In this episode, we discuss the recent credit rating crack in the U.S. bond market, what it means for the economy, and what it could mean for the bond market in the future. We also discuss the impact of the Fed's QE program and the impact it could have on the economy.
00:01:27.800We also bought $4 trillion of your securities on top of the $4 trillion we bought in the first go-round.
00:01:34.100Those numbers are true globally, not quite as big as ours, but the QE of us was $8 trillion.
00:01:40.360The QE of the rest of the world was another $8 trillion or something like that.
00:01:42.960You're talking about huge sums of money.
00:01:44.460And we don't really know the full effect of that.
00:01:46.980And, you know, the bond dealers, which Gary mentioned, you know, inventories are much smaller than they used to be, partially because of rules and regulations.
00:01:54.060And you are going to see a crack in the bond market.
00:02:17.400You know, I tell people in credit suites who went bankrupt at the First Republic, it was terrible for the banking industry.
00:02:22.640I think we can make everything better, including that, by just changing and modifying certain rules and regulations, letting market makers intermediate more in the market.
00:02:30.920But to give you a number, like just JPMorgan alone buys and sells $3 trillion a day.
00:02:37.760And we move $10 trillion a day of money.
00:02:42.220So the money moving around the world is $100 trillion a day.
00:02:45.820The money moving around the investments, you know, this is stocks, bonds, corporates, governments, derivatives, credit, you name it, FX, sovereign debt around the world, $30 trillion.
00:02:55.800The people who set those long-term rates are those people, including you in the room.
00:03:48.440He almost said it, but he didn't want to say it.
00:03:50.060Of course a bad economy helps these guys out.
00:03:52.260But didn't they buy up a couple companies last time?
00:03:55.180And, you know, anyways, Brandon, your thoughts on this?
00:03:57.820Yeah, he's saying the bond market's going to crack.
00:03:59.720I don't know how we could say the bond market's not cracked already.
00:04:01.800Like, I don't think it's a normal thing at all for the Federal Reserve to own $20 trillion worth of bonds and mortgages just to keep interest rates at a normal level.
00:04:08.540And, like, then with them having that, they're still having a hard time keeping them normal.
00:04:11.980And like he said, yeah, it is mostly the, like, private investors that move the bond market around.
00:04:16.100They say it's the smartest money in the world because it's, like, the biggest pile of money in the world.
00:04:19.280But, yeah, it's because this is because Trump's showing no semblance of any interest in reducing the deficit and, like, reeling in spending.
00:04:26.640They keep talking about this $500 trillion of assets that America has.
00:04:30.220But, you know, like, show that first before, like, putting this stupid bill forward that's going to put us into more debt that has no interest in saving money or reducing what we're spending.
00:04:38.680And then Doge was a disaster, a complete failure.
00:04:41.220Maybe they baked that into a degree when he promised a trillion or two trillion.
00:04:45.240So, yeah, of course, like, it started falling apart when he proposed that bill when it looked like that bill was going to pass.
00:05:09.040First of all, the rating agencies just said what has been a reality for the past five years since that $20 trillion was suddenly stacked on top of the debt.
00:05:27.140So the rating agencies just did what should have been done probably five years ago when the only path forward is they raise the debt ceiling.
00:06:17.420Oh, this was bad for the banking industry.
00:06:19.880This was horrible for the banking industry, except it was J.P. Morgan that picked up all the good parts when Humpty Dumpty fell and broke when he's talking about First Republic, right?
00:06:33.760Yeah, we'll take that and we'll pay this and we'll pay that so they could help clean up the bankruptcy so it wouldn't be a full federal bailout.
00:06:39.880So Jamie Dimon was right and he was honest about the fact that he benefits.
00:06:45.040But he was also honest about the fact that we have not had a full settling of the $20 trillion that we added to our debt in four short years.
00:06:56.280And so – and we're now – the yields are going up.
00:06:59.620So now we're paying 4.5 percent interest on that, which is making it worse, which is why they keep raising the debt ceiling and getting even more debt because they can't get the budget through Congress.
00:08:08.640There's so much to unpack here, and this is the number one issue for, at least for me, is as amazing as America is, as the opportunity economy or any, you know, the land of opportunity, we are freaking broke.
00:08:21.620If this was any household in America where you have this massive income, amazing income, right?
00:08:31.340But then, by the way, don't look over here.
00:08:32.920You're running a $2 trillion deficit every year.
00:08:36.640What the hell would you do in your house?
00:09:28.900So, if you believe the future looks bright and you live in Florida, Texas, California, or New York, in that order, by the way, of the hats, the hats are available for your state where you get to where the future looks bright and on the site has your state on it.
00:09:44.620I think the Florida numbered hats, there's three left on the numbers for Florida.
00:09:47.840But the rest of them, there's a few left for you to go order, Rob.
00:09:51.380Do you have a video on this or no with the hats?