Friday, October 23rd, 2026

Laramie, Wyoming

By Dan Denning, Research Director

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Wednesday, October 21

By Tom Dyson, Investment Director

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Friday, October 16th, 2026

Laramie, Wyoming

By Dan Denning

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Tom Dyson, Investment Director

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Wednesday, October 14th, 2026

By Tom Dyson, Investment Director

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Friday, October 9th, 2026

Laramie, Wyoming

By Dan Denning

Imagine not being able to live on $5.4 trillion a year. Yet that’s where the American government found itself when the fiscal year ended in September. The Congressional Budget Office publication summarizing the whole year was like reading a crime scene report. Some of the low-lights:

• Receipts (let’s not call them revenues or sales) were up 3%, or $169 billion for the year, to $5.4 trillion. That would have been enough to generate a budget surplus in every year of American history through 2019 ($4.4 trillion in spending) until 2020.

• Spending was up 6% and $386 billion for a total of $7.39 trillion.

• The deficit was up $2 trillion, up from $1.77 trillion the year before

Mandatory growth rates in spending for Social Security and Medicare/Medicaid drove spending in each of those programs up by 5%, 8%, and 8% respectively. Social Security grew faster because more retirees are receiving benefits each year as the Baby Boomers are paid back what they paid in.

All up, those three big programs make up 45% of total federal spending, or $3.4 trillion out of $7.4 trillion. That leaves ‘just’ $4 trillion to pay for everything else. And when you’re paying $1.1 trillion for interest on $40 trillion in debt AND paying $900 billion for ‘defense,’ there goes another $2 trillion.

Even so, you’d think the rest of the Federal government could live on $2 trillion a year. It used to. And not that long ago. But those were the better old days. And now?

In late February, 10-year Treasury yields were 3.95%. Today they traded at 5.25%. That’s 128 basis points up, most of which you can probably attribute to the Iran war and higher oil/energy costs. Surely the end of the war(s) would lower oil prices and interest rates. But until then…

You could argue that higher energy prices are a temporary price to pay for an Iran that can’t build a nuclear bomb (that’s the Administration’s argument). But you can’t argue that war, plus high oil prices, plus $2 trillion deficits must lead to higher rates. How high? And for how long? Have a look below.

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Friday, October 2nd, 2026

Laramie, Wyoming

By Dan Denning

Greetings from the High Plains!

The biggest and baddest financial disasters don’t fall from the sky. It’s not a geomagnetic excursion or crustal displacement or a coronal mass ejection that kills a bull market. It’s usually a ‘credit event’ that begins in a sector of the economy no one’s paying attention to, and then migrates its way, like an aggressive virus, to healthier, investment-grade companies and the rest of the economy. More on that below.

But first, if you missed Investment Director Tom Dyson’s October Report, you can find it here. Tom and I switched publishing days last week and are back to normal this week. But I did see a few questions on the message board about where to find his latest report.

Speaking of that, if you’re receiving Bill Bonner’s daily essays but have missed one of Tom’s reports or one of mine, check the ‘Promotions’ folder in your email provider. Also check the ‘Spam’ folder. Sometimes a risky or rogue subject line will get our emails tagged as ‘Spam’ by your email provider. You have to manually mark it as ‘Not Spam’ to ensure you see it in your regular inbox, where it belongs.

Now have a look at this wonderful chart.

It’s back to the bad old days, in terms of negative real interest rates. No one wants to hear about interest rates on a Friday. I get that. But what we’re showing you here is the history of how the government manages to reduce the debt-to-GDP ratio without cutting spending or defaulting.

Spoiler alert: You’re going to pay for it in the reduced purchasing power of your savings. It’s called a stealth tax hike.

The chart I’ve created, based on data from the Federal Reserve, shows what ‘real’ interest rates are going back to the 1950s. It does that by subtracting the Effective Fed Funds Rate (the policy rate the Fed sets) from whatever the current official rate of Consumer Price inflation is (via the government’s CPI index). Interest rate minus inflation rate equals the ‘real’ rate. To the extent that CPI understates real inflation, real rates are probably already negative.

When inflation is higher than interest rates, savers lose value. In a negative real rate regime, it simply does not pay to be a saver or a creditor. You CAN earn interest above the rate of inflation. But you typically have to take a lot more risk, putting your capital at risk. Bad, or the creation of ‘moral hazzard’ as critics have called the consequences of the policy.

But according to one man in Washington D.C., who happens to be the current President of the United States, ‘certain levels of inflation’ could help reduce the national debt as a percentage of GDP ‘very rapidly.’ The Wall Street Journal reported today the President said as much in a contentious interview with Time magazine.

Never trust the media until you’ve seen the unedited video or read the transcript in its entirety. But President Trump is probably not wrong, even though he probably did not use the academic name for the tactic of reducing debt-to-GDP ratios by running the economy hot (high inflation) while holding official interest rates low. He knows how big debts are inflated away.

Long time readers and serious nerds will be familiar with the original research paper documenting exactly how it works with sovereign (government) debt. The paper was first published in 2015 and is called The Liquidation of Government Debt. If you enjoy suffering, you can read it yourself here. Or, you can have a look at the second chart I created today, below.

From 1945 to 1980, real interest rates were negative about half the time in the US. That translated into a yearly reduction of debt-to-GDP levels by about 3-4%. The gross federal debt-to-GDP ratio in the US was 120% in 1946. Through ‘financial repression’ (negative real rates) that ratio dropped to 60% by 1956. The economy ran very hot. By 1981, the ratio was just 31% (it’s 120% today…which only makes sense if you believe we are already fighting World War III).

Other countries ran inflation even hotter, mostly as a result of having to completely rebuild following the widespread destruction of their capital stock and economies in the war. So it turns out, in a roundabout way, you CAN grow your way out of a huge debt problem. But only if your country is physically destroyed in a war.

Of course the continental United States was NOT destroyed during the war. But the country did run massive deficits to become ‘the arsenal of democracy.’ High post-war growth rates were achieved by unleashing ‘pent up’ consumer demand domestically and exporting US capital and manufactured goods around the world to everyone who was rebuilding.

That seems unlikely to happen again. If anything, globalization seems to be turning into something more fractured, with higher energy prices, and with national industrial policies based on producing scare but economically critical resources.

All of which will make it much harder for anyone in Washington to disguise a simple fact; that negative real rates are a tax that gets passed on to ordinary people but which no one in the legislature actually has to pass or vote on. To achieve actual debt reduction equal to what financial repression accomplishes through inflation, the US government would have had to raise taxes by 11%.

No one would vote to pay down the debt by raising taxes. And no one wants to cut spending. The path of least democratic resistance is to run negative real rates. What does this mean for us in the years ahead?

Well, gold typically does well when real yields on government bonds are low. It means the ‘cost’ of holding gold (which has no yield) is minimal relative to the after-inflation return on bonds. And as we all know, gold has no counterparty credit risk. It’s a winner as a ‘reserve’ asset, which is why central banks continue to repatriate gold to their home-country vaults and buy even more of it.

You wouldn’t have guessed any of that today. Gold was down and stocks were up, allegedly because the jobs data out of DC was poor. In a world where bad news is good news, the bad jobs data makes a Fed rate hike later this month (negative for growth and tech stocks) less likely.

It’all hocus pocus anyway. The new con is the same as the old con. Don’t reduce spending or raise taxes. Boost nominal growth through de-regulation and lower energy prices (once these pesky wars are ended). And then reduce the ratio of government debt to GDP through ‘financial repression.’ Keep the Welfare/Warfare State from having an existential crisis that destroys its currency and its bonds.

We’ll see how that works out in the long run. But in the short run, staying in Maximum Safety Mode is the name of the game. And let’s remember, the Fed doesn’t control ALL of the bond market. It can try. But in the long run, markets are stronger than governments. Which brings me to a few curious images below and how to survive a world in which the State is both broke and extremely dangerous.

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Chiswick, West London

Wednesday, September 25

By Tom Dyson, Investment Director

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Friday, September 18th, 2026

Laramie, Wyoming

By Dan Denning, Research Director

About seven weeks. That’s when we’ll know who controls the next Congress. And we’ll know if the IRGC has been trying to wait out the Trump Administration, keep the Strait of Hormuz closed, and end the war on favorable terms. Seven weeks.

Markets don’t have to stay idle until then. They won’t. They never do. In fact, today I’m going to look at a convergence of factors that suggest what five year total returns might be from today. But first, it’s worth thinking ahead to what might happen…when things change. Or if they’ll stay more or less the same (in terms of the fiscal trajectory of the US government).

The prediction markets have a 60% chance that the Democrats take back both the House and Senate (see chart above). If so, you’ll get impeachment and hearings galore. But probably no spending cuts. A divided government is more of the same from a budget point of view. And after all, Republicans have had control of Congress and the Presidency for two years and all we have is bigger deficits and a $40 trillion debt. What’s your prediction?

Warren Buffet is stepping down as the Chairman of Berkshire Hathaway [BRKB]. The 96-year old from Omaha has already given up on making the investment decisions for the company. He’ll stay on the Board for now.

The company has about $363 billion in cash on the balance sheet. That’s down from the peak of $397 billion earlier in the year. And remember, only $41 billion of that is actual cash. Around 89%--or about $325 billion–is in T-Bills that generate around $12 billion in interest income for the firm each year.

It’s the same dilemma Investment Director Tom Dyson faces. Cash is an investment position–essentially short stocks. It also gives you ‘optionality.’ You can spend it when you see something you want at a good price. But you have to live with inflation–which is almost certainly higher than official figures suggest.

Buffett is probably glad it’s not his problem anymore. Looking back since the turn of the century, Berkshire’s B shares have outperformed the S&P 500 and tech stocks (based on the Nasdaq 100). Even if you use the total return for the S&P 500 (with reinvested dividends over 26 years and not just the price performance), Berkshire still killed the index.

And gold still killed everything. Yet over the long-run, you’d rather own shares in for-profit enterprises that create wealth (the key is being able to buy them at a good price, which you definitely cannot do right now). Gold preserves our purchasing power until we can buy those enterprises at a better price. When will that be? For another perspective,hHave a look at the tables below.

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Chiswick, West London

Wednesday, September 16

By Tom Dyson, Investment Director

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Friday, September 11th, 2026

Laramie, Wyoming

By Dan Denning

Are the Silicon Valley insiders who’ve built the closed-source American frontier models trying to scare the government into regulating them? Might they be exaggerating the threat from AI in order to ‘freeze’ the industry, restrict competition, and lock in high prices for the tokens (and even higher valuations for the intial public offerings they hope to make this year)?

It kind of seemed like that was going this week. A 27-year old unknown AI researcher named Jacob Coxon made an X post earlier this week saying, ‘the people building AI earnestly believe that it could kill us all by the end of the decade.’ His post came just before the Wall Street Journal published an article about him. Mostly left-wing politicians in Europe in the US immediately re-tweeted Coxon’s post, calling for a halt to AI development pending more studies about its safety and possible regulation/nationalization.

Maybe this will be just the thing to prick the AI bubble. It’s a topic Bill Bonner and I discussed yesterday in our latest Private Briefing for BPR readers. We talked about the ceiling for interest rates, why deflation is inevitable, and the future of wealth in a world gone bonkers.

Enjoy the video and transcript below.

Until next week,

Dan

P.S. In simple terms, it’s possible that OpenAI and Antrhopic are burning through so much cash so fast, they realize there is no business model where they can show prospective investors a profit—so they’re ramping up AI fear in order to freeze the market (and token prices) to prevent competition via regulation. It’s called regulatory capture and we’re seeing a full court press for it right now.

(This transcript has been lightly edited for brevity and clarity)

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Wednesday, September 9

By Tom Dyson, Investment Director

A vicious scramble for scarce resources…fueled by bottomless paper money…in search of profitability at massive scale…that may or may not materialize…

Our investment strategy is perfectly positioned for this AI-led Inflationary Boom… which we track with this chart of stocks/oil and the interaction with its moving average.

Above the moving average signals we’re still in the Inflationary Boom.

Kate and I are buying MORE gold. I have the strongest conviction that gold will be making new all-time highs again next year. The bubble is deflating and the run from paper has started. I hope my updates of the last few months have made this position unequivocally clear.

Greetings from Chiswick, West London.

The debasement trade is ON again…and we’ve likely entered the final melt-up of the great paper money experiment.

The debasement trade had been working beautifully until February 28, when the US and Israel attacked Iran, and the trend reversed, knocking 16% off the gold price.

As a reminder for new readers: The debasement trade is based on the observation that huge government debt and deficits all around the world will require even more money printing, yield curve control, and quantitative easing by central banks. This is happening with nearly all currencies in nearly all countries.

Interest rates are rising around the world, responding to the 8% US money supply growth we’ve seen over the last twelve months (and we’ve been tracking, thanks to Professor Tim Congdon)...

The mad scramble for resources to build AI infrastructure, which as yet hasn’t produced a profit…

And the government’s gargantuan appetite for borrowing.

We’ve seen two important Scott Bessent interventions this summer…in the yen and in the US yield curve. Both these decisions reinforce something we’ve known all along: They will defend interest rates, by sacrificing the currency and our cost of living.

The result?

A gradual debasement of paper money and claims on paper money in general against real assets; things like precious metals (gold, silver, platinum), and energy assets that cannot be printed or created with keystrokes (uranium, natural gas, crude oil). In a nutshell, sell paper, buy stuff.

This is the “debasement trade.” The following three charts show copper, making a new all-time high, diesel, making a new all-time high, and iron ore futures sneaking back above $100/ton.

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Laramie, Wyoming

By Dan Denning

Imagine a brief but violent civil war in the next twenty six months. A ‘benevolent dictator’ takes power as the war ends. He (or she) seizes on the national emergency to make sweeping economic and constitutional changes to America as we know it. Everything changes.

A wealth tax is introduced. Social Security benefits are means tested (and the cap on taxable earnings is lifted from $184,500 to $1 million). Universal Basic Income (UBI) and a Central Bank Digital Currency (CBDC) become compulsory for the receipt of government benefits and all transactions (both sold as technological solutions to welfare fraud and illicit cash profits and tax evasion).

The Supreme Court is expanded from nine justices to thirteen. Three new states (Guam, Puerto Rick, and DC) are admitted to the Union, adding six new members to the US Senate. The debt ceiling is abolished. So is the filibuster in the Senate.

Sounds far fetched?

What if I told you a radical revolution very much like that already happened in America? And it didn’t even take a civil war to bring it about. Yet it resulted in the greatest expansion of Federal power (and loss of personal and economic liberty) since the Civil War.

It led directly to to America’s involvement in the Great War, ensnaring the US in more than 100 years of endless wars costing trillions of dollars, ‘paid for’ with huge debts. Could something even worse happen again? Could the country survive it this time? Could you? More on all that shortly. But first…an important chart this week.

In late July, we added five ‘Pre Crash Indicators’ (PCIs) to our BPR analytical tool box. These were on top of the valuation metrics we regularly track month-to-month. We added the five PCIs in an attempt to better pinpoint WHEN the market might start mean-reverting back to the valuations our metrics tell us are inevitable. This week, telling news on one of the PCIs.

Margin debt may be rolling over. This happened in 2000, 2007, and 2021 before big falls in the stock market. A change in the appetite for leverage is a change in expectations for future stock returns. Is that what’s really going on? First the numbers.

Margin debt is when an investor borrows money from a broker to buy more stocks. The collateral for the loan is the value of the investor’s portfolio. It’s free money to change your life, as long as stocks keep going up. When you’re worried they might not go up as fast—or, ye gads, might go down–you quit borrowing (and maybe start selling).

In June, margin debt peaked at $1.5 trillion. That was an all-time high. The year-over-year rate of change was 49.5% (that’s what you see in the chart above). The official July number was $1.41 trillion, a decline of 5.7% from the June high. The rate of change slowed to 38.6% year-over-year.

Borrowing less fast. Is this the great roll over before a bigger decline? It’s too soon to say. And it’s only one of five ‘Pre Crash Indicators’. But it’s the same trend we saw prior to the last three big mean-reverting down moves in the markets. If investor expectations about the next ten years of returns are changing, why? Next chart.

The dividend yield on the S&P 500–one of the regular valuation metrics we track–has made a new all-time low (you calculate the yield by dividing the trailing cumulative dividends of S&P 500 members by the value of the index). The current yield is 1.04%. The previous low was 1.11% (this is based on Yale Professor Robert Shiller’s data set, which goes back to 1871).

As you can see on the chart, the median level over the life of the American stock market is around 4.2%. Anything above 6% and the stock market index is making a new low (the exception was in 2009 when the yield peaked at 3.9% as the market bottomed). Anything below 2% and the market is at or near a peak in price terms.

All of which makes sense, in terms of price action. The yield goes down when the index is rising (price terms) but cash payouts by firms (dividends) are not. But the lower the yield goes, the more investors are expecting that ALL FUTURE RETURNS will come from capital gains. This is a problem. Why? See below.

Reinvested dividends accounted for almost half of the total returns generated by US stocks from 1900 to 2000. This is according to the most comprehensive dataset of stock market returns, published in a book called Triumph of the Optimists. Capital gains come and go in waves. But reinvesting regular dividends is what gives compounding so much power over time.

When the dividend yield is low–as it is right now–it means investors are betting on capital gains doing all the heavy lifting in the years ahead. For this year, next year, the next decade, and probably the next 100 years. In big picture terms, you could say the record low dividend yield on the S&P 500 is a bet that high-tech/growth firms from America will be the best-performing investments of the foreseeable future.

Maybe they will!

Not much of the future is foreseeable. But are European companies going to do better? Can you invest in Chinese companies? Will Japan come back from the equity dead to rise again? Maybe.

But let’s not forget a point Investment Director Tom Dyson brought up earlier this week: the corrupting role of artificially low interest rates on asset prices. Artificially low interest rates support historically high stock valuations. Low rates raise the present value of future cash flows. So what?

For growth and tech companies–some of whom project higher cash flows a decade or more into the future–low rates lower the discount rate. The discount rate is the rate investors use to determine what future cash flows are worth right now. In other words, low rates create a massive bias to invest in high-growth/tech companies.

And that’s exactly what we’ve seen in the stock market. When the biggest and fastest growing companies in the stock market are tech companies, dividends don’t matter, do they?

What’s more, if you include stock buybacks as a kind of dividend, the ‘shareholder yield’ replaces the dividend dividend yield as a broader measure of how investors/owners receive cash from operators/management. You can ignore the warning signs, right?

No.

High growth…buybacks…an Intelligence Revolution where information and how it’s organized and analyzed is more important that the cost of labour, capital, or real resources….these are all arguments used to justify why…this time its different…and why an all-time low in the dividend yield on the S&P 500 does not necessarily mean stocks have made/will soon make an all-time high…before the historic mean revision begins.

Whatever. I present the numbers and facts. You decide. But I know what history shows.

There will come a time when investors are less sanguine about future cash flows. They will expect higher yields to compensate them for the risk of owning stocks. And they will begin to use a much higher discount rate, as the Primary Trend in interest rates is up…and headed higher. See the PS below for one final comment on dividends. But before that, check out this cool cat with his cool hat below.

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Wednesday, September 2

By Tom Dyson, Investment Director

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Friday, August 28th, 2026

Laramie, Wyoming

By Dan Denning

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Friday, August 14th, 2026

Laramie, Wyoming

By Dan Denning

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Wednesday, August 12th, 2026

Chiswick, West London

By Tom Dyson, Investment Director

Thank you for all your kind messages about my father. We especially appreciate your ideas and suggestions for treating Parkinson’s disease, which some of you sent us. We’re looking into everything.

It was incredibly hard saying goodbye to him last week, as frail, gaunt and shaky as he is, watching him get into a taxi and head to Heathrow Airport by himself, for a transatlantic flight. Thankfully, he got home to NY safely and quickly.

For Kate and I, life is coming at us fast. Kate just lost her father in Florida. My father can’t really get around by himself anymore. And our children are growing up fast…and will soon want more independence…

In short, after seven years, we think the time is coming for us to bring our family home to the USA. We’ll see.

There was a partial (90%) eclipse this evening, visible from our back garden in London. The kids figured out that we could view it by looking through six pairs of sunglasses. We got a perfect view! Here’s Penny taking it in…

Greetings from Chiswick, West London…

Not much to report from our investment strategy. We’re not changing anything. We have 65% of our allocation in gold, silver, platinum, oil, gas, uranium, iron ore and tankers.

And the other 35% in cash.

We have no exposure to the major stock market indices and a zero allocation to bonds.

We’re keeping the dial set at “Maximum Safety” and bracing for volatility as the big paper money default inches closer.

It’s the most defensive position I can come up with.

When the crisis arrives, hopefully we’ll be able to duck and weave appropriately…

The latest government inflation reading came out today, showing the dollar had lost 3.4% of its purchasing power over the last 12 months. As always it prompted discussion of the Fed’s interest rate policy and the possibility of raising rates soon. Don’t pay any attention. The Fed only has one policy option: debase the currency but try to maintain plausible deniability for as long as possible. They won’t raise interest rates.

While the US made a show this week of auditing the gold in Fort Knox, we learned the Chinese retail investors keep buying gold. In the West, more open discussion of what a sovereign debt crisis might look like...and whether we’re already in one. In China, methodical buying of gold, including fourteen straight days of inflows to gold ETFs.

We’d rather own the real stuff. And I hope I was clear in these letters that the sell-off this summer in gold and silver was an excellent buying opportunity. It’s worth noting Chinese investors appear to be betting the same way… that gold prices are resuming the bull market and may run much higher in the four and half months left of the year (relative to the dollar, the euro, and the yen).

QUESTION: With the FED supposedly “done” with rate hikes, is it time to start securing more long term notes with our cash and lock in that 5.5% range?

MY RESPONSE: This chart shows the yield curves of the big governments. US paper (blue line) offers the second highest bond yields, after UK paper. And although the yield curve has a positive slope at the short end, it’s pretty flat beyond the 2-year tenor. In my opinion, the small bump in yield between a 2-year note (4.2%) and a 10-year note (4.69%) and a 30-year bond (5.26%) isn’t worth the extra risk we’d take by holding long term paper. So I still think 2-year notes offer the best value for yield.

We’ve been thinking about the next steps for our eldest son, Dusty. He’s 18 and he’s had an awesome, stress-free childhood. So it’s time for us to start thinking about how he might earn a living for himself in the future…and what skills and training he might need.

One idea we’re seriously beginning to explore is working in the energy industry — oil, gas and nuclear power, which syncs nicely with our Bonner Private Research Official List.

There’s such an acute shortage of skilled workers in energy, they’re practically begging (and bribing) young people to enter the industry. And it’s only projected to get worse, as the average age of workers is near 50 and they’re retiring faster than the industry can hire new people.

There are hundreds of different jobs available in the energy industry…welder, lineman, pipefitter, substation operator and many more. A GED is the only academic qualification you need to apply for apprenticeships, which Dusty is going to get started on next.

I’m just thinking out loud here, but an apprenticeship would be a great next step for him as an alternative to college. I think he likes the idea, too. We’ll see.

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Friday, August 7th, 2026

Laramie, Wyoming

By Dan Denning

Here we are, eighty-one years later, sandwiched between the anniversary of the atomic bombs dropped on Hiroshima (August 6th, 1945) and three days later on Nagasaki (August 9th 1945). Japan announced its public surrender six days after the second bomb. The official surrender took place on September 2nd, 1945, on the deck of the USS Missouri, anchored in Tokyo Bay.

What if Japan hadn’t surrendered?

The soonest the US could have dropped a ‘third shot’ on Japan was ten days from August 9th. The ‘demon core’ of the third plutonium implosion bomb was scheduled to be deployed to Tinian Island where the bomb would be assembled. US President Harry Truman halted the deployment (the 1989 Hollywood movie Fat Man and Little Boy features actor John Cusack playing a fictionalized version of Los Alamos scientist Louis Slotin, who was killed by a massive dose of radiation in testing the criticality threshold of ‘the demon core’...this process…which killed another scientist on the project, was called ‘tickling the dragon’s tail.’)

Declassified official records show that the US could have manufactured about three atom bombs a month in 1945. It’s commonly believed that Los Alamos, New Mexico was the only location in the Manhattan Project. It wasn’t. The Met Lab Chicago, headed by Enrico Fermi, crated the world’s first self-sustaining nuclear chain reaction. And the facilities for enriching uranium into fissile material were in Oak Ridge in Tennessee and the Hanford Lab in eastern Washington.

There was a real shortage of both raw ore and enriched uranium that constrained US bomb production. I’m mentioning this in the context of current events in Iran and the US, but also in while keeping in mind our BPR theory of Megapolitics. The evolving theory holds that States who can drive down the cost of violence down fastest and the most (as a function of technology and efficiency) become the most powerful.

But Empire is not so simple these days. The cost of violence (or having a credible threat of overwhelming force) is a function of policy, technology, geology, and geography. The US has great technology. And it currently has a national security/industrial policy designed to accelerate the processing of critical metals and materials crucial to the Warfare State. But that may not be enough in the current circumstances. Why?

A neodymium-iron-boron magnet is the kind used in fighter jet motors and for guidance systems on missiles. Economy-wide (including the US military) the United States consumes about 48,000 metric tons worth of these type of magnets a year. It produces around 300 tons. The difference has to be made up through imports.

The trouble with rare earths and critical minerals isn’t that they’re rare. It’s that you can’t ramp up the ore processing and refinement overnight to produce ‘just in time’ metal inventories. Even if you have favorable geology and geography, which America does, a real constraint on the cost of violence emerges. If you can’t make and deploy the weapons of war, your ability to wield violence is diminished. Power shifts. You are less powerful and maybe even backed into a corner of your own making. Back to that in a moment. First a quick chart.

All week, especially after Tom’s note on Wednesday, I’ve been wondering why the US government intervened in the FX market to strengthen the Yen by selling Euros. It was unusual, for one country to so actively try and help another country strengthen a weakening currency.

What risk were US policymakers trying to mitigate: stocks crashing with the un-wind of the Yen-carry trade, or US bond yields rising as the Japanese sell their Treasuries so they can buy dollars with Yen?

Which is it? Or is it both?

Quantifying the risk to a disorderly unwinding of the carry trade is hard. It’s hard to tell how much money has been borrowed in Japan and invested (with leverage) in US stocks. A falling yen forces the rather rapid unwinding of a leveraged position (a stock market crash).

BIS records about official bank borrowing put the low end of the figure at around $260 billion. The high-end, which is really just a guess, includes short positions in the FX market and is closer to $11 trillion. The middle figure, also mostly a guess, is between $700 billion and $1.2 trillion.

It’s a big position. If leveraged, it’s even bigger. But is it enough to take down US stocks? Or is the risk in the bond market? And what IS that risk?

Well, according to the latest TIC data, Japan is the single-largest owner of US Treasuries, with about $1.2 trillion as of May 2026. One way for Japan to ‘defend’ the yen is to sell those US bonds and then turn around and use the dollars from the sale to buy yen. Only that’s not what happened this week.

The US government intervened as described above. And Treasury Secretary Scott Bessent actively urged the Japanese to use a special Fed facility that allows them to use Treasuries for collateral against which they receive dollars (the official name is the Foreign and International Monetary Authorities Repo Facility).

It’s an awful lot of trouble to keep the fiat money shell game going. Japanese selling of US Treasuries would force US interest rates higher. The Fed would have to either ‘monetize’ new debt issued by the Treasury. Or the US government would face much higher interest costs on borrowed money.

In case you haven’t noticed, the US government can’t afford higher interest costs. Uncle Sam spent $857 billion on interest payments in the first nine months of the government’s fiscal year. It’s on pace to be well over a trillion dollars by the time the fiscal year ends in September. Hence the shenanigans we saw in the last ten days to ensure an orderly Treasury market and avoid a crashing stock market.

To return to the original question, which is the bigger risk: a disorderly unwinding of the carry trade resulting in much lower US stock prices…OR…a spike in US bond yields as Japan sells Treasuries, which would also, all things being equal, lead to lower stock prices?

It reminds me of an old Saturday Night Live skit from 1976 featuring Dan Akroyd (husband), Gilda Radner (wife), and Chevy Chase (product spokesman). It was about a household product called ‘New Shimmer.’ The wife says the product is floor wax. The husband says it’s a dessert topping. The spokesman says don’t worry.

It’s both!

The world’s financial markets run on borrowed money on leverage. The yen carry trade is a huge pipeline of credit supporting US asset prices. To prevent a crash in those prices (asset deflation) be prepared for the Fed to try anything. But don’t be complacent about the risks of a sudden re-pricing of stocks and bonds. And for goodness sake, don’t eat the floorwax.

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