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A government-backed plan is now funneling trillions of dollars into a very concentrated set of companies. According to United States Secretary of Energy Chris Wright, this is nothing less than “Manhattan Project 2”…
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But Jeff and Porter say it also presents a once-in-a-generation opportunity… if you know where to look.
For all the details, be sure to tune in to their broadcast. You can RSVP right here.
One by one, the nation’s most prominent chief executives are sounding the alarm on America’s finances.
Tesla chief Elon Musk took to social media to blast the proposed Republican tax and spending bill – dubbed The One Big Beautiful Bill – currently going through Congress. He called it “pork-filled” and a “disgusting abomination.”
And JPMorgan Chase CEO Jamie Dimon warned that regulators “are going to panic” once cracks appear in the bond market.
Federal debt levels currently stand at $36 trillion. That’s up $13 trillion in just the past five years.
If passed, the tax and spending bill that Musk slammed could add another $3.8 trillion to federal debt levels.
Yet even without the bill, the U.S. is projected to run annual deficits ranging from $1.9 trillion to $2.7 trillion over the next decade.
Government spending is on an unsustainable path. And it has grown during good times for the economy when deficits are supposed to be small.
So let’s look at a sign that investors are finally starting to care… and why CEOs are growing anxious…
Protection Against Default
Federal spending deficits and growing debt levels are hardly new. The last time the U.S. ran a budget surplus was during the Clinton administration 27 years ago.
But recently, investors are showing growing concern about the debt and deficit.
While the stock market seems utterly complacent, other major markets are starting to deteriorate.
That includes the U.S. dollar. An index tracking the dollar against a basket of other currencies is sitting at multiyear lows. I showed you why that matters here.
Now another market is flagging debt and deficit spending concerns. It involves something called a credit default swap (CDS).
In essence, a CDS is insurance that investors can purchase to protect against a bond default. Just like other kinds of insurance, you pay a premium in exchange for protection.
The CDS “spread” is how you measure the cost of buying insurance. When the spread (or premium) is rising, that implies a greater risk of default.
CDS spreads on U.S. government debt have jumped to some of the highest levels since 2008’s financial crisis (chart below).
U.S. CDS spreads are currently trading at levels similar to Greece and Italy.
It’s the latest evidence that instability could be heading for U.S. Treasury bonds. If that happens, investors and consumers alike will feel the pain. (Remember Dimon’s comment above.)
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The Impact of Treasury Market Turmoil
Higher long-term interest rates could be on the way as investors become more concerned about the U.S.’s finances.
The 30-year Treasury yield is close to breaking above the 5% level. And there’s another key level to watch in the iShares 20+ Year Treasury Bond ETF (TLT), which tracks longer-term Treasury bond prices.
Here’s the chart:
TLT is trading near price support around the $83 area (shaded box). If that level gives way, TLT will be at its lowest level in over a decade.
A breakdown would likely correspond to the 30-year Treasury yield moving over the 5% level. That could be an important breaking point for investors.
Rising Treasury yields can harm many areas of the market and economy. Bonds are a cornerstone of retirement portfolios. But bond prices fall as yields rise. Rising rates can also pressure stock market valuations.
There’s also the impact on the economy. The yield on Treasurys drives interest rates on everything from home mortgages to auto loans and credit cards.
That’s how the poor state of public finances can spill over to investor portfolios and the broader economy.
As Dimon put it, “It’s a matter of time before the market loses faith.”
So while the market rises with no apparent end in sight, don’t get caught up in the hype. Some serious cracks are forming that could mean trouble ahead…
Regards,
Larry Benedict
Editor, Trading With Larry Benedict
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