Before we look at historical developments in US Treasuries and WHY this is so important for everyone to understand, I wanted to give you an update on Bitcoin. I have read various articles as it dropped over the last 2 weeks and watched a video from a Wall Street level expert in cryptocurrencies on the 24th that I subscribed to last fall.
At this stage, I will leave you with a technical chart on where were are now at the close of US equity markets on the 25th.
Outside the technical level, I would encourage you to take a look at some statistics put together in the Bitwise/VettaFi 2024 Benchmark Survey of Financial Advisor Attitudes Toward Crypto Assets. I think you will find this information very interesting.
Now, let’s jump into why the idea of “infinite debt” is already facing strong headwinds, one trend that has been underway since March 2020.
_______________________________________________________________________________________
If there is one thing Americans and the world have come to believe is as plentiful as air, is the idea of “infinite” national debt. Because Americans’ financial lives have been based on the US dollar, the world’s reserve currency since the 1930s, we cannot fathom how this trend could ever change. Frankly, I can not fathom this level of change, but I write and read because I know it IS taking place.
Logically, no one would ever go out, borrow continually, and spend more than their income without thinking that at some point some major changes would have to be made.
In this post, we are going to look at why we are ALL facing big changes, and why each of us must address what actions we will take now. Yes, now.
In the Cashless Path, Going Digital Part 1 and 2, we looked at patents and Executive Orders that reveal Big Tech and Big Government are preparing for digital currency. We know that this is a global trend, not just an American one. We have also seen that the SEC finally approved the application of 11 companies to sell a Bitcoin ETF to the public, something that has not been possible for financial advisors prior to 2024.
Today, I want to look at the US Treasury Bond market is telling us…if we know where to look.
1- Cycles are part of nature and history. To tell someone “in the spring” will bring a whole different set of ideas to mind than to say “in the winter”. The same is true in markets.
Sidney Homer is a legend in bond market history. He came to Salmon Brothers in 1961 where he organized the first in-depth research department around bond markets. This book takes the reader back to classical Athens where certain usurers lent money at 48%....per month, and 1800 BC when Hammurabi was the King of the first dynasty in ancient Babylonia. Loans of grain were at 33 1/3% per year and loans of silver were at 20% per year.
His book (mine copy is the 3rd edition) is over 650 pages of text and tables. It takes the reader through centuries of history on interest rates and debt instruments.
Consider these comments about bonds cycles in the American history:
“Around the turn of the century, after declining for more than twenty-five years, (yields) turned up. They (yields on long-term American bonds) rose most of the time for 20 years and reached the high point – since the 1870s – in 1920. Thereafter, yields turned down declined most of the time for twenty-six years and reached their all-time lows in 1946. Then they turned up and rose again most of the time for thirty-five years in the largest and longest of all bear bond markets, which reached its final peak yields in 1981.” [A History of Interest Rates, Third Edition (1996), Sidney Homer and Richard Sylla, pg 335]
2 – Bull, Bear, Bull, Bear - In October 1981, the yield on 30-year US Treasuries reached 15.2%. This still holds the record for the HIGHEST yield on the 30-year Treasury in American History.
From October 1981 to March 2020, 30-year yields fell. As stock markets collapsed as the Covid Lockdowns hit nations around the world and fear went into overdrive, 30-year US Treasury yields hit their LOWEST levels ever, 0.99%.
We are now looking back over almost 4 years since that low in March 2020. The declining trend in yields (rise in price) that started in 1981 lasted over 38 years. This was more than 3 years longer than the bond bear trend from 1946-1981. This period also produced the longest period ever where the Fed Funds rate (rate banks can borrow money short term from the Federal Reserve) was at zero (2008 to 2015).
The picture above is called a channel, a technical tool used for showing very long trend patterns in markets and securities.
As anyone can see, in 2020, the yields on 10-year US Treasuries broke DOWN under the descending channel. This was a signal to watch for major cycle turn from these historic lows in interest rates. As of May 2022, yields broke to the UPSIDE of the channel and have continued to trade at higher yields (lower prices) since.
While pundits and mortgage companies will talk about interest rates, “settling”, the 38 YEAR bull cycle is clearly telling us we are in a long term bear cycle in treasuries now.
3 - As Safe as 1 Trillion in Interest Expense - Interest payments by the US government to holders of US Treasuries have now reached $1 trillion as an expense on the annual budget. The world of “unlimited money” from the Fed’s helicopter have reached a point where there are REAL consequences to years of reckless illusions. Sadly, there are millions that still do not understand.
While the US found plenty of buyers in the bull market, the world’s largest investors have already shown they are not as interested when those investments are losing huge sums during rising interest rates and falling bond prices.
Headlines like these below should be a wakeup call to all investors and advisors.
The collapse in Treasury bonds now ranks among the worst market crashes in history, Market Insider, Oct 5 , 2023
There's A "Crisis Brewing": Powell & Piss-Poor Auction Spark Chaos in Credit Markets, Crypto Soars, Zero Hedge, Nov 9, 2023
Will this ever impact stocks?
[Source: CNN Fear and Greed Index. Over the last 13 months, the highest reading of extreme greed was 83 on July 24 '23. The lowest reading of extreme fear was 20 on October 5 '23 ]
Keep reading. Keep thinking. Be willing to change. Things are not going to stay like they have been since the “magic wand” of trillions in debt from QE started in 2009. The Fed is facing real problems with its “money wizards” image. The "debt to infinity" schemes of fiat currency since August 1971 - when the US dollar punted being backed by gold - appears to be coming to an end. However, there is a very strong possibility that even more inflation and mad money schemes lie ahead from the central bankers of the world and their political cohorts.
" According to the Atlantic Council, there are currently 130 countries exploring the use of a CBDC. This would give big government and big tech even more power than they have today." [
While it is not the solution I would propose, in does appear that the "money wizards" of infinity debt will be using CBDCs - digital currencies - as their next historic tool to retain their illusionary powers and keep our financial system "safe, flexible, and stable". Really?
[Source: The Federal Reserve Homepage]
The Fed is Insolvent, and That's a Bad Thing, The Mises Institute, 6/1/23
As always, comments are welcome. Please share these writings with others seeking to understand the historic times we find ourselves living in.