Bond bailout fails within hours

So it looks like we've got a massive fail on our hands, and no, it's not Trump's diaper. In fact, it's the markets and Scott Besant. Let me show you guys what's going on. This year headlines Dow tumbles 700 points. S&P 500 falls. Has Treasury planned to subdue yields? Fails. Wow. So then Besant is going to try to come on TV and make us all feel better about the markets and otherwise. Let's have a listen. The funding needs, I think, are daunting to a lot of folks. The dependence on foreign bond holders, for instance, we saw the intervention in the Japanese yen, and that's erased a lot of a lot of the progress there. And so there are kind of all these worries at once about what's going to happen ultimately with these holders of treasuries. Again, people have bad information. I have asymmetric information. So I think that the market should think, well, why would we have joined the Japanese in the intervention at this time? Do we know something the market doesn't know that in terms of being willing to do what I would call a treasury twist here in terms of the bond market? What do I know that the market doesn't know? So, you know, I think the market's probably gotten a little ahead of itself. What do I know that the market doesn't know? I mean, I guess our strategy today is no, no, I'm not going to tell you that that's a claim he's trying to make that I guess they have some special knowledge that we don't have and therefore trust them. OK, it was op ed. America is about to get more expensive. That spells it out, doesn't it? America is about to get more expensive. You're looking at more debt, more borrowing, higher interest rates, these kind of things. They'll try to make the case that AI is awesome. But if you don't necessarily agree with that, that means there's nothing but we'll say Trumpy news. We'll call it that. Should Americans be volatility in the bond market? No, I don't think so, because like I said, our country is doing so well despite interest rates. We have interest rates that are artificial. They're actually artificially high. They raise them for no reason. And you can't go out to the market when you have a Fed that's raising interest. You can't say, I want to pay three points less than what the Fed says you're supposed to be paying. So, no, I don't think so at all. I think we have a very powerful country and we're powering through these ridiculous interest rates. Well, the president there isn't hiding where he thinks interest rates should go. But the bond market may have a very different opinion. Yields, take a look. They're back up today, erasing the drop that we saw after Scott Besson's intervention just yesterday. And here's the bigger problem. The U.S. just crossed a sobering milestone, $40 trillion in debt. So the question now is whether Washington can keep borrowing at this pace without the bond market pushing back. Can we recover from this? Even Fox is talking about now the national debt. And so essentially, they have to go out in 2024 and try to inspire confidence. And Besson is the front guy then for the Trumps. And that we are trying to bring the market back into equilibrium in a thinly traded market. I think, you know, I'm confident that bonds will continue declining. We've got a spike in oil prices today that I don't really understand. You know, our announcement is for economic action. So the quote is, we got a spike in oil prices today that I don't really understand. That's coming from Besson. Huh. I wonder if it has something to do with the war. I wonder if it has something to do with your incompetence. So there's that. Are we making any progress in the Middle East? Well, let's have a watch of this. Overnight, President Trump announced economic D-Day against Iran, as he calls on other countries around the world to support the United States. The president indicated that if any country provides a financial lifeline to the Iranians, they'll face their own economic consequences. So we're doing economic D-Day and apparently our government doesn't understand why oil prices are going up. Gee, I wonder. Mike, we've seen treasury yields now climb back up just a few basis points away from the level that they were before yesterday morning's announcement. A lot of ink, digital or otherwise, has been spilled over the idea that this is short term. But that's extremely short term. The fact that this lasted basically 24 hours, the effect of the treasury. Yeah, it's a little backfiring, right? Because it has a sense of panic almost, especially following the yen intervention. And the idea would be we get to Jackson Hole, wars can reset some sort of expectations there with Fed credibility. But this was supposed to be a lifeline that would have, you know, bought some time. And now it's not. Now, of course, we had a lot of positioning in the steepener that got squeezed yesterday, which exacerbated the price move. And now maybe you're seeing people trying to reenter that trade or generally, like we're saying for Mary Daly here, there is a global story now with higher yields across for not only, you know, let's keep it oil's back up. We have no end in sight to AI, you know, financing. And obviously, we all know what's going on the deficit and the forever war now in Iran, which is sort of being the new narrative around it is not helping with that as well. I mean, all this stuff is bad. I'm trying to come up with, you know, sometimes people say, Chris, don't you have any good news? Well, I mean, we're heading into the fall and hopefully the weather is temperatures are coming down. That's a bit of good news. We had a little bit of rain here in Busan. That was some good news. We haven't had rain for a while. And when I showed you guys some rain, people are saying that and rain for a while either. You guys have gotten some rain. Please let me know. But this is what the markets are telling us and showing us. So talk us through what you are trying to do here by announcing the increased size of the buybacks. We're trying to signal that we think that this is a thinly traded area of the market, that we're in August. And there's been a lot of corporate issuance that's influenced the market. And we believe that there are many underlying factors in turn that the market is not looking at. And we are going to make a market in these. We routinely do buyback. So we're going to increase the size of the buyback. And, you know, Sarah, I would note that it could be more than the four billion per issue. Yeah, I was going to ask how big this could get. If the signal here is that you're not happy with the direction of yields, you know, they've they've gone back the other way. We have erased most of the Treasury rally that you got yesterday with. Here is they're doing the buybacks of the long term debt and they're going to issue more short term debt. And this was a signal of both panic from their point of view. They're like they're trying to say, no, no, we're signaling confidence. But the other read is like, no, you're signaling more panic that you're worried about this stuff. And then it didn't really work. And now they're saying we're going to do bigger, I guess. OK, the the problem is, though, is that like these people don't inspire any confidence in us. And that's why then it becomes a credibility question. Like, do you even know what you're doing at all? Yesterday, like we just said, Scott Besson announced the buyback. We did see some momentary relief, but the bottoms, the wheels are climbing already. What do you make of that? I said yesterday that desperation is the world's worst cologne. And it looked it looked desperate because as Larry Kedlow was talking about yesterday that he asserts that yields are climbing because of growth, because growth is going great guns. And if that would be the case, then why would the Treasury Department need to intervene in the bond market unless there was some sort of plumbing, serious trying to let the economy catch up with the debt growth? Maybe. But that's yeah, if the economy is so great, why are we running a two trillion dollar deficit this year? If the economy is so great, why can't we reduce our the interest that we're paying on our debt, which is will be we're on track this year, two months left in the fiscal year, one point four trillion dollars in interest on the I will argue, as I have all year, this is a supply problem, a supply of U.S. government debt that started with the Iran conflict. And then that was what started kicking up long term interest rates. Oh, you want to borrow more after you've screwed lenders over for the last 14 years? Wow. So this is where we're at. You've got people on Fox openly calling the other people liars, effectively, which is true. But, you know, you don't usually see it on their channel, complaining about borrowing, complaining about the war, these kind of things. They actually start to sound like normal people. And, you know, it's bad when even Fox starts to sound like normal people, because we can see the numbers and we see the markets reacting. When you're in government, there's enormous pressure to do something to act when there's a bad news cycle or there's a troubling financial development. But, you know, in my experience, more times than not, the best response is no response. And so, look, I think the Treasury buyback announcement yesterday and I would also say the intervention from earlier this month, they're examples of when you don't have fundamentals or overwhelming firepower on your side. And look, I think the trigger pullers know when there's blood in the water and they may see this as a de facto peg that they seek to break. So I think the lasting imprint of this action is going to be higher rollover risks. You're going to have higher term premium because Treasury's less regular and predictable. I think it's more likely the Fed will have to hike because you're loosening financial conditions and you have higher interest expense. I mean, I don't think it's crazy to say you are creating the conditions for a front end doom loop. So I don't like it. Do you see this towards the direction of a Treasury-Fed accord between Scott Besson and Kevin Warsh? Well, that wouldn't exactly be a balance sheet reduction strategy, which is where I thought the Fed under Chair Warsh was headed. I mean, ultimately, I mean, the reason I said Treasury doesn't have enough firepower by itself to change the supply and demand equation is even if you max out on this buyback program over the course of a full year, you're talking about less than 5% of total gross long end issuance beyond the 10-year point. So you really do need to bring in the Fed. You need that as your bazooka if you want to change market sentiment. And that would require, I mean, if you want to just imagine what it would sound like, Kevin Warsh and Scott Besson holding hands and saying, we are going to engage in a market functioning QE program to anchor long end yields in line with long term fundamentals. But you never know. Are we going to get the money out again? When in doubt, print more money. I guess that solves everything, right? Then you're going to get, you know, spiraling inflation where they have problems with growth. If credibility falls, you know, basically through the floor and no one can trust the U.S. markets or anything at all and everyone starts selling off treasuries, you have an absolute nightmare for the USA as it will totally destroy the dollars. Yeah, because that's where I was going to go and where a lot of the analysis is focused, as you know, Mr. Secretary, which is, you know, strong signal from the administration on the buybacks. But, you know, the fundamentals are ultimately what is going to prevail here in the bond market. And the fundamentals are hard to ignore when it comes to the size of our debt with public debt increasing to now 40 trillion dollars. Yeah. I mean, look, Sarah, there's nothing magic about the 40 trillion number and we can grow our way out of that. So but what we do want to signal is I think that there's been a lot of misinformation in terms of what's going on with the deficit, what's going on with the deficit to GDP. We actually had a fiscal consolidation. Right. And he'll try to say that, guys, you have bad information. It's misinformation. You just don't understand what we're trying to do. Trust us. We have it all under control. And we're all looking at numbers like, dude, you guys are pushing up the national debt, your deficit spending, and this looks like a total disaster. It was only a few weeks ago that Besson was talking about the fact that he wanted the Treasury and Treasury action to be predictable. This wasn't predictable. We didn't see this coming. So how does credibility stack up this morning? Well, credibility is clearly taken a major hit. And you can see that in what happened with the US dollar overnight, both falling against pretty much every major currency and falling a lot against the Swiss franc. That's a currency that gets a lot of love whenever there are US dollar credibility concerns and the huge jump in gold. So that's a concern. There's also going to be, I think, a revival in investor concerns about where the Fed stands with all this. How long is this sustainable? Can we print our way out of it? Can we borrow yet more money, right? Be it borrow money for the war, be it borrow money to build our data centers and AI. If we do borrow the money, are we using it for things that help people, right? But if look at the Trump administration or Elon Musk and otherwise, they're talking about space data centers, they're talking about crypto, they're talking about predictive markets. They're not really talking about investing in the people. And so we're losing on multiple fronts. The numbers don't add up. The dollar, the dollar weakened dramatically after this, and it's basically unchanged this morning. Is that a concern too? Because you also weaken a dollar at the same time that you're trying to rein in sticky inflation. Of course, a weaker dollar has the effect of making external purchases more expensive, thus importing more inflation. Yeah, and I think this is a taste of kind of a longer term trend where we've had a very strong dollar for a number of years, and there are pluses and minuses for U.S. consumers and investors to that. It's not all good or all bad. But I think we should expect that the dollar is not going to have that same sort of hegemonic status that it has in the past. And our own foreign policy is sort of like pushing some of our previous allies to get rid of some of those American assets. So I think this is going to unfold for quite some time. And the question is, are other central banks, are other countries going to start dumping U.S. debt, U.S. stocks? Are they basically going to continue to sell U.S.A. trade? It's interesting because you can even see people at Fox panicking on what's going on, because again, you can see the numbers. Yeah, there's so many things. I mean, I don't know where you fall down on this, from a free market capitalist. I don't like to see intervention in any way, shape or form whatsoever. I owe you. You were right, because about three weeks ago, we were arguing about the markets not caring about the yields going up. And now we do. I said they eventually would. You've seen this in the last couple of weeks. I think Treasury Secretary tried to intervene to tamp that down, because I don't think the underlying economic situation is bad. It's getting better. But here's my problem. Forty trillion in debt. We've doubled the deficit, the debt in 10 years. We've quadrupled it in 20 years. Equal blame across both sides of the aisle, right? It's not Republicans or Democrats that did more or less. It's pretty much the same. We basically let our debt get out and start the race way ahead of us. We can't outgrow to catch up to it at this point. We have to do something about spending. So that's the argument that that dude makes. But I think it's pretty weak, to be frank. His central argument is the underlying economy is fantastic. Look at how great the numbers are. Remember, a lot of this is based on AI and all the investment into data centers and otherwise. So I think there's a lot of shady things going on with that with circular financing, which we talk about a lot in the channel. He'll make a case that, guys, this is about overspending. But you also have to talk about the tax cuts to people like Elon Musk and otherwise. So you have an unfair system there. And then he'll make the case, oh, well, it's I guess both sides, not just Trump. But you can't ignore this whole thing with Iran, which is choking off supply chain to come with a straight or her moves. And you have just all these things converging at once. And the debt is spiraling and people are losing confidence in Besant, in Warsh, in Trump and in the U.S. system. And so this is where we're at. And we're all watching this together. I just don't think it's sustainable. I think it should be obvious to anyone. And we're going to keep track. So I do want to hear your thoughts on this one. Please be careful out there. And I'll catch you on the next video.