is BASIC MATH. People have talked about it for years but the US has finally hit that wall.
So what is my strategy? I am not totally out of stocks because there can still be rallies before the crash/major sell off comes but what I’m doing is I’m selling stocks into rallies and raising my cash pile. I’m increasing positions into gold and bitcoin. Many say you can’t time the market, which is true, however what is happening now is VERY CLEAR and here is simply logic:
If rising yields didn’t represent a threat to the US governments budget Bessent wouldn’t be buying Yen, wouldn’t be buying long bonds, and also recalibrating the eSLR buffer allowing banks to absorb more US government debt without tripping capital limits all with the goal of lowering yields on US bonds because the US government can no longer afford to pay those interest rates due to its current debt and deficit size.