Mnuchin’s Rose-Colored Glasses Only Work for the Wearer!

After borrowing a record $488 billion for the first quarter, an amount $47 billion greater than projected estimates, U.S. Treasury Secretary Steven Mnuchin appeared in front of reporters yesterday to say that he’s not at all concerned about the bond market’s ability to absorb the country’s rapidly rising government debt. “It’s a very large, robust market – it’s the most liquid market in the world, and there is a lot of supply…but I think the market can easily handle it.”

Since the 1974 Petrodollar Deal with Saudi Arabia that mentality has been accepted as a logical and valid statement, but the Deal had three legs (US guaranteed defense of Saudi Arabia from all comers, all oil trades conducted in US dollars, and  the US dollar to be a strong, liquid, and viable global reserve currency). Each element is necessary for the tripod to remain stable. Apparently Secretary Mnuchin hasn’t had the time or vision to realize that two of those legs were sawed off at the end of last year. Russia removed the Saudi need for US protection by selling them the S-400 defensive missile system and China successfully circumvented dollar-based oil sales by private agreements, utilizing the Shanghai Energy Exchange to covert Chinese yuan to gold with more than twenty countries, as well as successfully launching oil futures contract trading, just last month. So the dollar remains the premier global reserve currency, by virtue of nothing more than the very loose discretion of global economies and the governments that operate them.

On April 25, Money Magazine reported on interviews with 5 famous investors. Here’s the gist of each:

• David Stockman, investment banker and former budget director for Reagan administration. Investors seem to be in denial. “The market is whistling past the graveyard.”
• Scott Minerd, Chief Investment Officer & Guggenheim Partners Investment Chairman. Rising rates and corporate defaults put “markets are on a collision course for disaster.”
• Paul Tudor Jones, famed hedge fund manager who “called” the 1987 market crash. “We are replaying an age-old storyline of financial bubbles played many times before.”
• Ray Dalio, famed investor and founder of the world’s largest hedge fund (Bridgewater). “I think we are in a pre-bubble stage that could go into a bubble stage.”
• John Hussman, Hussman Investment Trust President & well known contrarian investor. When this bear emerges from hibernation, expect “a market loss on the order of 60%.”

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