Dear Reader,
The “Buffett Indicator” Predicts 62% Stock Market Crash
Warren Buffett just froze all buybacks and sold more stocks than at any time in Berkshire Hathaway’s history.
That’s because the last time the “Buffett Indicator” flashed this red was in 2000 – right before the market crashed 50%.
A lot of folks wrote the last couple days saying, “hey, why did the stock market just sell off like almost a thousand points on Wednesday?”
The market looked like it was doing fine Wednesday until 1:00…
And then all of a sudden, BOOM! It just started to get hammered.
What happened Wednesday afternoon?
Why did the market sell off with no big headlines?
And why should this concern you very much?
I’ll tell you why…
It was a bond auction gone bad.
Basically, what happened is that the government went out at 1:00 for a very typical, ordinary auction to sell 20-year bonds.
And investors said, “you gotta pay us over 5%.”
The last time the government tried to sell 20 year bonds, investors accepted 4.6%.
This time they said, “you gotta pay us over 5%.”
So that was alarming.
It sent the 10-year yield higher.
And as I’ve said before, 10-year yield and the stock market have an inverse, seesaw relationship.
Yields go up, stocks go down.
Yields go down, stocks go up.
So yields went up – the auction on 20-year bonds sent 20-year bonds up; 30-year yields and 10-year yields also went up.
Which, of course, sent the stock market into a tailspin.
Why did the bond market suddenly demand basically 20% higher interest to lend the U.S. government money?
Well, it’s the “big, beautiful budget bill” President Trump and Republicans are pushing through Congress.
We’ve been running fiscal deficits of $1.5 to $2 trillion a year.
These are budget deficits – not trade deficits.
When we talked about trade deficits in April – the Liberation Day stuff, President Trump was talking about trade deficits – trade between the United States and the rest of the world.
What we’re talking about now is budget deficits – the difference between the tax revenue the U.S. government brings in and the amount of money it spends – the gap there has been between $1.5 to $2 trillion.
It’s about to get bigger by $300 billion a year.
And the budget President Trump Republicans are pushing through Congress is going to make the deficit problem worse.
Meaning the U.S. government is going to have to borrow even more money than it has in the past 8 years, which is crazy.
Remember, during Trump’s first term, he added $7.4 trillion in debt.
Biden added $7.2 trillion during his term.
And right now it looks like we’re going to add $8 trillion in debt over the next four years.
That’s why the stock market dropped.
Now, this doesn’t just affect stock investors.
A lot of folks need to understand this – what happens when interest rates rise in the bond market?
Mortgage rates go higher…
Car loans get more expensive…
Credit card loans – all loans – get more expensive.
So we might look at the spending in Washington and think, “eh, who cares? The bond market can work it out. It has no real effect on you and me.”
But that thinking is wrong.
It makes everything we do, all the money we borrow, more expensive.
It’s like a tax on the American public.
Remember something – they can actually cut taxes with their left hand, but if doing so raises interest rates with the right hand, you’re not better off. That’s fake news.
You may think, “oh – it’s a tax cut! It’s gonna be great!”
Nope – you’ll get a tax cut on the left hand and higher interest rates on everything you borrow on the right hand, along with a lower stock market.
The national debt is choking us on interest. We have $30 trillion in debt…
Spending over $1 trillion a year in interest payments alone.
That starves the U.S. government from being able to invest in DARPA, defense, all the things that make a society great – we’re just getting choked.
And, by the way, this isn’t even happening during a recession!
The economy’s doing fine and we’re spending money like drunken sailors. When the economy’s doing well!
It’s mindboggling, actually.
This will send the stock market down in the short-term.
It will raise mortgage rates, car loans – this is going to hit everyone.
It’s like during Trump’s first term when he sent out all those checks during Covid.
Remember how excited everyone was?
My friends were like, “we got a check!”
And then of course Biden doubled down on that stupid decision and sent out more checks.
He wasn’t gonna be outdone.
And two years later, what happens?
Inflation!
The same thing is happening right now.
We’re robbing our left hand to pay our right hand.
Republicans get to run around and say, “we’ve cut taxes!”
The uneducated might think that’s a great idea, but as investors, as stewards of our money, we can’t afford delusions.
We can’t afford self-deception.
We can’t afford magical thinking.
We have to be clinical in how we look at this kind of stuff.
We can’t fall for B.S.
And basically, at the end of the day, we know this is going to send yields higher, stocks lower, mortgage rates higher.
It’s a tax cut with our left hand that will raise the price of everything on the right hand.
“The Buck Stops Here,”
