{"id":1431352,"date":"2023-10-08T15:40:00","date_gmt":"2023-10-08T19:40:00","guid":{"rendered":"https:\/\/bugaluu.com\/news\/?p=1431352"},"modified":"2023-10-08T15:40:00","modified_gmt":"2023-10-08T19:40:00","slug":"spiraling-toward-a-debt-crisis","status":"publish","type":"post","link":"https:\/\/bugaluu.com\/news\/spiraling-toward-a-debt-crisis\/1431352\/","title":{"rendered":"Spiraling Toward A “Debt Crisis”?"},"content":{"rendered":"

Spiraling Toward A “Debt Crisis”?<\/span><\/p>\n

\n

Authored by Jesse Felder via TheFelderReport.com,<\/em><\/a><\/p>\n

The founder of the largest hedge fund in the world didn\u2019t mince words<\/strong> when he was interviewed on the topic of the treasury market this week.<\/p>\n

“We’re going to have a debt crisis in this country. How fast it transpires, I think, is going to be a function of that supply-demand issue, so I’m watching that very closely.” –@RayDalio<\/a> https:\/\/t.co\/s4ItGXwEna<\/a><\/p>\n

\u2014 Jesse Felder (@jessefelder) September 28, 2023<\/a><\/p>\n

What is driving us towards this \u201cdebt crisis\u201d is a rapid rise in government debt driven by an unusually large fiscal deficit.<\/strong><\/p>\n

‘Usually, deficits deepen during recessions as transfer payments to the unemployed increase. But in the US, this is that very rare deficit that has been accompanied by historically low unemployment levels.’ https:\/\/t.co\/y4xpyWkdlO<\/a> by @johnauthers<\/a> pic.twitter.com\/qref2I9Tyu<\/a><\/p>\n

\u2014 Jesse Felder (@jessefelder) September 29, 2023<\/a><\/p>\n

At the same time, interest rates on all of that debt are also rising rapidly<\/strong> as major buyers have stepped back from the market.<\/p>\n

“The Fed isn’t a buyer, banks historically are a fraction of buying and now the banking system is shrinking. Put those together, Treasurys have to clear at a different price. That means higher yields\u2014it’s pretty simple.” https:\/\/t.co\/frS6xwYdZ7<\/a> pic.twitter.com\/bLVU7aqmHH<\/a><\/p>\n

\u2014 Jesse Felder (@jessefelder) September 25, 2023<\/a><\/p>\n

As many emerging market economies are well aware, rapidly growing debt paired with rapidly rising interest rates is a recipe for a debt crisis.<\/strong><\/p>\n

“The rising risk premium in US Treasuries perhaps reflects tail-risk hedging against a situation where more debt leads to higher yields, as has occurred in some emerging markets.” https:\/\/t.co\/WFrf65RJlh<\/a> pic.twitter.com\/3qyjQDYCx5<\/a><\/p>\n

\u2014 Jesse Felder (@jessefelder) September 28, 2023<\/a><\/p>\n

At some point, the Fed may need to step in and intervene<\/strong> in the treasury market but that likely wouldn\u2019t come without serious consequences for inflation.<\/p>\n

‘Intervention could involve buying bonds, thus undermining the central bank’s mission to tighten policy until it defeats inflation, and resembles an official safety net for the trade.’ https:\/\/t.co\/uNxMwbi8zE<\/a><\/p>\n

\u2014 Jesse Felder (@jessefelder) September 26, 2023<\/a><\/p>\n

Brian Riedl recently wrote an important piece explaining the dynamics driving a potential \u201cdebt crisis.\u201d<\/strong><\/p>\n

NEW from me at CNN. The 10-year bond hit 4.7% today. Washington never locked in those 1-3% interest rates, and now the debt is rolling over into these rates at the same time deficits soar too.<\/p>\n

If rates stay above 4% long-term, were in deep trouble. (1\/)https:\/\/t.co\/f9YMKlIBg0<\/a><\/p>\n

\u2014 Brian Riedl \ud83e\uddc0 \ud83c\uddfa\ud83c\udde6 (@Brian_Riedl) October 2, 2023<\/a><\/p>\n

Investors might like to think this matters only to the bond market but the historical relationship with stock valuations would suggest otherwise.<\/strong><\/p>\n

‘Normally, a surge in real yields of this magnitude would have pushed the S&P 500’s forward p\/e ratio to 12 from 18 currently, Gross said. But the excitement about AI breakthroughs and rampant government spending have blunted the impact.’ https:\/\/t.co\/P2eHL3Z3Jj<\/a> pic.twitter.com\/T3HRE5RoQ3<\/a><\/p>\n

\u2014 Jesse Felder (@jessefelder) October 4, 2023<\/a><\/p>\n

There are more \u201ccorporate zombies\u201d in the markets today than ever before,<\/strong> especially within the small cap space.<\/p>\n

Around 1\/3 of Russell 2000 companies aren’t profitable–near the highest level in data going back to 1985 pic.twitter.com\/A1OaGvm2YD<\/a><\/p>\n

\u2014 Gunjan Banerji (@GunjanJS) October 2, 2023<\/a><\/p>\n

While the broad stock market may not show it, these stocks are already beginning to price in the damaging effects of a rapidly rising cost of capital.<\/strong><\/p>\n

Russell 2000 1-month ROC < -10.00% https:\/\/t.co\/s0k4Wg4Ozd<\/a> by @NautilusCap<\/a> pic.twitter.com\/bJwgqV6C9j<\/a><\/p>\n

\u2014 Jesse Felder (@jessefelder) October 4, 2023<\/a><\/p>\n

And such relative weakness in the most interest-rate sensitive segments of the stock market has been an effective warning signal for the broader market in the past…<\/strong><\/p>\n

“The equity market’s current resilience in the face of rising bond yields reminds me very much of events in 1987, when equity investors’ bullishness was eventually squashed.” –@albertedwards99<\/a> https:\/\/t.co\/O0EXXKGh3O<\/a> pic.twitter.com\/TKHdysUDsM<\/a><\/p>\n

\u2014 Jesse Felder (@jessefelder) October 4, 2023<\/a>\n<\/div>\n

Tyler Durden<\/a><\/span>
\nSun, 10\/08\/2023 – 11:40<\/span><\/p>\n

\u200bhttps:\/\/www.zerohedge.com\/markets\/spiraling-toward-debt-crisis<\/a>\u00a0<\/p>\n

\u00a0<\/p>\n","protected":false},"excerpt":{"rendered":"

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