We start a fresh, anew if you will. New Year they say. Well, I don’t think much has changed. What I do know though is that China has hacked into our Treasury Department. That’s right. They hacked in, snooped around, and then left. American authorities are not happy. Some so this is payback for supporting Taiwan. Little do they know, but the NSA has hacked one of their phone calls after this happened and the C Thomas Printer Cooperative has the scoop. This is what they heard, translated into English of course. “Did you break in? Yes, we did. Did you clean them out, take all of their money? They don’t have any goddamn money, it was a bunch of IOUs. I told you so.” This was very sophisticated NSA eavesdropping but something I could have told you. We don’t have any money… Was China just making sure?
I could give you quoted material from sources like Bloomberg and ZeroHedge, but frankly I think that has been a boring turn for our dear cooperative this year. I want to tell more stories in the future and prepare ourselves for the uninversion. What is the uninversion? Is that when America takes its head out of its ass you ask? Oh, I wish it was that easy, but sadly not. The uninversion is what has happened to the yield curve. I like to look at the most popular curve and that is the 2-year Treasury bond yield and the 10-year Treasury bond yield. They were inverted from July 2022 until September 2024 and then almost inverted again in early December before breaking out to 33 basis points as the 2 year is at 4.24% and the 10 year is at 4.57%.
This wasn’t supposed to happen. Powell was going to cut rates, and the lower end of the curve was supposed to fall along with shorter term yields but since Powell has cut in September the 10-year yield is up 100 basis points or 1 full percentage point. Mortgage rates are now up over 7% again. Please tell me where the relief is going to come from for a prospective homeowner with 7% mortgage rates. I will answer my own question. You want relief, I give you the 1976 ad campaign Rolaids spells relief. That’s right, its heartburn city.
We have talked about the bond vigilantes coming back and taking away the government spending aka the punch bowl. They might be milling about, but frankly this is where normal curves should be. The curve should be lower in front and higher in the back, like a woman in high heels, advertising the long end of the curve. This higher yield in the future is the time value of money. If you take risk for longer, you should be compensated for you time and risk. What happens when the government gets too big for its britches or over its skis if you will is the market has to step in and say no, that’s enough of that. In this case it is the spending war time deficits in peacetime. Trump and Biden blew the doors of off regular with their spending and now the market is going to hang this mess around someone’s neck, and it looks like Trump will get the collar.
We have domestic problems, yes like Ike and Tina Turner, but we have been privileged to live in a more globally connected world recently. Our dollars in the US have been outflowing to the world for 50 years backed by nothing but our promises. In return we have gotten cheaper stuff than we could have made. Air Jordans are a great example. Nike has made a ton of money by manufacturing cheap overseas and selling domestically. They earn in dollars but pay in cheaper currencies. As they have done this, and it was often very good for the poor impoverished country where they manufactured, the world has closed the gap with the US. They want air conditioning and now they have just enough money to build a coal plant. They can have electricity for millions of people. Americans look down at them and say, coal really coal? Don’t you have any love for the environment? The east Asian simply looks at the American and says, “I come from three generations of swamp ass and you want to lecture me on greenwashing?” The conversations are literally that foreign. Up and coming countries want cheap power and they will be dirtier than Americans would prefer, but they want a refrigerator. They want a pump, to pump clean water, and they are right to want all of these things. Good for them. We take them for granted and we probably shouldn’t.
The Americans have gotten to live easier lives by simply printing $37 trillion dollars and counting of free money and spending it on things that were built in Malasia, Bangladesh, or Indonesia. Seriously, look at a clothing tag, take a walk through Wal-Mart, hell that entire store is facing sanctions. Wouldn’t it be easier for Trump to say, all right- Wal-Mart. That’s enough with the low prices, tariff for you. You want to sell cheap stuff made in another country, then you must pay. Think about it, they are profiting. They aren’t selling Kate Spade bags in there, they are selling garbage bags.
Where does this leave us? I feel univerted. Perhaps that is because I feel like I have been doing a headstand for three years. Now, I see the government reports starting to get revised. Warren Buffet selling tons of stock. Everyone is so positive right now, it feels like the holidays and makes me sick. Eat more candy and promise you will start working out in a week America. Now unbutton that top button and take a deep breath. I could say it is here, but it never is the same as what anyone thinks it will be. I don’t know if the stock market is going to crash or skyrocket. We could be facing a market selloff, and that is where I am leaning, but I think the government is terrified right now. I think the next stimulus bailout will be $15-$20 trillion. It will have to be. They have to be bigger. The last one was almost $10 trillion. If the market and economy starts going south, will they step in with the bazooka? This is what is so tricky…$37 trillion debt, 125% debt to GDP as a reserve currency, nuclear bomb threats with the world’s largest holder of nuclear arms, this are unchartered waters we are treading in.
I made the point that we are interconnected globally because if Trump tries to on-shore industry like he says he wants to, I only have one question. What happens to our trading partners? They have dollars in treasuries and the stock market. They sell stuff, we give them dollars, and they save some of those dollars to buy oil, defend their currency whatever. What if their source of income is gone? Don’t they have to sell treasuries and/or sell stocks? We know that the foreign ownership of our stock market is at all time highs. This America first, me me me policy is tricky to navigate. Americans can’t afford to build this stuff and buy it. That is why Wal-Mart exists- to sell cheap foreign stuff to Americans. I phones aren’t made in Missouri. They are made by those that eat curry. American call centers are outsourced to India because they are cheaper labor and that is where Apple is heading as it tries to move its factories out of China. There was never any talk of moving to Tampa Bay, its Bombay.
Trump’s whole plan is to create jobs here and it sounds wonderful on the campaign trail, but when you have an American first policy the dollar stands up like it is watching Basic Instinct on the big screen. The .dxy or dixie which is a commonly traded US dollar proxy finished the year at a 26-month high. That’s right, do you remember where we were 26 months ago? 66% lower in the S&P 500, Tesla was under $200 a share and it closed at $402 today, Meta was at $132, and it closed the year at $585. If the dollar is super strong, then foreigners can’t afford to buy our stuff. So if they can’t buy the goods these Trump factories are going to make, then who is left? We, the people? I don’t think so…I will continue clothing shopping at Wal-Mart thank you very much. I like $11 tee shirts much better than $111 tee shirts. 10 times better precisely. I am not alone. I think most Americans would love to buy a L.L. Bean sweatshirt that costs $79 on after Christmas sales but instead they lean toward buying the producto de Peru quarter zip from Wal-Mart cause it costs $17 dollars and who cares if it is from non-cage free Alpacas?
Buyers always act in their own best interests. Whether it is a vicuna muff or a 10 year treasury bond. We have been asking who is going to buy the bonds and at what price and here we are again? We are on the top side of 4.5% on the treasury curve again. We can’t stay here is the problem. If the federal government has to borrow at 4.5% minus 20 basis points for the uninversion, well at 4.3% the annual debt payment is larger than the payments for social security $1.6 T. That’s it, el finito. Good night, Irene. They have to lower rates, and they did and the back end of the rate curve went up 100 basis points anyway. Jerome Powell did not have a Merry Christmas. Do you know how hard it is to sip cider and sing carols with a puckered sphincter? It’s difficult and his job is about to get worse. Don Trump wants and is probably going to try and force his way into the decision making of the Fed Funds rate. Don gets it, he wants lower rates. He is a real estate developer.
Let’s say Powell sees the labor market falling apart and says I have a two-part mandate, which the Fed has, to fight unemployment and we will be lowering rates. What if the back end of the curve goes up more? Real estate prices start falling because no one can afford to buy a house, which they already can’t, but now no one can get financing to buy a car, and forget businesses re-financing so the bankruptcies start rising, oh wait bankruptcies have been rising for two years as that stimulus money has been spent and is now safely residing with one Jeff Bezos and his lovely lady in Miami where she is spending it faster than she can well she is spending it fast…
This crisis will be different in that it will be global because most countries are worse off than the US. They haven’t spent as much money since Covid as the US which is the only reason are economy looks so good right now. AI still isn’t delivering results, and those companies are starting to feel a little nervous. Nvidia is in a correction after falling more than 10%, and even bitcoin has dropped from 108,000 to 93,000 in a matter of two weeks. The last time the S&P 500 closed out the year with 4 straight days of losses was 1966. Do you know what happened in 1966? The animated sitcom The Flintstones was just wrapping up its series finale and Bobbi Gibb became the first woman to run in the Boston Marathon. All these years later and women still don’t have a winner, but at least they keep trying. What I am trying to say is 1966 was a trying year and I would expect 2025 to be no different.
The economy suffers after the yield curve comes out of inversion not when it is inverted. If we use our 2 year/10 year spread the record is clear. More often than not, the recession is coming. What does it affect, and by how much, no one knows. I simply know that the best indicators are like warnings pointing to the bridge out sign while the US seems to be driving by the sign and looking at their phone. At least I found another thing to blame on these blasted cell phones….
Sincerely Yours,
C Thomas Printer
Also born on this date… speaking of warnings Paul Revere… and Charlie Munger would have been 101 years old today…We still miss you Charlie.
Thank you for listening today and you can find all of our articles and more on our website cthomasprinter.com.