All roads lead to debt

All roads lead to debt. That’s what investors are finding out these days. Let me elaborate: the Pentagon jus went to Congress to ask for $50 Bn to rearm the US military, since the cost of the first week of attack has been $11Bn. The best part? Congress did not authorize the war. If they agree, and it’s likely they will, this will be added to the deficit, and we’ll end up in the Treasury mandate to finance it. Today, Iran sent a suicide drone into Dubai and hit one of the most emblematic buildings in the city. This is no longer a U.S.-Israel- Iran conflict. It’s a regional conflict that’s about to become global. And will require more debt. Oil keeps trading above $95/barrel, and China just banned exports of refined oil, which will impact South east Asia economies. But it will Impact the US too, because inflation will pick up and the Fed will not be able to lower rates. You can see the current expectations on the lower part of the chart below. Japan, is about to intervene the market to defend the Yen, which is trading at 159.45 vs the dollar, and it has been reported that the BoJ sold $2.8Bn of Treasuries out of its $1Tn foreign reserves. It’s a small portion, but it may be the start of the inevitable. The sale of its massive U.S. treasury positions. In the US, banks are starting to feel the heat of the Private Credit woes; in the top chart below, you can see their exposure in monetary terms, and how tied they are to the well being (or collapse) of the space. Individuals are max out in credit card debt and margin debt. And they cannot get the debt they want (a mortgage) because their cash flows don’t add up. Where and how does this end?

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