12:19
Hello everyone! With you, Graham. And right now, something really strange is happening with America's national debt. Starting on September 9th, the United States is starting Operation Borrow a Lot of Money, where we borrow even more to buy back our own debt because no one else wants it. Okay, I'm being a little dramatic for the sake of the introduction, but the point remains the same. In less than a week, we will officially double the amount of new borrowing just to repay loans made to the US government. And many are now starting to worry. What happens when the solution to the problem of too much debt becomes even more debt? That's why we need to discuss what exactly is happening, what it means for the future of our economy, and,
most importantly, why Ray Dalio considers this the point of no return. After all, if there's one thing worth understanding, it's that America's problem may ultimately become our problem. Although before we start, I hate to ask this, but please like and subscribe. According to all my research, this helps the channel immensely. And if you find the time to do it, I'm at my computer right now. I will do my best to read and respond to as many of your comments as possible. So thank you very much. And also a big thank you to SoFi for sponsoring this video, but more on that later. So, in terms of what's going to happen and why some economists are sounding the alarm, we need to talk about Treasury bond buybacks. While this sounds like the equivalent of the
government paying off one credit card with another, that's actually what they're essentially doing. But there is a certain strategy here. At a basic level, the United States raises funds by issuing what are called Treasury bonds. This allows almost anyone to invest in the U.S. government and receive a guaranteed fixed interest rate, typically between 3 and 5% per year. However, these debts must be repaid over time with interest after a certain period of time. So, when the debt repayment deadline arrives, the government says, "No problem." "We'll just sell new debt to new people to pay off the old ones." "Problem solved." But today there is a small problem. Inflation is rising, and buyers of these Treasury bonds are starting
to say, "I'm not going to lend at 4% anymore because inflation is rising." "So if you want me to buy your debt, I need to get 5 %." So, the government begins to pay off debts to holders of long-term bonds at higher rates, attracting funds from holders of short-term bonds at lower interest rates. It's like paying off a mortgage with a credit card with a grace period. This is not the best option, it only gives a short reprieve, but it is quite risky. Which brings us to the next problem: interest rates continue to rise. The facts are that there are not enough new buyers to absorb all the old debts. Therefore, the United States has to make a choice. Should we offer a higher interest rate to encourage people to buy these debts, or should we buy them out
ourselves? I think you understand what I'm getting at. Most recently, they announced that they would be redeeming their debt at twice the rate they had been previously. The problem is that it's like trying to tape over the "check engine" light in a car without addressing the root cause: inflation is rising, our national debt is spiraling out of control, fewer people want to buy U.S. Treasury bonds, and instead of solving the problem, they're borrowing money to artificially lower interest rates. And the market is already calling their bluff. That's why, as for what comes next, and why the market is starting to price in the first rate hike since 2023, the new Federal Reserve Chairman, Kevin Warsh, has issued a very clear warning. And it all ties into a
five-point plan. Every year, the Federal Reserve meets in Jackson Hole, Wyoming, to announce their outlook on the economy, inflation, interest rates, and where they think the market will go next year. And last week, our new Fed Chairman Kevin Warsh outlined five key points that he wanted to make clear. The first of which is number one: The Federal Reserve will remain silent. Now, unlike Jerome Powell, who believed that the Fed should signal its moves in advance to give markets enough time to prepare, Kevin Warsh has chosen the approach of saying nothing signaling nothing, and pointing to absolutely nothing. In other words, he says that the Fed used to look at markets, which looked back at the Fed, which looked back at markets-it's
like a hall of mirrors. So this time he says we are on our own. Which brings us to point number two- market monitoring. Kevin Warsh said that by remaining silent, the markets would decide what to do and the Federal Reserve would be able to act separately from that, so I also emphasized point three-lowering inflation. It seems to me that this is all turning into a big joke because everyone is saying it, but inflation just keeps rising. Except this time, as Kevin Warsh said, "No, this time we're really serious." Or, in his words: "We need to be confident that core inflation is moving clearly and at a sufficient pace towards our target. Otherwise, we still have work to do." Which in Fed parlance means raising interest rates at a time when, as
point four says, our economy is fine. Again, from their perspective, the economy is able to withstand higher interest rates because the unemployment rate is only around 4.1%. Those who want to find a job usually find one. And while the housing market is slowing, it's not necessarily crashing. Or, as he puts it, he finds it difficult to call overall financial conditions restrictive in the sense that companies can still borrow and rates are not high enough to start holding back spending. And finally, we have point five. He believes that artificial intelligence can change everything. In fact, Kevin Warsh called it a turning point in history and even a new factor of production. But the question remains: when will this happen? What if
something breaks in our economy before we have time to prepare? Here's why, given what happens next month, why interest rates are rising again, and what impact a new government bailout will have on stocks, real estate, and the entire economy. This is what you came for, because the next few months could get pretty expensive. Before we get to that, though, I want to make it clear that wealth creation is not just about maximizing profits. It is also about diversification and preparing for where the financial system takes us next For example, cryptocurrency has become extremely difficult to ignore recently as tokenization increases and more assets move to digital networks. Of course, this doesn't mean it's right for everyone, but
having a comfortable and safe place to study and research can make a big difference. And this is where our sponsor SoFi comes to the rescue. What sets them apart is that they are the first nationally licensed bank where you can buy, sell, and store cryptocurrency in one simple app. This means you get all the bank's guarantees on a federally regulated platform, which is very important. Additionally, they also allow you to buy and sell cryptocurrency in the same SoFi app as your other finances. This means you can manage your cryptocurrency alongside your SoFi checking, savings, and investment accounts without having to switch between platforms.
Plus, if you don't know where to start, their in- app tips will help you learn along the way. So you can better understand what exactly you are doing before making any decisions. Of course, crypto is inherently risky and you should make sure it's appropriate for your financial situation, but if you're ready to get started and explore crypto with SoFi, all you need to do is go to sofi.com/graham or click the link in the description to start your crypto journey today. And from today until September 10th, you can earn up to $1,000 in cryptocurrency in the coin of your choice. All the details are below in the description. Thank you very much, and now let's get back to the video. Okay, so in terms of what's most likely
to happen, what the data suggests we're most likely to see next year, and ultimately what you can do about it, there's another topic worth discussing. And this is the stock market. Look, while rising interest rates usually cause the stock market to fall, the housing market to freeze, and the economy to slow, so far things have generally held up relatively well. For example, the S&P 500 has Housing prices are, aside from the recent support for the Japanese yen combined with rising oil prices and another escalation in relations in the Middle East, the situation remains fairly stable.
However, it is worth noting that going forward, we should expect much more volatility over the next 30 days. And according to Ryan Detrick on Twitter, or X, whatever you call it, this is something we should all be prepared for. According to his research, September is typically the worst month of the year for the stock market, especially during midterm elections. And, surprisingly, September is positive for stocks only 45% of the time, while the average loss is 0.6%. Why? Well, believe it or not, there 's even a special term for this, known as the " September effect." While this does not guarantee a market crash, and in reality anything can happen, September is generally a month when investors raise additional capital,
lock in profits, and sell loss-making assets for tax optimization, which usually negatively impacts markets. In addition, we usually see lower trading volumes in September as investors go on vacation at the end of the summer. Putting it all together, the data shows that September is typically a pretty weak month, and that's perfectly normal. Fortunately, there is good news: even if we see weakness, according to the data, we will then enter one of the most bullish quarters of the entire 4- year cycle, when the election results will increase confidence in the market and prices will rise rapidly. Furthermore, when September shows positive returns, they are usually quite high, and the highest September returns
often fall around midterm elections. But, essentially, all this means is that investors just really don't like uncertainty right now. We have rising interest rates that remain in question. We have an endless conflict in the Middle East. Oil prices continue to rise, and the market is starting to factor in the likelihood of Democrats winning the House and Senate in just 60 days. Of course, a lot can change by then, but overall, you should expect more volatility and potential downside until the market takes into account unexpected factors. As for what will happen on September 16th if interest rates rise and, most importantly, what to do about it, here's what you need to know. As I said, the market is now pricing in a more than
60% probability that the Federal Reserve will raise rates by 25 basis points on September 16, in addition to buying back its own debt just a week before. In my opinion, most of this is already priced in as Treasury bond rates continue to rise rapidly, but there is a possibility that rates will become so high on their own that the Fed will not have to lower them because the market has done it for them. So that possibility always exists. In fact, even when the Treasury announced plans to buy back its own debt, these interest rates remained almost unchanged. But remember, there is also the possibility that they will raise rates simply as a signal of their determination to fight inflation. And if that happens, the data suggests that the economy
will likely be able to withstand it. Although the stock market is unlikely to be thrilled. But really, in my opinion, the main event to watch is whether the year Treasury yield exceeds 5%. The last time this happened was in 2007, just before the start of the Great Financial Crisis. And this is largely considered the financial barrier between the state of "everything is fine" and "oh, we have big problems." So, to be honest, they're probably doing everything they can to keep the situation under control before something breaks. So, in terms of my own thoughts and how you can prepare, here's what I plan to do going forward. Look, this probably won't surprise anyone anymore, but I've been following Ryan Detrick on Twitter for over a year now. And
his data is the most convincing I've ever seen. He often points out that even in good market years when we see 20% gains, there are still significant declines, sometimes as much as 3.5% in a day, or even this: Since 1950, the S&P 500 has been higher the year after closing on August 31 in 18 of the 19 intervening years, with no subsequent year falling 20% or more. All of this essentially means that in the short term, I wouldn't be surprised if the market drops by 5-12% due to general uncertainty. But I also wouldn't be surprised if we continue to grow gradually, especially after the election is over. If the markets like what they see, I think we can expect a calm development, perhaps with some slight fluctuations, but nothing
extreme. Although remember that anything can actually happen, so at this stage it's worth being prepared for surprises. That's why I plan to do exactly that in the future. Here's a somewhat unusual answer for each of you. I'm going to surprise you a little now. My current asset allocation is currently approximately 55% stocks, 20% tax-exempt municipal bonds, 10% in a Bitcoin crypto ETF, and the rest in real estate and other investments. If the market falls, I buy more, but if it continues to rise, I'm quite happy with how things are going with my current portfolio and will leave everything as is because it's pretty balanced. If something falls, I buy again, and if the market continues to grow, great. I'm still invested, I'm still
making money. I'm definitely not selling anything, but I'm not buying at crazy levels either. But of course, if the market crashes, I'm in the game. So, having said that, thank you very much for watching. Don't forget to like, subscribe, and remember: if you want to see additional videos from me every week, as well as get early access to such videos and bonus content that I don't publish for everyone, join the channel sponsors. You'll also get priority responses to comments, as they'll appear as notifications on my phone, and I respond to every one of them. So, if this sounds interesting, join us. Thank you very much and see you next time
