US dollar derivative that will lower government tax collection in long term with all negative consequences...
Despite all talks around - financial blow up in next up to 3-6 months is inevitable so brace for impact
IMO US is heavily exporting its inflation by leveraging its world reserve currency status as other countries have to buy it's treasuries (petrodollar system legacy). No other country would be able to run 30+% budget deficits and sell long duration government bonds under 5%.
This will break, sooner or later.
When external buyers stop buying treasuries US will have to massively inflate its money supply, taking bondholders and a bunch of other groups to the cleaners. Such events have a lot of collateral damage, which may fit the definition of financial blow up. But I would place us much further away than 6-12 months, likely at 5-10 years. If there is a viable alternative to US treasuries, potentially sooner, but still not in 12 months. My 2c.
Interesting, almost inevitable (I think) and scary in more ways than one; but I agree, this is probably not going to happen tomorrow, nor in 2026.
In the shorter term...
NVIDIA is 8% of the US stock market.
88% of NVIDIA’s revenue comes from enterprise-scale GPUs primarily used for generative AI, and half of that is purchased by only 4 companies, Amazon, Google, Microsoft and Meta.
By the end of 2025, these 4 companies will have spent over $560 billion in capital expenditures on AI in the last two years. Their AI revenues? Around $35 billion.
And then there's Tesla, which is 'worth' more than Ford, GM, VW and Toyota combined.
So, 6 out of the 7 largest companies in the US are in a strange position.
Only Apple, the laggard in AI, seems relatively safe to me.
This is already happening if you know where to look and it isn’t esoteric data. The share of retail in treasury buyers has been increasing for years. If the administration doesn’t reduce spending (it won’t since it can’t) yields will blow out, we had a taste of this a couple times in the past years. Watch 5.5% on the 10. Expect YCC. Possibly buy gold if you think of buying treasuries…
Yes. When I said 5-10 years it wasn't to say that the effects would start then. That was my WAG at the time when normal, mild methods like localized YCC stop working and we should expect significant system-level problems.
For investments, I think now "buying index" will stop working well and buying chosen quality, profitable companies will work much better. My 2c.
> For investments, I think now "buying index" will stop working well and buying chosen quality, profitable companies will work much better. My 2c.
Eh, that's what the index should be comprised of anyway, with some lags.
Or, to put it differently, nothing new: it was always much better, if you knew which companies will exceed expectations. After they do so consistently, they get included in the index eventually.
Gold was also inversely correlated to long term US interest rates, which no longer holds true. So, nations and large institutions already hold the opinion that inflation will be higher (>2%) for longer in the future. Maybe the target should be moved to ~3%, which is defacto the case.
