Economists Uncut

Lynette Zang (Uncut) 01-19-2025

The Foundations Of The Global Financial Markets Are Shifting…

I’m Lynette Zhang, founder and CEO of Zhang Enterprise, and frankly, we support community and sound money, gold and silver globally. And it has never been more critical that you have your own strategy, sound money strategy in place, because just as they can make things appear to be going up. Yeah, the value of the dollar keeps going down.

 

And because what the Fed is really fighting is deflation. So markets going down, real estate going down, things going down, that’s deflationary. What they’ve done is just since September, they have dropped interest rates a full percentage point.

 

Okay, well, what they’re trying to do is inspire more borrowing and spending and create, generate more inflation, which erodes your purchasing power more. But the markets no longer trust the Fed to do it. So while the Fed is dropping interest rates, oh my goodness, interest rates are actually rising.

 

And they anticipate, meaning the markets anticipate a 5% interest rate. Why does that matter? Because it means that all of this new money gets a whole lot more expensive. And we have this huge debt wall that is coming due.

 

It’s also critical, because what we’re looking at is the treasury market, which is the global foundation of the financial system. So if there’s problems in the treasury markets, there’s problems globally. Do not make a mistake about that.

 

The 10 year treasury and the 10 year gilt, which is the British sovereign bond, and you can see that they are both spiking. This is a huge problem. But what can you do about it? Well, the first thing that struck me is the extent to which 10 year bond yields have increased, just as many central banks on a global level are lowering the interest rate.

 

Uh-oh, that is a battle royale between the markets and the central banks. But the real problem is really in all of those derivative, those big bets against interest rates that in that completely opaque market, we can’t see it coming. So you need to make sure that you have your sound money strategy in place.

 

So I want to take a look at the 20 year bond yield, which actually did go above that 5%. The 10 year yield, the 30 year yield, and the two year yield. So you remember I told you that when the yield curve inverts, so the lower, the shorter term bonds interest rate is higher than the longer term bonds interest rate, that indicates a recession, typically 12 to 18 months.

 

The real danger comes back in when it reverts, which it has, I showed you that, and what they’re trying to do is fight off that recession, and I mean they by the central banks, by lowering the rates to try and get more people to borrow and spend and create new money. They’re not having a whole lot of luck. So we’re already seeing the 20 year yield above 5% at least at the close it was, and we’ll see where it’s going.

 

But this is a mountain of debt that we have to deal with. And you’ll notice that every time we hit one of those gray bars, which are official recessions, the speed at which they grow debt goes up, because what is out there is not having the same level of impact. There we were in the first quarter of 2020, and this is just the federal debt held by the public.

 

It’s not all of it, but you can see how much more rapidly that debt is growing, and they’re trying to do it again. And the markets are going, yeah, you’re going to do it at a much higher interest rate, which means all that debt costs that much more. Well, they can get away with it for a while, but they cannot get away with it forever, particularly when the net issuance of treasuries is projected to remain elevated.

 

So here you can see going back to 2008, all of the treasury debt relative to GDP, which I always like it when they go relative to GDP or inflation adjusted, because what they’re trying to do is hide the truth and lie and lie and lie some more. You know what doesn’t lie? Physical gold and silver in your possession. That doesn’t lie.

 

It runs no counterparty risk. But when we’re looking at what the government’s doing, the only tool they have is to issue more and more debt. That creates more and more inflation.

 

That makes the GDP look like it’s going up when it’s really the prices that you have to pay for everything that are going up. And as long as the public doesn’t realize that, then they can probably keep getting away with it. The problem comes in when it happens too quickly, and that’s what they’re trying to avoid.

 

But there is so much more debt. And guess what, guys? You cannot fix a too much debt problem with even more debt. That’s kicking the can down the road.

 

And people go, well, can’t they do it forever? Look at these graphs. No, they cannot do this forever. It’s real simple.

 

The Congressional Budget Office projects chronic U.S. deficits that will lift U.S. public debt to just over $50 trillion by the end of 2034. Here’s my bet. It’s going to go way higher than that, way sooner than that.

 

And that’s only nine years away. So why does that matter? Because the world is paying attention. And we still hold officially the world reserve currency status.

 

But I’ve shown you before the run on the dollar. It’s happening, guys. It’s happening.

 

Are you prepared for it? Are you ready? Because you need to be. Okay. Primary dealer community has shifted over the years.

 

Okay. So the primary dealers are those banks that have been tasked with making a market in the treasury market to stabilize the prices. But since 2008, they’ve really been declining.

 

So let me show you this. This goes all the way back to 1960. Then all of those banks grew pretty well.

 

And in 88, we had a peak of 46 of them. And these are the primary dealers, the market makers in treasuries. And we hit a low of 17 in 2008 because of all of the bank mergers that happened during that period of time as the banks were falling apart.

 

Now it’s grown, but since 2008, it has shifted on who is buying the treasury. So who is that? Well, unburdened by the strict regulation imposed on banks, they have flourished amid the growth of highly automated electronic trading. And what we’re talking about are hedge funds.

 

There are almost 50 fewer banks, which were long-term holders of the bonds, right? So that would help stabilize the prices into the hedge funds, which they’re short-term players. They’re just looking for a pickup of interest, a little pickup here and there. Well, that makes us kind of vulnerable, doesn’t it? And we’ve seen it actually since 2015, when we had liquidity.

 

So that’s the ability to buy and sell easily with not a huge price difference, right? That has been occurring since 2015. We have seen the lack of liquidity spike, even as the central banks have printed all of this money into existence and understand that once that money is printed, it’s still sloshing around the system. So you’re seeing all of the stock market go up, but that’s just excess money.

 

The value of those dollars, or anywhere you are in the world, doesn’t really matter. The purchasing power value, which is the value that matters to you and me, is going down. And yet this automatic, faster, faster, faster, faster, faster, you take out that human factor completely, and it’s just all algorithms.

 

I was there on Black Monday in 1987 as a new stockbroker. I know what that looks like. What’s this one going to look like? Much, much worse.

 

There’s a whole lot more money sloshing around the system, and everything is a lot shorter, shorter, shorter, I mean, they want atomic, which means everything happens at the same time. Well, it works great until it doesn’t work, and then everything implodes. But let me just stay on this task, because in the recent Global Financial Stability Report, steadying the course, and what do they say? Uncertainty, because primary dealers are increasingly warehousing longer-dated securities.

 

Okay, why does that matter? All right, stay with me on this one. This is interest rates. These are bond market values, right? I want you to notice that as interest rates go up, the longer-dated, the longer maturity bonds principle or market value fluctuates.

 

It goes down a lot more than the shorter term. There’s the price. There’s a market price there versus the longer term.

 

So that means even more volatility into the system. So the foundation of the global markets are doing this, right? How stable do you feel? How stable would you feel in an earthquake, right? So these are the bank holdings. So you can see that primary dealers and the hedge funds were kind of along the same order until, oh my goodness, 2021.

 

And even though the bank holdings have increased, we can certainly see that the hedge funds holdings are much bigger. They’re not going to tolerate this level of, they may create it, right, and make money from it, because that’s all they’re about is making money. They’re not going to stabilize this market.

 

They’re going to create a lot more volatility and danger in it, because we are now relying on principal trading firms to do a lot of the intermediation. That’s what the banks were doing, the intermediation. They were buying the treasuries to make sure that there was actually somebody on the other side of the issuance, but they are more short-term and in bouts of market stress, they step back because they are not obliged to make prices in those periods.

 

In other words, they’re not obliged to hold on to those treasuries like the banks were obliged to. So can you see this transition from the banks that were long-term, more stable holders into a trading market? Everything’s been turned into a trading market. There is no good price discovery on anything.

 

And at the same time that that’s been turned into a trading market, the holdings of those dealers are at all-time highs with major issuance still coming up. Can you see the problem? What if the hedge funds stop buying? What if they decide to turn around and liquidate? They’re not obligated to make a market. And just since 2017, it’s gone from $43 billion to $400 billion.

 

That’s 10 times in just a few years. That should worry you. If it doesn’t, it worries me.

 

I’m telling you right now, it worries me a lot. The issue boils down to whether they can keep up with a gushing spigot of treasury sales. Well, the banks were obligated to do it, but they’re not doing it anymore.

 

Now it’s the hedge funds. You think the hedge funds are going to support the treasury market? No, only as long as it’s convenient and it works for them and they can make money on it. So Wall Street stocks fall after jobs report smashes expectations.

 

And Bank of America says gangbusters figure will dash hopes for further Federal Reserve rate cuts. As Henry Kissinger once said, it is not what is true that matters. It’s what people perceive to be true that matters because that determines how you move forward with this.

 

So we’re looking at a gangbuster employment report. That means the Fed cannot lower those rates. Those rates have to stay higher into this huge level of issuance that the government has and this massive debt wall that has to roll over into higher interest rate environment.

 

I hope you can see what I’m trying to talk about here because the cutting cycle is over. That’s according to Bank of America. We’re going to see because my next bet, yeah, rates are going to stay here.

 

Maybe they’re even going to have to go up, but they’re not going to want to do that because it’s going to hurt the stock markets. It’s going to hurt. Well, if the interest rates go down, that helps the market value of the bond market, but what do people look at? That’s the key in here.

 

They watch the stock market. If for some reason you open your 401k statement or your IRA, your retirement statement and everything looks okay, or hey, it goes up, you feel richer, you feel safer when what’s really happening. Oops, I wish that would happen in the Fed.

 

What’s really happening is that they want to inflate the value away when we’re already basically at zero. But if inflation picks up, the conversation should move to hikes, interest rate hikes, which could be in play. That’s bad for the stock market.

 

That’s bad for the bond market. That’s bad for the fiat money markets. If that’s all you’re in, that’s why it’s so important to have your sound money foundation.

 

I don’t care whatever else you want to do, but a properly diversified portfolio has tangible wealth and tangible assets as well as anything else. I can’t sit here and tell you that I’m diversified because I’ve lived my life in these markets on some level my entire life, and I’m 70. So I have a very high level of comfort with sound money because that’s proven itself over and over and over again for thousands of years.

 

But understand that if you’re counting on the fiat money markets to secure your retirement or anything else that you want to do, you need to rethink it. And I’m not telling you what to do. You have to do whatever it is that you’re comfortable in, but we can protect and create that wealth insurance with a sound money portfolio for anything else that you want to stay in.

 

It’s critically important. And so you need to take a look. Are you diversified? Are you properly diversified? If you’ve started your sound money strategy, are you done yet? Get it done.

 

Because the other part that you really need to be familiar with and the point of gold in this diversification is as a true flight to safety and a true portfolio diversifier. Gold exhibited a low 30 year correlation to major fixed income indexes. So what are those indexes? Look, it’s a closest to T-bills, right? But every other, these are a whole bunch of global bonds.

 

So a low correlation, that’s why it’s diversified, because it doesn’t move with that. What that means is it does not move in the same direction as that index. It is inverted, right? So if the bond market goes down, gold market goes up.

 

If the stock market goes down, the gold market goes up. Gold and silver are the true portfolio diversifier. So you need to make sure that you have everything in place.

 

And by the way, gold and silver need to be the foundation. Absolutely. But you also need food, water, energy, security, barter ability, wealth preservation, community, and shelter.

 

Because in these fragile markets, I, anybody, when is it going to implode? That’s what everybody wants to know. Well, I don’t know. I’d rather be two weeks too early than even one second.

 

I’d rather be 20 years too early than one second too late. Because once it’s too late, what are you going to do? There’s nothing that can be done. So there’s a lot of things that are happening these days.

 

Make sure if you haven’t seen some of the previous videos, go back and take a look at them. There’s a lot of good work in there that will help you understand where we are in this trend cycle. And remember, every Tuesday, well, almost every Tuesday, I’m sorry, I’ve been doing a little bit of traveling.

 

So kind of goofed it up a little bit. But every Tuesday, typically we do a live at noon Mountain Standard Time. We need to grow that arena because that’s where you can come and ask me any question that you want.

 

We do not screen questions unless they get bigoted or something like that. Join us and come and let’s chat. Because I 100% know if we can grow this global sound money community, we got a shot at having a seat at the table in this new system.

 

And if I’m sitting at that seat, I’m going to demand that it’s convertible into the underlying gold. Whether or not I’m going to get it, who knows? But I’m going to try anyway. And that’s all any of us can do.

 

One person can’t do anything together as a community. Boy, are we powerful. And I know we can make a positive difference for a lot of people.

 

So until next we meet, please be safe out there. Bye bye.

 

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