Dear Reader,
Happy Tuesday.
A couple of stories have broken recently I think are very important to alert you to.
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We have this split-screen economy going on.
In some areas we see a lot of strength - the AI trade, for one, although that’s weakened recently.
We’re seeing a lot of strength in America First projects, which we talked a lot about last week.
We’re seeing a lot of investment in rare earth companies, ship-building, data center buildouts, semiconductors, drug centers…
Trillions of dollars are flooding into these areas.
So on one side of the screen things are going pretty well.
But on the other side, we’re seeing some alarm bells which really speak to weakness below the surface.
So I have one eye on risk - that’s just the way I’m programmed.
And I have some numbers for you here:
This year, 717 U.S. large companies have gone bankrupt.
The most in 15 years.
It also marks the third annual increase and a 93% jump since 2022.
In November alone, 62 large firms filed for bankruptcy.
October saw 68 and September 66.
U.S. bankruptcies are now averaging 30% above the 2011 to 2024 average.
Corporate bankruptcies are growing, which is concerning.
But in a way, even more concerning, the Fed just announced when it made its last rate cut that they’d start buying treasuries again.
There’s $40 billion in spending bills this month, which is A LOT.
And we have the Fed going into the market and absorbing this government debt.
And some people on Wall Street are calling it - and this is a really disturbing phrase - “the full nationalization of the U.S. bond market.”
This really shook me.
So we have all these big companies going bankrupt, and then we have the Fed absorbing the supply in the bond market. They’re not calling it quantitative easing, but it’s quantitative easing.
It looks like the Fed is trying to take pressure off of banks - absorbing bonds so that banks that would own bonds have more capital on their balance sheets to lend to companies.
I’m trying to process here what this really means.
When you think about it this way, politicians in Washington, D.C. can’t do balanced budgets anymore - both sides.
It used to be that the Republican Party was the party of fiscal discipline. That’s nonsense.
The Democratic Party was the spend party.
Both parties are spend parties - there’s enough blame to go around. Each one spends more than the other. It’s just unbelievable, really.
And when you can’t get your stuff together, when you can’t manage or tighten your budget, you say, “I don’t want the responsibility for that. We can’t stop spending.”
So you don’t stop.
You run massive deficits - $2 trillion a year now. You give up your responsibility, run big deficits, and make it the Fed’s problem.
A lot of cranks on the far left and far right say the Fed should be taken over by the President. They have no idea what they’re talking about.
Because it’s really the politician’s fault the Fed is so active in the market.
Because these politicians can’t balance a budget, it puts the pressure on the Fed to go out and just buy these bonds.
There’s too much debt for the buyers we have.
Ray Dalio calls it a supply/demand problem.
We have too much supply for the level of demand.
If you look at the actual dynamics of this, when we have too much supply and not enough demand that pushes prices down, which in the bond market means interest rates go up.
Too many bonds, not enough buyers.
Which means interest rates should be going higher. But we have a situation here with this “nationalization of the bond market” where the Fed is going in and buying these bonds so interest rates don’t go higher because of these bankruptcies we’ve been seeing.
This is a very tricky situation.
It’s a balancing act that the Fed and us as citizens find ourselves in.
It’s really unbelievable.
So anyway, I just wanted to do a check-in with you to let you understand that as good as a lot of things are in this economy, and as good as growth looks poised to be in 2026…
And, by the way, I reserve the right to change my opinion on anything at any given time, given new facts, obviously; you gotta play the ball where it is, not where you want it to be.
And it looks like 2026 will show strong growth.
But the question becomes, if we’re talking about 2.5%, 3% growth, what price are we paying for that growth?
It’s like credit card debt at this point.
It’s short-term, high interest debt which is going to get us into serious trouble at some point.
That’s all I have for you today. I’ll speak to you tomorrow.
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