“Everyone has a plan until they get punched in the face”

That’s the situation Jerome Powell finds himself in, with the bond market punching back against the Fed’s best laid plans to lower borrowing costs

Following Powell’s move to cut overnight interest rates by 50 basis points on September 18, yields on long duration bonds like 10-year U.S. Treasuries have run screaming in the opposite direction - spiking by 50 basis points instead

This wasn’t supposed to happen…

In normal environments, when the Fed is in sync with the market, long-term borrowing costs follow the path of the overnight lending rates set by the Fed. But when the Fed makes a policy error – like cutting rates ahead of a Presidential election, even with inflation running hot – the market fights back

We’ve seen this movie before, and spoiler alert: it doesn’t end well

In 1971, despite inflation running at over 4%, Fed Chair Arthur Burns cut interest rates to boost Tricky Dick Nixon’s political prospects ahead of the 1972 Presidential election

By cutting rates with inflation running hot, the Fed allowed price pressures to become entrenched in the U.S. economy. American workers grew fearful of continued price increases cutting into their wages, and began demanding ever-higher pay increases

This fueled a self-reinforcing wage-price spiral that unleashed a decade of double-digit inflation, crippling interest rates and stagnant economic growth: a toxic brew known as “stagflation”

It took the Volcker Fed bringing overnight interest rates to 20% to finally quell inflation in the early 1980s

But in the interim, U.S. investors suffered a lost decade of negative inflation-adjusted returns in both stocks and bonds. The S&P 500 index ended 1979 at the price level as 1968… and after accounting for the rampant inflation that pushed prices up by over 50%, stock investors lost half of their money in inflation-adjusted (real) terms

Bond investors didn’t fare much better, with the 10-year Treasury logging losses of 3% per year after adjusting for inflation, or a roughly 30% loss in purchasing power over the decade

It was the worst decade of investor returns since the Great Depression.

In this thread, I'll explain why all signs indicate a repeat performance ahead 👇 Unlike stocks, which can often temporarily economic gravity during periods of rampant enthusiasm (like today), the bond market is a much tougher customer. For the fixed income investors, inflation is enemy number one - the silent thief that can transform positive nominal rates into a negative real (inflation-adjusted) return

By prematurely lowering short-term interest rates before taming consumer prices, Jerome Powell is repeating the fatal mistakes of the Arthur Burns Fed, and stoking fears of entrenched inflation

Bond investors remember the 1970s. And the growing fears of persistent inflation crushing their real returns mean they are now demanding a larger margin of safety, sending borrowing costs shooting on the long end of the curve, like the 10-year Treasury rate

The 10-year U.S. Treasury is one of the world’s most important lending benchmarks, which determines borrowing costs for a wide range of consumer and business loans throughout the global economy. This includes things like the standard 30-year U.S. mortgage rate, where yields were dragged higher in kind with the 10-year Treasury, spiking by 50 basis points in the wake of Powell's recent rate cut

This is a big problem because higher borrowing costs, paradoxically, contribute further to inflation. This is particularly true in the housing market, where higher mortgage rates feed directly into a higher cost of home ownership.

The average monthly payment to own the average-priced U.S. home is now $2,215. This means it now requires an annual household income of $106,000 to own the average home in America, up from $59,000 just four years ago in 2020

Unsurprisingly, shelter costs were one of the biggest gainers in the September inflation report, spiking by 4.9% year-on-year and running well ahead of headline inflation at 3.3%

Meanwhile, the Fed’s rate cutting campaign - which was supposed to support U.S. economic growth - is also backfiring. Instead of lowering borrowing costs and encouraging more lending, higher long-term rates in the real economy are doing the opposite.

We can see this in the fact that new mortgage applications just fell off a cliff, down 17% in the latest weekly data. Mortgage re-financings fell even harder, down a whopping 26% in last week’s numbers.

Here's the quiet part out loud. With 10-year yields at 4.08%, the losses on "Held to Maturity" securities at America's largest banks are going to have dramatically worse prices, leading to big losses that, thanks to ridiculous accounting rules, they are allowed to hide. So, who's hiding the most? We know there's a direct and inverse link between the value of these roughly $2 trillion in securities and the 10-year Treasury yield because the Fed itself (!) conducted the correlation study, which I cited in an earlier thread.

This photo, taken at last year's Berkshire meeting, explains why Buffett is dumping his entire Bank of America stake, once one of his top 3 biggest all-time investments. If you don't know what this photo means, you could be on the verge of losing everything. A thread: There's a very dangerous secret about these signs. And although the jargon is complex (so that most people won't know what's happened) the reality of what's gone wrong is simple to understand. But, trust me, nobody is going to tell you. Even the comments on this thread will try to mislead you -- watch.

Why is silver soaring? The banks are in trouble. These details are public: Berkshire (BRK) sold 260 million shares of $BAC at $41, for proceeds of $10.6B. But Berkshire still owns more than $30 billion worth of $BAC. But probably not for long: here's what's not public, yet. Berkshire has also sold all of its commercial banks, except Citi, since early 2020. Sold 100% of its 346 million shares in $WFC; Sold 100% of its 150 million shares in $USB; Sold 100% of its 60 million shares in $JPM; Sold 100% of its 12 million shares in $GS.

The IMF is warning on America's runaway debt. They should be warning about the millions of people who are about to die in a futile attempt to maintain America's economic hegemony. America's Empire was modeled after Britain's. And it will collapse in the same way: in violence. A thread: Incredible irony. The IMF is warning about America's debt load and runaway government deficits. If you don't know what that's ironic lemme explain: The IMF was created to build a new system of monetary colonialism, with the U.S. dollar at its center.

What I see in America today is a country on the cusp of a major collapse in our standard of living. You should always ignore the government’s manipulated data and look at real world indicators, like: the price of Ford F-150 and the price of gold. Look at standards that are universal, like life expectancy, infant mortality, and electrical usage per capita. -- Life expectancy is in free fall in the U.S., even as it rebounds around the world, post Covid. In '23 it declined for an unprecedented 2nd year in a row, to 76. Worse, pediatric mortality is also rising, something that's never happened before.

America is in big trouble, no matter who wins this election. Why? Consider these numbers. Direct transfer payments made by the Feds = $3.8 trillion. That’s 48% of all Fed spending. These payments go to 67m Americans. However, only about 70m Americans pay any meaningful amount of income tax and those taxes only raise $2.3 trillion. And that’s not the real problem… America is $35 trillion in debt already. These debts are already so large, there’s no legitimate market-based way to finance the astronomical growth in transfer payments that lies ahead. I’m not talking about a crisis in 2040. I’m talking about a crisis by 2026. And still, that’s not the biggest problem…

America is in big trouble, and no matter who wins this election. Here are some numbers that matter a lot more than the polls. Direct Transfer payments by the Fed gov't = $3.8 trillion, 48% of all gov spending. Income taxes: $2.3 billion. These payments go to 67 million Americans. Simple question: if we're paying more than we're collecting to 67 million people... what are the chances they vote to stop doing that...?

I want to tell you what happened – a stock jumped 150% yesterday. The reason isn’t obvious. This is, without a doubt, the most valuable information anyone will ever give you for free in your life. Which is why you’ll ignore it. Ironically, for maybe 3 or 4 people, this thread will change their lives forever – completely change everything for them financially. And even though that is undeniably true (as you’ll see) virtually everyone who reads this thread will ignore it

St. Paul's Update Part III. I'd promised a "bombshell" disclosure today -- something I believe the school would find so embarrassing it would immediately be forced to fire St Paul's President Clark Wight. But, first, I want to make a few things clear. My children have attended St. Paul's for a combined 17 years. We -- my ex-wife Andrea and my children -- love St. Paul's and the community of the school. And we have given generously to the school for many years.

A year ago @Porter_and_Co published a dire warning about a mega-cap American stock. This was the only mega cap stock we told investors to avoid. And it is no ordinary business. It is America’s most strategically important company. We said it would soon “collapse.” Our January 27th 2023 headline? COMING SOON: THE BOEING COLLAPSE. How did we know? For the last 20 years there hasn’t been a company in America that’s embraced more bad ideas – from financial engineering to ESG – than Boeing.

Last part... continuing my 2013-published The Wages of Obama's Sins my predictions about what Obama's unprecedented government spending, deficits, and monetary manipulation would mean for our country. You might wonder, given the accuracy of my 2013 economic, political, and cultural predictions, what was I recommending investors do...? Buy capital efficient businesses, own some gold, and short Treasury bonds (short TLT over $100). Took a while for that bond short to pay off!

Continuing my 2013-published The Wages of Obama's Sins my predictions about what Obama's unprecedented government spending, deficits, and monetary manipulation would mean for our country. #3. As the government poisons the economy by ruining our money and destroying our credit... it will become more and more difficult for politicians to deliver on any of their promises to the poor.

Continuing my 2013-published The Wages of Obama's Sins my predictions about what Obama's unprecedented government spending, deficits, and monetary manipulation would mean for our country. #2. All other democracies that have faced similar financial problems have all gone down the same path of denying the extent of their financial obligations and turning to "alternative" methods of financing their debts.

On Dec 31, 2013 I published The Wages of Obama's Sins. The letter was a prophecy of how gov spending, financed by deficits and inflation of the money supply, would send our county into an economic collapse. I wrote: Since 2008, when President Obama was elected, the official, net public debt of the U.S. federal government has increased by $5.5 trillion. That's more than double the size of the total net public debt of the U.S. in 2007, the year before Obama was elected ($5.03 trillion).

The reckoning begins on Tuesday.
For decades, America has lived well beyond its means. The ongoing 50-year deluge of money, credit, and soaring government spending began with Nixon’s repudiation of the gold standard on August 9, 1971. America’s experiment with paper money reached its zenith – $7.1 trillion in unfunded government spending – in the insane over-reaction to the flu of 2020.

I am the founder and the largest individual shareholder of NASDAQ listed company MarketWise (MKTW). This thread is about what happens to founders who trust their partners and what really happens when companies go public. I’ve spent my entire career as a financial newsletter publisher berating public companies for withholding material information and misleading investors with their disclosures. Today, I got to watch my own company behave this way.