About this episode
January 10, 2018 Bells are Ringing but Nobody is Listening They always say that nobody rings a bell at the top. And that saying relates to the stock market, investors; there's never a clear warning sign, supposedly, of when to get out. My experience is actually the opposite. I think many bells ring, not necessarily at the very top, but certainly close to it, it's just that they're ignored; or if they are heard, they are rationalized away. China says No to More U.S. Treasuries Another such bell was rung overnight. We had a Bloomberg report this morning coming out of China that the Chinese government is going to stop buying U.S. Treasuries. This is potentially an ominous sign because a) China is the largest buyer and owner of U.S. Treasuries in the world, but, b) we just cut taxes! We cut taxes and not spending, so we are financing these tax cuts by borrowing more money, bu running bigger deficits, by selling more bonds. Who is Left to Buy? And if the largest buyer and owner of those bonds, is saying "No mas!", well that is a big problem. Who is going to step up to replace the Chinese? Also, if the Chinese aren't going to buy, who else is not going to buy? Why would anyone want to buy U.S. Treasuries? Even if you did not prescribe to the gloom & doom type perspective that I do, if you're just a typical investor looking at historic bond prices, Why would you want to buy U.S. Treasuries now? Aren't there other assets you'd rather own than extremely low-yielding U.S. Treasuries? Will China Sell? So if the Chinese don't want to buy, it stands to reason a lot of other people don't want to buy either, especially if they know the Chinese are not buying, does that mean they're selling? If they don't think Treasuries are worth buying, are they worth owning? You would think if they don't want to buy any more, they might want to start selling. In fact, when Wall Street puts a hold on something, that means sell, right? So, if China is putting a hold on U.S. Treasuries, that means, "Get the Hell out of U.S. Treasuries." China and the Fed Letting Treasuries Mature Another thing is that the Chinese don't have to necessarily sell their Treasuries. They can just let them mature. After that is what the Federal Reserve is claiming it is going to do. It is going to shrink its balance sheet (in theory) by not rolling over maturing securities. The Chinese government will do the same thing. Where is the U.S. Treasury going to get the money to redeem the securities? They can't. That is the problem. Financial Networks Silent on the Problem It is amazing how few people are worried about a problem so potentially ominous as this one. Remember, nobody was worried about the 2008 Financial Crisis. You could turn on any financial network and nobody was worried - I was the only guy. To the extent that I said anything about what was going to happen, I got laughed at. Bigger Crisis Ahead Now, you don't even have that. I remember when some networks were criticized after the fact about the lack of coverage of the warning signs in '06, and '07 and '08, networks would point to the fact that they had me on. The next time, they won't be able to say that because they won't have me on anymore. They don't have anyone on who is pointing out what should be obvious to all their other guests. All the other guests are missing an even bigger crisis than they missed before. It's All About Debt What was the Financial Crisis about? It was about too much debt. People took out too much debt. We have even more debt now. Back then, the big problem was rising interest rates. The Housing Crisis started the Financial Crisis. I pointed this out for years. The problem was teaser rates. People were buying homes that they really couldn't afford, but they could afford to make payments on the introductory teaser rates. The first couple of years, Our Sponsors: * Check out FRE and use my code LISTEN20 for a great deal: https://frepouch.com * Check out Infinite Epigenetics: https://infiniteepigenetics.com/GOLD * Check out Justin Wine and use my code SCHIFF20 for a great deal: https://www.justinwine.com Privacy & Opt-Out: https://redcircle.com/privacy