US Downgrade Seems Irrelevant

Nasdaq Soars as Managers Play Catch Up

After Friday’s market close Moody’s downgraded US Treasury Debt to a negative outlook.

However as of early trading today, it doesn’t really seem like the markets were surprised by this move, we know we certainly are not and have been pounding this very point for months now, that the US government debt is no longer the worlds risk free benchmark.

Further evidence for this claim can be found in this next chart from Bloomberg and posted on X by @Jessefelder:

We do believe this is a very big deal and we also know that the repercussions are not truly understood at this point. We know the worlds economy will have to adjust to this new found risk metric and it may be why we continue to see the BRICs continue to sell off US treasury debt, for instance this is China’s holdings over the last decade:

So as a % of total US Debt this is massive, because right now total US debt is $33.7T and China’s holdings sit around $875Bn for a percentage of total US debt holding of 2.5% where as this same nominal holding back in 2010 would account for 5.8% of the total outstanding.

So while the United States has increased its debt 2.25x, China has reduced its holdings by 2.3x percentage wise.

If China’s demand for US debt was consistent with the 5.8% of the overall total like it was in 2010 then China would be holding onto nearly $2 Trillion dollars of US debt! This loss in demand has to be made up somewhere, and the likely culprit is the Federal Reserve itself.

Back in 2010 the Federal Reserve total US treasuries owned was $777Bn fast forward to today and that figure is now $4.87Tn an increase of 6.26x.

The problem with this is obvious, this is inflation via debasement, the more debt the US treasury issues, the more money (credit) the Federal Reserve has to create to absorb it.

This is the source of our inflation and its nothing more than masking the atrocious US govt spending problem and lack of fiscal responsibility. There should be no wonder as to why we see massive concentrations of wealth and income disparity, and absolutely no secret as to why inflation is out of control, THIS IS YOUR SOURCE, plain and simple.

What do we mean by concentration of wealth? Well this next chart proves the concentration of wealth theme:

We also know that cash heavy US tech giants can borrow at rates less than the US Govt and its no surprise that just 10 stocks account for 86% of the entire SP500 Index performance.

This is the natural projection given the money debasement and concentration factors that are also being driven by alpha chasing AI algorithms that are mechanical in nature and will buy momentum and strength and sell everything else. This is why ETFs, mutual funds, static long only investments will underperform the best active managers that deploy alpha momentum basket creations which target individual equities, but also hedge out risk via the sale of indexes, or options. The playing field has been laid out and you can toss diversification out the window when it comes to target investing because there is only one game, either you are getting all the interest and capital or you are not. It seems so obvious the binary nature of financial markets these days. The debt and balance sheet games have distorted the natural effects of supply and demand because a very few large players control all the movement.