There are so many signs of distress in our economy, it is hard to know where to start. There are many issues that are pretty well known, like bond yields spiking- which is screaming that there is too much supply and not enough demand. This comes at a time when it is crucial to have buyers.

It appears that the Fed and Treasury are the buyers of last resort. The US Treasury has been issuing T Bills (short-term paper) and buying 30- year bonds to keep those rates from skyrocketing. What is not so obvious, unless you look closely which most people don’t have the time to do, is that even though the treasury is buying back THREE TIMES their usual amount ($6 BILLION PER ACTION), there were SEVEN TIMES the amount of people wanting to dump their 30- year holdings. While this may not mean too much to many it shows that those knowledgeable are losing confidence. When you have a fiat currency and a debt-based system as we have- confidence is all that is backing up your “promises to repay.” While I have little doubt the promises to pay back your principal will probably be kept by the Feds, I expect what you can buy with what you receive will be VERY disappointing to say the least. I also have to wonder if they are getting the full-face amount or are they getting current value- which could be up to 50% LOWER for the 30 years they are replacing.

To add fuel to the fire I was watching a show by Daniela Cambone- a fairly well-known commentator with a bias towards precious metals. She had a guest named Mitch Vexler, an attorney who is headed to the supreme court to argue that there is a $93 TRILLION bond fraud. In the interview, he lays out all of his research to prove the point. The main thesis is this. The amount of bonds issued FAR exceeds the ability to ever pay them off. He is focusing mainly on city, school district, and state debts. I imagine that the federal debt is in even worse shape, but the difference is that the government has the Fed to conjure up cash from nowhere allowing them to default by devaluing the dollar rather than not paying at all.

Cracks are also starting to show up in the AI space. This is important because all that has been providing any growth lately is in this space. I have written many times about how I believe this will be dotcom bust 2.0 but likely FAR worse.

I have written about Oracle’s massive debts and demands for bonds in Wisconsin that adds far more cost to their buildout. This was done because their ballooning debt got downgraded.

Keep in mind that most of the big AI names are counting on all of their counterparties to live up to their “promises to repay.” Rising interest rates along with a lack of energy could prove fatal to these plans.

While some of these companies are private, they really do not have to report on much. When they attempt to go public there is information that gets disclosed. Many people get caught up in hype and just buy without any research.

Of course, the promoters love that. A case in point right now is the Anthropic IPO that is getting a lot of buzz. Or at least it was until it got postponed. In the SEC filing it showed that they have $20 BILLION in cash at the end of 2025, $4.6 Billion in earnings. So far, so good. They plan to spend $518 BILLION in the next year, LOST $42 BILLION in 2025 (lost $2.00 for every $1.00 in sales). With this dismal information they expect the biggest IPO of all time. Call me a skeptic. This lays bare the actual state of many of these companies that are counting on massive inflows of capital to survive. Keep in mind that this is one of many companies using circular financing to give the illusion of massive demand where it may or may not actually exist. This is particularly true if China continues to underprice.

Diesel prices are also causing major problems. Just in the last month 16 US trucking companies have filed for bankruptcy. Less shipping capacity leads to higher delivery costs even if diesel was not spiking higher. Basically, this means that everything we buy will be more expensive to produce and deliver.

Getting back to rising interest rates, it appears that since rates are rising there is far more pressure being put on real estate- and in particular, Commercial Real Estate. There have been many games played to keep the crisis from being acknowledged like extending the loan so a default would not have to be recognized.

The rising rates appear to be making the banks a LOT less flexible. Of course, the plummeting prices of the collateral (the buildings) is another major problem.

Bloomberg writes about the Aon Center in Chicago. This is an 83- story building that sold for $712 million in 2015, was refinanced with $536 million of debt packaged into commercial mortgage- backed securities. The latest appraisal came in at $195 million. Not only is that a 73% LOSS since 2015 but that $536 Million owed is on someone’s book as an asset. In the past banks were more than happy to avoid the default and extend and pretend. When this debt came due in July the bank said no to a 3-year extension.

The banks likely do not see the prices recovering and have better prospects to lend to. Also keep in mind that many banks, pensions, life insurers, etc. are on the losing end of the rising rates. When there was virtually no interest to be made, they loaded up on long-term bonds with low yields. As rates rise, if they sell those bonds now, they could take a major hit. Just today I looked at a 20-year Treasury bond issued in 2020 with a coupon of 1.125%. If the initial purchase were $100,000.00 the price you would get today would be $59,243.00. That is nearly a 41% LOSS if sold today. Of course, this should be the price that the bank or other entity reports under “ASSETS.” The rules changed after 2008 allowing the banks and others to simply say they will hold to maturity and list full value. That is fine until you need cash and unrealized losses become realized losses.

This seems to me to be a game of Jenga. It is hard to tell which piece of the tower will cause the rest to collapse but there are plenty of planks to choose from. I hardly scratched the surface in this paper.

Be Prepared!

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