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Daily Missive

The Surging Cost of Money

Loading ...Addison Wiggin

January 13, 2025 • 8 minute, 5 second read


debtfiscal policyInflationInterest Ratesmonetary policyspending

The Surging Cost of Money

“It’s common-sense thinking that when the path is uncertain, you get a little slower. It’s not unlike driving on a foggy night or walking around in a dark room full of furniture.”

–Jerome Powell, hinting that the Federal Reserve will keep interest rates high


 

January 13, 2025— “You’ve apparently assumed long rates have fallen whenever the #$*&@#! Fed starts a rate lowering cycle,” Thomas writes.

Later he’d admit that he “tends to be a little snarky when responding to things that frustrate” him.

We’ve cleaned up his email.

And… we’ve done what he suggested.

We checked the charts and are once again ready to “bloviate” about rate premia. “Long rates consistently rise … yes, rise… at the beginning of rate cutting cycles.”

A Franklin Templeton white paper from late 2024 anticipated Thomas’ assertion. Treasury returns have been positive after rate cuts begin each time going back to 1972.

Here’s the rub. This time around, Treasuries have been negative with rising rates, so the real question, the original one we posed, is: Are bond yields rising despite the Fed’s best efforts? With additional cause for alarm from government spending out of control and without any near term guardrails in place?

Friday’s jobs report didn’t help clear the picture at all.

The first printing of the report, before any statistical magic somewhere down the road, the U.S. economy added 256,000 jobs in December.

Unemployment, which had been ticking higher, dropped to 4.1%.

We checked in with jobs guru Andrew Zatlin, and he’d already forecast a strong jobs number the day before.

The stock market reacted as you might expect. It sold off. The conventional thinking being… strong jobs = strong economy; strong economy = higher rates for longer.

For the past five days, including today’s session, the S&P 500 – the broadest measure of stock market strength – has sold off nearly 3%. The index has finished the week negative 4 of the last 5 weeks.

We’re keeping a close eye on the indexes because, as the Franklin Templeton report also reveals, market volatility and weakness are hallmarks of an adjustment to a new rate cutting cycle.

Market volatility and weakness are not what the new year needs. The year 2024 saw the S&P 500 set 62 consecutive record highs. The market begins the new year with a challenge: it has never finished consecutive years posting 24% or better gains. With the tailwinds behind us since the bear market spooked Wall Street in 2022, there are more than a few itchy trigger fingers managing large sums of pension, IRA and mutual funds in New York.

We return to our correspondent, Thomas:

Maybe this is the first time we’re going to see long rates continue to climb in the face of a seriously weakening economy … today’s bartenders and waitresses and CNA headcount increase notwithstanding.

Understand, I certainly think they will in response to the next all out capitulation to the inflate or die imperative.  I’m a long term uber bear on bonds.  I just think we get one helluva bust first that cuts into people’s portfolios, dampens and maybe suffocates the animal spirits, and leaves a lot of people out of work, including the aforementioned waitresses and bartenders.

I acknowledge that the FED may try to hold rates higher for longer, and I certainly don’t rule out another surge higher in the indices after this downdip in markets.  That would allow more delay, but my bet is the day of reckoning … to lean on a catchy phrase … is coming sometime this year.

And I simply can’t imagine the Fed and, far more importantly, the members of Congress sitting on their hands while things go really south.  The proles and the slipping lower and middle classes are already in a world of hurt.  The Powers That Be would be hearing from them … and loudly.  And what’s a few more trillion in debt, right?

But hey, we’ll see.

The last thing I would say, and I guess it’s an obvious must-do based on my previous comments, is to look at what happened to long rates AFTER the initial incongruous spikes as rates were cut following the dot-com dust-up, the great monetary meltdown of 2007-2009, and other less notable occurrences.

There’s a pattern there, but it may be different this time.  Lord knows everything is so f’d up, I wouldn’t be that surprised by anything at this point.

Either way, few individual investors pay as much attention to the bond markets as is probably wise.

“If strategists at Bank of America are correct,” begins a summary in Bloomberg this morning, “the US bond market is now in the sixth year of the third great bear market since 1790.”

Few [institutional]  investors would beg to differ after a week in which US Treasury yields soared, propelling the rate on the 10-year note to the brink of the 5% barrier rarely seen since the financial crisis of 2008.

Turn Your Images On

Other nations are experiencing a similar exodus from debt. The yield on 30-year UK gilts last week touched the highest since 1998, forcing the new Labour government to start seeking money-saving measures, and UK assets are weak again today.

Investors are charging governments around the globe a higher premium t0 borrow their money. Those rates are going to stay high as long as there is volatility in the stock market and a lack of confidence in public policy.

We’re still convinced the dismal fiscal picture here in the United States is playing a role. A picture that, come next week with the return of Donald Trump to the Oval Office, isn’t likely to fundamentally change.

For more details on what a mess the federal government has gotten into in 2024 alone, we turn now to James Hickman over at Schiff Sovereign. ~ Enjoy, Addison

Breaking Down the Fiscal Train-Wreck of 2024

James Hickman, Schiff Sovereign

In the calendar year of 2024, the government racked up a $1.74 trillion deficit.

But the national debt actually increased by an even higher $2.23 trillion from January 1, 2024 through December 31, 2024.

That’s a lot of money spent for a Congress that never even passed a budget!

The entire year, Congress relied on continuing resolutions to fund government operations. And most of these hinged around political battles that almost caused government shutdowns each time.

And both of these factors—the actual numbers and the dysfunction— threaten the status of the dollar as the global reserve currency.

The actual spending included things like $12 million for a Las Vegas Pickleball Complex, and $15 million the nearly bankrupt Pension Benefit Guaranty Corporation spent on furniture for largely empty offices that federal employees refuse to report to.

But these, though ridiculous, are sadly miniscule expenditures to the US government.

It spent a total of $10 BILLION maintaining, leasing, and furnishing those almost entirely empty federal office buildings.

$6 billion disappeared in Ukraine, adding to the $65 billion total since 2022.

$88 BILLION went to brand new Navy vessels that quickly developed broken hulls, grinding transmissions, leaks, broken mission modules, and failed communications encryption.

The federal government also spent $236 BILLION making improper payments to the wrong people through Medicaid, unemployment insurance, and tax credits.

A billion here, 200 billion there, and pretty soon you’re talking about real money.

And again, the actual debt and deficit numbers themselves are bad enough to risk the status of the dollar. But the embarrassing failures and absurd priorities erode another important aspect of the dollar’s status: trust and confidence.

For example, a 2024 Inspector General report found that at LEAST $293 million worth of foreign aid was given to the Taliban, because there were no efforts to ensure Afghanistan-based NGOs (non-governmental organizations) received the money as intended.

This is sadly a drop in the bucket. But the fact that the US is literally handing its sworn enemy cash— in addition to the guns and equipment it left behind in Afghanistan— is a shameful embarrassment.

As if the government wasn’t $36 trillion in debt.

A serious government would cut everywhere it could. Instead:

  • A $2 million grant from Health and Human Services (HHS) funded a study on kids looking at Facebook ads about food.
  • HHS also spent $419,470 to find out that lonely rats are more likely than happy rats to do cocaine.
  • The US government took on more debt to spend $3 Million for ‘Girl-Centered Climate Action’ in Brazil.
  • Taxpayers paid $873,584 to fund movies in Jordan.
  • $2.1 million was spent on border security. Unfortunately for US taxpayers, it was to secure Paraguay’s border.

I mean sure, every deficit dollar brings America closer to losing the global reserve currency, but at least the Bearded Ladies Cabaret got a $10,000 grant for their climate change focused ice skating show.

The incoming administration has made it a priority to turn this around, eliminate waste, and strengthen the dollar’s position.

They certainly seem to be serious, and have a great team on their side.

And with so many idiotic expenditures, it’s pretty obvious where to start. Just stop spending on stupid things, and America will be heading in the right direction.

But the scale and scope of that idiocy is staggering. If they don’t manage to turn it around, you will be happy you had a Plan B. ~ James Hickman,  Schiff Sovereign

Regards,


Addison Wiggin,
Grey Swan

P.S.  Concerned about a debt crisis like we are? Looking to diversify out of the dollar and even transact outside fiat currencies? The timing really couldn’t be better…

We’re finalizing the details for a deal with Glint to provide Grey Swan Investment Fraternity members with access to their accounts and card network. Details and our strategy for using the service are forthcoming…

As always, if you’d like to participate in our ongoing conversation, by all means, send your comments on the Grey Swan here: addison@greyswanfraternity.com.


Gold’s $4,000 Moment

October 8, 2025 • Addison Wiggin

There’s something about big, round numbers that draws investors like moths to a flame.

In the stock market, every 1,000 points in the Dow or 100 points in the S&P 500 tends to act like a magnet.

Now, after consolidating for five months, gold has broken higher to $4,000.

Gold’s $4,000 Moment
The 45% Club

October 8, 2025 • Addison Wiggin

AI stocks are running hot. They’re not the only game in town… but they’re about half of it.

JPMorgan just reviewed all of the 500 companies in the S&P 500. A full 41 of them are AI-related. While that’s less than 10% of the index by total, it is over 45% of the index by market cap.

The 45% Club
George Gilder: Morgan Stanley’s Memory Problem

October 7, 2025 • Addison Wiggin

Overspending during periods of rising ASPs is self-destructive. For most products, today’s ASP increases result less from natural demand pull and more from supplier-enforced discipline. If memory makers treat them as justification for a capex binge, they will repeat past mistakes and trigger another collapse.

The $50 billion bull case for WFE in 2026 rests on a faulty assumption. Lam and AMAT may benefit from selective investments, but the cycle-defining upturn Morgan Stanley describes is unlikely.

Investors should temper expectations. If history repeats — and memory markets have a way of doing so — the companies that preserve pricing power will outperform, while equipment suppliers may find that the promised order boom never fully materializes.

George Gilder: Morgan Stanley’s Memory Problem
Europe’s Increasing Irrelevancy

October 7, 2025 • Addison Wiggin

Europe’s GDP has flatlined over the past 15 years, against a doubling in GDP for the U.S. and even bigger GDP gains in China.

While the U.S. leads the world in AI spending, and China leads in technology like drones, what does Europe lead the world in? Regulation.

They spend more time penalizing U.S. tech firms for regulatory violations than encouraging their own tech ecosystem.

Europe’s Increasing Irrelevancy