Transcript of THE RISK-FREE TRAP: Norway Cuts US Treasuries to Lend to American Homeowners!
Wall Street Truthbombs
0:00The world's most conservative investor0:02just decided that lending money to the0:03United States government is no longer0:06the safest place to park a nation's0:08savings. By the end of this video,0:10you're going to understand exactly why0:12Norway's 2.3 trillion-dollar sovereign0:14wealth fund is pulling roughly 800:17billion out of US Treasuries, what it0:19means for yours and my money. And I'm0:22going to tell you something up front0:24that nobody else will. The headline you0:27read this morning got this story0:29completely backwards. This is not Norway0:32walking away from America, it's0:34something stranger than that, and0:36frankly, it's far worse. Here's what0:38actually hit the wire. Norges Bank0:41Investment Management, the outfit that0:43runs Norway's 2.3 trillion-dollar oil0:46fund and sits on top of the entire0:48sovereign wealth league table, sent a0:51formal proposal to Norway's finance0:53ministry asking to cut the government0:56bond share of its fixed income benchmark0:58from 70% down to 50%. In dollars, that1:03is about 106 billion dollars coming out1:06of sovereign debt. The United States1:08takes the single biggest hit. The1:11Treasury weight inside that government1:13slice drops from 34.1%1:16to 21.9%.1:18Call it roughly 75 billion to 85 billion1:21of US government paper against the1:24roughly 215 billion in Treasuries the1:27fund held at the end of June. And within1:31about 90 minutes, the financial media1:33had the whole thing wrapped in a bow1:35after the report came out.1:37De-dollarization,1:39we've talked about that here at Wall1:40Street Truth Bombs. Capital flight, the1:43foreign buyers are abandoning1:45Washington, is a great story. It is a1:48clean, great, scary and story that fits1:52perfectly on a Chiron on the bottom of a1:56cable TV financial news station. Now,1:59here's just one number in the actual2:02proposal that nobody put in the2:04headline. Of course, Norway's total2:07exposure to the US dollar stays right2:09around 50%. Guys, that's unchanged.2:12They're not leaving America at all. So,2:15what exactly are they doing? Now, look,2:18I've watched sovereign wealth funds move2:19money from most of my career on Wall2:22Street and I need you to understand what2:24kind of animal we're talking about here.2:27These institutions do not make political2:30statements with their benchmarks.2:32They're the slowest, most2:34committee-bound, most deliberately2:36boring money on the planet. This is a2:39fund that writes academic papers before2:42it changes a decimal point. So, when2:46money this slow moves, it's not angry.2:49It's doing oh, maybe a little bit of2:52math. And the math it just did should2:54bother you a lot more than the anger2:57ever could. Guys, before we get deeper3:00into this, if you like this type of3:02content, please click like and don't3:04forget to subscribe. It's important to3:05be in the know and this is how you do3:06it. Okay, now let's go behind the3:09curtain. You know where I like to hang3:11out because the real story is sitting in3:13the submission itself and almost nobody3:16really read it. Nobody does. Buried in3:19the technical section is a change that3:21didn't make a single headline that I saw3:24this whole weekend. Norway is abandoning3:27GDP weighting for its government bonds3:30and switching to market value weighting.3:33That sounds like plumbing. It's not3:35plumbing. It's the whole entire ball3:38game. GDP weighting was a governor, a3:41deliberate brake built into the3:44portfolio. It sized each country's3:47position by the size of the economy3:49rather than the size of its debt pile,3:52which meant a government could not3:54automatically earn a bigger slice of3:56Norway's money just by borrowing more of3:59it. That was the entire point. It was4:02discipline encoded into an index, and4:05the reason Norges Bank gave gave, excuse4:08me, that is the reason that Norges Bank4:10gave for scrapping it is the quietly4:13most devastating line in the document.4:16They said heavy government debt is now4:18so widespread across the developed world4:21that waiting by economy no longer4:24diversifies anything.4:27I hope you got that, okay? That is the4:30key point right there. The break did not4:33come off because America got reckless.4:36The break came off because everybody4:39everybody got reckless, and a tool4:41designed to sort the disciplined4:42sovereigns from the undisciplined ones4:45is dead weight when there's nobody left4:47in the first category. It's not a4:50downgrade of the United States, that is4:52a downgrade of the peer group. And now4:55watch where the money actually goes4:57because this is the part that should4:59make the hair on your neck stand up. The5:01non-government share of Norway's US bond5:04exposure actually climbs from 16.2%5:07to 27.6%5:10Mortgage-backed securities alone become5:12about 13% of the new index. Add5:14commercial mortgage paper, asset-backed5:16securities, corporate credit across5:18developed market currency instead of5:21just seven. They are staying in dollars.5:24They're just climbing up the risk ladder5:26inside our own country. They'd rather5:29lend to American homeowners and American5:31companies than to the American and here5:35is the footnote that should be the5:37headline. Norges Bank's own analysis5:40says the switch delivers marginally5:42higher expected returns and marginally5:44lower volatility. Lower the most5:48risk-averse pool of capital in the5:50entire world just ran the numbers and5:52concluded that swapping government debt5:54for mortgage and corporate credit makes5:56their portfolio safer. For 40 years, the6:00sovereign bond was the thing you owned6:02so that everything else could be risky.6:05Norway just filed paperwork arguing that6:08assumption is stale. They didn't say it6:11loudly, institutions never do. They said6:13it in a benchmark methodology, which is6:16exactly where people like me, and now6:19you hopefully, look. And we do have a6:22historical rhyme for this, my friends.6:25Though it doesn't run the way most6:27people assume. Go back to like November,6:30I think it was 2013, and China held6:32about 1.32 trillion in Treasuries at its6:36peak. Today, it holds around 7606:39billion. That is a decline of roughly6:4142% by the largest foreign creditor we6:44had, and the yield apocalypse everyone6:47promised, well, it never really arrived.6:49Other buyers simply stepped in. The Fed6:51was still at the table for much of that6:53stretch. So, if you want the bull case6:56here, well, that's it. And it's a6:58legitimate one. But look at the shape of7:00the two decisions side by side. China7:03sold for geopolitical and currency7:05reasons. That is one country making one7:08choice about one relationship. Norway,7:11on the other hand, is not selling for a7:12reason at all. Norway is rewriting the7:15definition of what a diversified7:17portfolio actually looks like. The first7:20is an exit, the second is a template.7:24And a template travels. I want to be7:26straight with this with you, about this7:28with you, because the easy version of7:30the story gets the clicks, and I'm not7:32going to sell it to you. Please, 807:34billion dollars is not a crisis. Let's7:37be clear. It's about 3/10 of 1% of the7:40marketable Treasury market, phased in7:43gradually over years, and it amounts to7:45roughly one auction. If somebody tells7:48you today is the day the bond market7:50breaks, they're selling you something,7:52and you don't want to be buying that.7:54The size is not the signal. The7:56methodology actually is the signal, and7:59benchmarks, they get copied. So, let's8:01talk about what this actually does to8:03your money. The long end of the curve,8:05that's the longer maturity Treasuries,8:07off who shows up uh to buy it. And8:10specifically, uh off many of those8:13buyers who don't care about the price.8:15The sovereign fund tracking a government8:17bond index is the purest price8:19insensitive buyer that there is. It buys8:22because the benchmark says buy. When the8:25benchmark stops saying buy, that bid8:27doesn't get replaced by another sleepy8:29foreign institution, it gets replaced,8:32well, by a hedge fund or a dealer who8:34wants to be paid for that trouble and8:36that risk. That payment, though, it has8:38a name. It's called term premium, and8:41we've been talking about it a lot8:43lately. That's the extra yield investors8:45demand for locking money up for 308:48years, and it's the part of the yield8:49curve that the Fed does not control. The8:5210-year sits about for around 4.78%8:56um as uh I record this. It's off up8:59roughly 71 basis points in a year, uh9:02and uh yesterday morning's job report9:04came in at 162,0009:07payrolls against expectation of 53,000,9:11with unemployment holding at 4.1%.9:14That's not a labor market begging for9:16rate cuts. So, the rescue party you9:18might be waiting on is, well,9:20unfortunately, it's not coming soon.9:21Now, stack the arithmetic on top of9:24that, interest on the national debt hit9:27$931 billion through the first 10 months9:30of fiscal '26, 11% above the same9:34stretch last year. And the Congressional9:36Budget Office has it crossing $19:38trillion9:40for the full year. That makes interest9:42the third largest line item in the9:44federal budget, my friends, behind only9:47Social Security and Medicare. We're now9:51paying more to rent money than we spend9:53on almost anything we actually do. And9:56the honest read on that foreign bid is9:58more interesting than the panic version.10:00Foreign holdings of Treasuries are near10:02a record $8.5 trillion in raw dollars.10:06The strike is not in the dollars. It is10:08in the share, roughly 28% to 30% of10:11marketable debt, and grinding lower10:14because the debt is growing faster than10:16the world's appetite for it. And Oslo is10:19not alone in rethinking this, either.10:22Japan's 30-year yield has punched10:24through 4%, an all-time high. We did10:27videos on that. And Japanese insurers10:29can now get paid at home without taking10:32currency risk abroad, like at places in10:34the US. Largest foreign holder of the US10:37debt since 2019, with about $1.1310:40trillion.10:42When home starts When home starts10:44paying, money goes Well, it goes home.10:46So, what do you do with all this? Okay,10:48two things, and neither of them is10:51panic, please. First, if you own10:53long-dated Treasuries because somebody10:55told you they're the ballast in your10:56portfolio, understand that the buyer10:59base underneath that ballast is being11:01restructured in slow motion. That11:04doesn't mean sell. It means expect more11:07volatility out there than the last 2011:09years trained you to expect. And stop11:12treating the 30-year as a safety blanket11:14that costs nothing to hold. Second, look11:17at the other side of Norway's trade.11:19Agency mortgage paper and11:21investment-grade credit are about to11:23pick up a large, patient,11:25price-insensitive sovereign buyer that11:27did not have last week. That is a11:30tailwind for mortgage spreads, but not11:33confused to be a spread with a rate. The11:3630-year mortgage average average about11:386.71 this past week, and that number is11:41built on the Treasury yield first and11:44the spread second. So, it's priced11:46against the Treasuries. So, as11:48Treasuries go up, those spreads go up,11:50too. But, if the spreads go up, the11:51Treasury yield curve doesn't have to do11:53anything, and this the yields go higher.11:56A tighter spread on top of a higher11:5810-year gets you roughly nowhere, right?12:01Because one moves up and one moves down.12:03So, it's pretty much in the same place.12:05So, no, this doesn't fix your mortgage,12:07unfortunately. Here is where we actually12:10are right now. The diagnosis is not12:12default, and it's not dollar collapse,12:14please. The diagnosis is that the price12:17of lending to governments is being reset12:19in public by the most careful investor12:22on the planet, and they did it in a12:23methodology document instead of a press12:26conference. How different. Watch three12:29things from here. Watch whether Norway's12:31finance ministry actually approves this,12:33because it is a proposal. It is not a12:36done deal, but it made it all over the12:37headlines, so I had to bring it to you12:39and explain. Watch the tails of the next12:41couple of 30-year auctions. That is12:43where a thinning bid shows up first, and12:46watch whether any other large sovereign12:48fund files a similar benchmark change in12:50the next 6 months. The last one is the12:53real contagion contagion factor12:56vector, yes, not the $80 billion.12:59Institutions don't copy each others13:01trades, they copy each others13:03benchmarks. And we got to make sure13:05well, we got to watch that and see where13:07it goes from here. So, your truth bomb13:09for today is this. Norway did not13:11downgrade America. It downgraded the13:13entire idea of the risk-free asset. When13:16the world's most patient money decides13:18that lending to homeowners is safer than13:20lending to governments, that is not13:22capital flight. That is a repricing of13:25the world's safe.13:27Join me every day for Wall Street Truth13:28Bombs where I drop them right here for13:30the market figures them out.13:34>> [music]
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