Thread by @BMBernstein

Another "holy shit, everything is going to implode reflexivity" in the markets

Until 2015, our budget deficit was funded by foreigners -- meaning they bought our credit

Since 2015, it's been financed largely by domestic private investors like pensions & households

Also in 2015, our deficit reversed trend and started increasing again -- now headed to $1tn

There's no sign that this will slow down. Trump likes big things. He's getting a big ass deficit

And this is despite government tax receipts actually rising since 2010 (although they did fall last quarter)

It turns out, a huge reason for the increase in tax receipts has been the rising stock market, which increases wealth, consumption, biz income, etc.

As the deficit continues to rise, this will require *more* private financing

Simultaneously, the fed is rolling debt off the balance sheet, sucking money out of the economy. This will increase yields to compensate for the bump in demand

As yields rise, this will increase corp. borrowing costs, who are already drowning in debt. Capital will leave stocks bc of depressed earnings and higher bond yields

And, now for the reflexivity: a lower stock market will decrease tax receipts and increase deficit/yields further

The US deficit and yields will spike, and thus US govt borrowing costs -- which are already at record levels

This feeds on itself and higher yields again pulls the broader stock market / risk assets down even more, leading to even higher deficit

This is when scarce assets will shine

The Fed will need to reverse course, monetize debt and ease the debt burden. The private sector alone won't be able to support the borrowing needs

The president won't be able to reverse course on massive spending / welfare promises either

Gold, BTC (if narrative is there), and equities that benefit from a weak dollar will do well

Structurally we are in a long term, secular dollar bear market

Markets can continue to be manipulated. But the casualty will be fiat currencies