I. Rates Continue To Rise Not Just Because Of Oil Prices But Also Because Of Fed Chair Warsh!
Joe Brown of Heresy Financial explains why in this video: Why Bonds Are Crashing Because Of Warsh!
Reminder: “Crashing Bonds” means bond prices are falling, resulting in higher yields/interest rates.
The reasons bonds are crashing and rates are rising include:
1. “Uncertainty.” The bond market hates uncertainty, and because Warsh is not doing anything to establish his inflation-fighting bona fides (via words or rate increases), the bond market remains very concerned about inflation – and is thus demanding higher yields.
2. Quantitative Easing. Yes, the Fed is still printing money to buy bonds. It’s ostensibly to pad bank reserves. But it is still QE – which is inflationary.
This is ironic because Warsh came in claiming to be an inflation hawk – intent on shrinking the Fed’s holding of bonds.
And THIS is why I wrote this blog last week: A Fed Rate Hike Will DECREASE Mortgage Rates – in which I explained that a rate hike would signal to the markets that Warsh is serious about fighting inflation.
II. We Will All Soon Be Driving A Lexus Because Of This Financial Event.
I drove a Lexus SUV for years – and constantly took it hunting, fishing, and skiing with my kids.
And – it simply would not break or get stuck ever – no matter what I did to it or where I took it. Roads were entirely unnecessary, as it was impervious to huge rocks, logs, potholes, and snowbanks.
The only drawback is that you could not do donuts in it on even the slipperiest of surfaces because its traction controls were too good – but I liked it anyway.
It was a testament to Toyota’s amazing quality.
I share that to ensure every one of you is excited as I am about the Japanese Yen’s impending collapse.
I blogged last week about the crashing Yen – and why it is America’s problem: Japan’s Currency Crisis Is Becoming America’s Mortgage Rate Problem.
It is a huge problem because Japan is the largest foreign holder of U.S. Treasuries ($1.2 trillion) – and they have to dump them on the market to raise dollars to “defend” the Yen – by buying them up.
As a result, Treasury Secretary Bessent stepped in to help defend the Yen – to keep Japan from dumping more Treasuries.
But, over the weekend, I listened to several prominent analysts (including Brent Johnson and Peter St. Onge) explain why Bessent can’t forestall the inevitable (the Yen crashing) forever. There is just too much pressure on it, and stopping it is like trying to stop a stream from flowing downhill. Eventually gravity/market forces will take over.
So – what happens when the Yen crashes?
The Yen is currently at 159 to the dollar. Brent Johnson says it will eventually fall to 200 to the dollar at least, and possibly even to 300 to the dollar.
And – all hell will break loose.
Japan will sell Treasuries like crazy – pushing rates up.
Asset prices worldwide will plummet as the “Carry Trade” unwinds. The Carry Trade once again is when investors borrow in low-rate Yen and invest the money in other countries with higher yields.
The U.S. dollar will surge in value, as the Yen crash drags other Asian currencies with it.
Japanese imports will become much cheaper – due to a strong dollar and much weaker Yen.
And – nervous investors will ultimately move into Treasuries as a “safe haven.” Thank God for that too; without that safe haven factor, rates would likely go way up.
But alas, Lexus prices will not improve that much because many of them are made here in the U.S. and Canada (but it made for a great hook 😊). Darn! And – for the ones made in Japan, Toyota would likely just adjust the prices and make more money.
BUT – motorcycles, ball bearings, and trips to Japan will all be way cheaper.
And – I, for one, can’t wait to buy more ball bearings on the cheap!
