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In the last few years central banks have been tapering their holdings of assets relative to their GDP. However, debt issuance has not been dropping; in fact, it has been doing the complete opposite – debt has been growing. The higher yields have attracted non-central bank buyers, and the growing GDP has helped make the stats look better. The debt problem, however, is not going away, and I believe central banks will once again become the buyers of last resort to kick the can further down the road.

Last night I watched a Live Aid documentary with all the main players interviewed. It was all about debt relief to the poorest African countries that had got themselves into a mess with interest eating away their ability to grow and thrive. It was a good reminder of the ills of excessive borrowing and poor fiscal discipline.

Anyone who has followed world affairs for a few decades will know that there is always a debt crisis knocking on the door somewhere in the world. They call it a sovereign debt crisis. With Trump calling the shots, I can see the Fed’s balance sheet growing well past its previous record highs to GDP. They will do all they can to keep the lid on interest rates, which I believe will continue to keep inflation above acceptable levels, thus reinforcing the need to hold gold to protect against dollar purchasing power weakening.

The Japanese are real cowboys when it comes to debt.

Hat tip to the Macro Compass: the only country displaying monetary tightening is Brazil. Black represents neutral, and green represents loose monetary policy.

Over the weekend, reading a few newspapers, I couldn’t get over how quickly the geopolitical temperature had risen. China’s attitude towards Taiwan has been openly communicated for a long time. There are no surprises on this front. What caught me a little off guard is how China is pushing the US into a corner that will be its moment of truth.

As I write this, Bitcoin is down 5% on the day. We are not far from the level where the entire MicroStrategy purchase of $48.3 billion of Bitcoin at an average cost of $74,433. When the world’s biggest buyer of Bitcoin stops buying it, it is going to cause headaches. If prices continue to drop, then the world’s biggest buyer will become the world’s biggest seller, and then we will have migraines.

With all the hype about crypto as Trump entered his presidency, it hasn’t been as kind as it looked from the start. I recall being highly critical of Trump launching his and Melania’s meme coins on the weekend of his inauguration.

The capex spending of the big names in the AI race has largely been responsible for keeping the economy growing like it has been. I still think there is a hangover effect to come as the spending pulls back through a lack of funding available. It could have the exact effect on the economy and the market but in reverse. This remains a big risk to a market that is priced for perpetual above-average growth.

Silver futures had a MASSIVE 6-sigma day. I wrote some time ago that Silver was going to play catch-up. I will look at it more closely in the next letter.

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