Market Pulse Premium: Let's Find Trillions
A locally maximally important newsletter on where the stock market is headed for the rest of the year.
As always, let’s start by reviewing my prediction last week for where the S&P 500 is headed.
Below is the chart of the S&P 500 at the end of last week, annotated with my prediction arrows (the red arrow is the new prediction, the orange arrow is from the week before).
This is how the S&P 500 looks today.
It’s gone up a lot higher than I thought it would, back to the top Bollinger Band.
I think a big part of this upwards climb was driven by the Federal Reserve’s surprise massive cut to Quantitative Tightening in the May FOMC meeting last week.
Although a large reduction of the pace of QT doesn’t make headlines as much as changes to interest rates, this was nonetheless a significant easing of monetary policy.
On wards to next week. I’ll share where I think the S&P 500 at the bottom of this newsletter issue.
In this issue I want to talk about US government debt issuance.
As I alluded to in the prior newsletter issue, “Market Pulse: Buffett and Druckenmiller Speak”, I think US government debt issuance is the most important issue facing the market in the next couple years.
The US Treasury has to dump a colossal amount of debt on the market at historically very high interest rates.
Just this year alone, the US Treasury needs to issue $2 trillion in new debt.
As an aside, this is the Treasury’s quarterly debt issuance plan for this year:
Q1: $816 billion in extra debt issued
Q2: $243 billion in extra debt issued
Q3: $847 billion in expected extra debt issued
Q4: $100 billion in expected extra debt issued
Why is debt issuance so low in Q4? I don’t think it’s a coincidence that the Presidential Election takes place squarely in the middle of Q4 on November 5th.
If interest rates don’t fall, then the US government’s annual interest burden will rise from $1 trillion this year to $1.7 trillion next year!
The big open secret on Capitol Hill and on Wall Street is that this debt situation is going to become untenable.
Warren Buffett is talking about it, Stanley Druckenmiller is talking about it, Jamie Dimon is talking about it. And many more.
👉 The Big Story that I’m talking about here is that the trillions and trillions of dollars of US government debt that is going to be unleashed on markets in the next few years is going to significantly move markets in a bad way. Policymakers will try to get ahead of this by finding new and creative ways to shore up treasury demand. This will move markets in other ways.
These moves are unavoidable because the scale of the problem is on the order of multiple trillions of dollars. This issue starts a conversation on how one should think about and prepare to navigate this US government debt crisis.