Back in 2024, I warned about the rising debt levels we were facing as a country and the impact on our annual interest payments.
Nobody wanted to hear it.
Then the AI tidal wave hit and drowned out all that noise.
Well, the AI story has quieted down a little bit lately.
And guess what's knocking at the door again.
That's right.
The New Regime
The interest rate argument.
It's the thing that keeps knocking when the other noise stops.
And right now the bond market is listening.
30-year Treasuries have topped 5.3% for the first time since the financial crisis.
Japan and the UK are at their highest yields in decades too.
The 10-year yield is sitting at 4.74%.
After 20 years of low rates, yields are going up.
And I want you to understand something very clearly.
This is not a blip.
This is a fundamental change in the monetary regime we've been operating in.
Darwin didn't say the strongest survive.
He said the most adaptable survive.
The investors who adapt to this new reality quickly are going to be fine.
The ones who don't are going to get caught with their pants down.
Three Things Driving This
The first is the budget deficit.
Trump's first term added $7.4 trillion in debt.
Biden added $7.2 trillion.
Trump's second term is tracking toward $8 trillion.
We are now paying $3 to $4 billion a day in interest on that debt.
Over a trillion dollars a year.
And as I discussed yesterday, that number is projected to hit $1.7 trillion a year by 2034.
Both parties are responsible for this.
If you think I'm being partisan, you're not paying attention.
The second driver is AI-related corporate debt issuance.
These AI companies have been issuing billions and billions of dollars in bonds to fund their CapEx build-out.
When strong companies like Alphabet and Meta issue that much debt, they pull buyers away from US Treasuries.
Buyers who would normally park their money in government bonds are instead buying corporate bonds.
That forces the US government to raise yields on its own debt just to attract buyers.
That is one of the key reasons you're seeing bond yields spike right now.
The third driver is the changing buyer base for Treasuries.
Japan, which has been one of the largest holders of US government debt for decades, is under enormous pressure.
As they struggle with their own debt and currency problems, their ability and willingness to keep absorbing US Treasuries is changing.
When that buyer steps back, yields have to rise to attract someone
else.
What This Means for You
Let me be very direct.
Mortgages are in deep freeze and they're likely to stay that way.
We had a 20-year cheap money drinking bender.
The hangover is going to last a while.
The housing market is not coming back to normal anytime soon.
Second, risk assets get hurt first and hardest when rates go up.
Crypto, small companies without consistent earnings, anything without real cash flow — these things get hit the hardest because the math changes.
When you can get 4% in a Treasury money market fund with essentially no risk, why chase crazy risks to get yield?
You don't have to.
Which is why — and I've said this a hundred times on this channel — I keep all my excess cash in a short-term US Treasury money market fund.
Under one year.
Liquid any day I need it.
The Schwab fund I've mentioned before — SNOXX.
When the market cracks, I want to be a buyer.
And to be a buyer when nobody else is around, you need cash.
That's the whole strategy.
Look, I keep my excess cash in short-term Treasuries.
That's my defensive move.
But defense only protects you from the problem. It doesn't position you for it.
Because there's a part of this almost nobody has connected yet.
If you believe what I just told you — that the debt is compounding faster than we can grow it away, and that the buyers who used to absorb it are stepping back — then you have to ask the obvious next question.
What does a government do when it can no longer borrow its way out?
Historically, it reaches for the one asset on its own books it can re-price by decree.
It did exactly that in 1933, and the dollar was devalued roughly 41% overnight.
The Treasury still holds 261.5 million ounces of gold. It is still carried on the books at $42.22 an ounce — a price set in another era, for another dollar.
And over the last fourteen months, Washington has been moving. An executive order. Published Federal Reserve research on revaluation. A full-audit bill that reached the Senate.
Then this May, the board of the Export-Import Bank voted — unanimously — to put nearly $3 billion behind a single gold mine on American soil.
Not a chip plant. Not a battery factory. A gold mine.
With the war department's name in its filings.
That is the same government whose interest bill I just walked you through.
It is telling you what it thinks is coming.
I've put the whole story together — what I believe Washington is preparing to do, and the one small company already on the receiving end of the money.
The Bottom Line
The last 20 years of low interest rates were the anomaly.
What we're going back to is actually closer to the classical interest rate regime that previous generations grew up with.
That shift is going to have a profound impact on stock prices and your portfolio.
Stay tuned.
This is one of the most important things I'll keep talking about on this channel.
Have a wonderful day.
I'll see you tomorrow.
"The Buck Stops Here,"
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Written by Dylan Jovine