Transcript of STOCKS AT RECORDS, BONDS IN PANIC: The Secret Margin Call Wall Street Hid!
Wall Street Truthbombs
0:00The bond market is screaming right now.0:02The stock market is pretty much asleep.0:04And the institutional plumbing every0:06doomsday headline claims is breaking is0:09doing the exact opposite. All three of0:12those are verifiable this very morning.0:14And the gap between them is actually the0:16entire story. If you have money in a0:18401k or you're sitting on home equity0:20waiting for mortgage rates to come down,0:22or if you're wondering why your local0:24bank just cut your credit limit while0:26equities trade near all-time highs,0:28well, you're being fed a total fiction0:30by the traditional financial media.0:32They're telling you a $1.2 trillion0:35hedge fund gamble is sitting on a knife0:37edge about to blow up the system. Today,0:40as someone who has been an institutional0:42bond trader and a chief investment0:44officer and an asset manager, I'm going0:47to apply all that stuff that I learned0:49over the years. I'm going to walk you0:50through the biggest leverage trade in0:52the financial system, why it's actually0:55shrinking rather than exploding, and0:56where the risk silently migrated when it0:59left. I'm going to correct six six1:02separate numbers being pared across1:04financial television, including a quote1:06attributed to regulators that well, no1:09regulator said. And I'm going to expose1:12the shadow data. You know, I love the1:14shadow data, showing where $300 billion1:17in raw systemic leverage is sitting1:19right now, completely completely1:22unmonitored.1:24To understand this contraction, think of1:27a physical mental model. Okay, think of1:31a nightclub with one unmarked exit. When1:35a nightclub has a visible front1:37entrance, fire inspectors, they stand1:39outside and they count the heads.1:41Everybody thinks the crowd is under1:43control because the front line is1:45shrinking. But what nobody notices is1:48that 300 patrons quietly slip through an1:52unmarked side door into a pitch black1:54basement with zero sprinklers and zero1:57reputation. and no emergency lighting.2:01My friends, that is exactly what the2:03world's largest hedge funds just did2:06with hundreds of billions of dollars in2:08systemic debt. Okay, let's start with2:12what is actually real because the rate2:14move is very real. It's completely real.2:17On Tuesday, the 10-year Treasury closed2:19at around 526. Uh, and that is the2:23highest print, my friends, I'm sure2:25you've heard, since the middle of 2007.2:28The 30-year was at 5.59%.2:31That's the highest in two decades. And2:33look at the violent speed of the move.2:35On September 22nd, the 10-year was just2:37at 59, excuse me, 4.96%.2:41In five sessions later, it was at 526.2:44That's 30 basis points of pure2:46destruction in a single week. Now, look2:48at the number almost nobody outside a2:51bond desk actually tracks. That's called2:53the move index. That is the bond2:56market's VIX. At the end of August, it2:59sat at 75.3. On Monday, it closed at3:02101.8. That is a 35% spike in a single3:07month. A move that violent has only3:10happened eight times since September of3:142008. And the stock VIX, that's the one3:16you know about. It's sitting asleep with3:19a 16 handle near 16. The S&P is barely3:22right right now. It's actually at it3:24right around its all-time highs. The3:26bond market is pricing a regime change3:28while the stock market is pricing well3:31an ordinary Tuesday in late September,3:34early October. Okay, let's get more into3:38this because there's a lot to discuss3:40here. Uh but before we do, if you like3:42this type of content, please click like3:44and don't forget to subscribe. It's3:46really important to be in the know about3:47this stuff and we're thankful that you3:49do it with us.3:52Okay, let's explain the trade that3:54everybody is blaming and then show you3:57why the blame is completely completely4:00misplaced. Okay, pension funds and4:03mutual funds, they need duration. So,4:06they buy treasury futures instead of4:08physical bonds because futures are more4:11liquid. And also, this is an interesting4:13one, their prospectuses limit direct4:16repo borrowing. So, they can't leverage4:18like that. And because the implicit4:20interest cost buried inside a futures4:23contract never shows up in the expense4:25ratio that they report to you when you4:28buy that mutual fund that my friends is4:31has was published just earlier this week4:33by the Chicago Fed. That's not my own4:36observation. They published that futures4:38make a mutual fund look cheaper than it4:41actually is. That's what it really comes4:42down to. all that institutional pension4:45buying that they're doing, they're4:46remember they're buying futures, okay,4:48instead of cash or actual physical4:51treasury bonds. What happens is is they4:53push futures to a premium over those4:57physical or cash treasuries. So now5:00they're trading at a premium, the5:02futures. Okay. Now, um, hedge funds,5:05they see this premium or this this5:08discrepancy and they step in and they5:11sell the overpriced future and they buy5:14the cheaper cash or physical bonds and5:17then they wait for the two to converge5:20eventually at expiration. My friends,5:22that is called a basis trade because5:25that spread averages roughly about five5:28basis points give or take. It's like5:30really 5100ths of 1%. the leverage in5:34order to make it worth their while has5:35to be massive. So what they do is is5:39they take the bonds that they just5:41bought and they repo them out overnight5:44for hard cash and they buy more bonds.5:47And here is the single best documented5:50fact in this whole plumbing. My friends,5:5275% of Treasury repo trades in the5:54bilateral market carry a 0% haircut.5:58Again, that was published by the New6:00York Fed uh just this past week. Okay,6:04no collateral cushion at all is what6:06that really means. Think about that. The6:09Federal Reserve did this arithmetic.6:11Hedge funds in aggregate are effectively6:14levered 56 to1 on this financing6:18$5536:20billion in positions against $9.86:23billion of actual hard equity. That's6:27pretty high leverage. So the 50 to16:30leverage in the headlines that you might6:32have been seeing, it is real, but it's6:34leverage on the repo financing side of6:38one specific trade, not the entire fund.6:41Fundle level leverage for large traders6:44runs closer to 17 to one. Closer, let's6:47say, 20 to one. Okay, before we get back6:49into it, I want to tell you about6:50something that's become an important6:52part of my routine. That's my Fit Nexus6:55Somnipods [music] 3. You guys know the6:57crazy hours that I keep. Wall Street6:59starts really early, especially for me.7:02And research goes really late,7:03especially for me. And when you're7:05operating on that kind of crazy7:07schedule, well, quality sleep isn't just7:10a luxury. It really matters a lot. I've7:12been using Somni Pods 3 and they've7:14dramatically improved my ability to get7:16a long and importantly, quality night7:18sleep. They're incredibly thin, as you7:21can probably tell. They're really7:22lightweight, so I can comfortably sleep7:24on my side with them. They offer up to7:2642 dB active noise cancellation, which7:29you guys [music] know in the city you7:31really need. Along with built-in sleep7:33sounds that help me shut out7:34distractions and stay asleep. I love the7:37sounds. They also track your sleep7:39patterns and give you personalized7:41insights through Fit Nexa's AI sleep7:43coach. Guys, you [music] know me. I love7:46the data. I love the shadow data, but I7:48also love the sleep data. But7:50ultimately, it's about how I feel the7:52next morning. I'm sleeping longer. I'm7:54sleeping better. And I'm sharper when7:56the market's open. Guys, you know how7:58important that is these days. So, if8:00you're putting in long hours like I am,8:02and you want to start taking your sleep8:04more seriously, check out Bit Nexus8:06Somnipods 3 at the link below and use8:09code WS Truth Bombs 10 to save 10 bucks8:12on your next order. Who doesn't love to8:14save 10 bucks?8:17Now, let me dismantle these six core8:19myths that I alluded to earlier that8:22financial media is building on top of8:24all this stuff. Okay, we'll start with8:27correction number one. The trade is not8:291.2 trillion and growing. It is8:32shrinking rapidly. It's down roughly 20%8:35this year. Hedge funds short positions8:37in 2-year Treasury futures are down over8:4040% from their March peak. The latest8:43official estimate from the Fed and the8:45BIS is $830 billion. And as a rate8:49strategist at the Bank of America just8:51recently noted, they aren't being forced8:53out. They're leaving voluntarily because8:56the trade, well, it stopped paying. It8:58wasn't worth it for them to do the trade9:00anymore. So, that's correction number9:02one. Now, let's go to correction number9:03two. That quote calling this the single9:07largest contraction of systemic leverage9:09in the architecture attributed to the9:12Fed BIS and SEC. My friends, I searched9:16around. It literally doesn't exist. I9:18comb primary records. I couldn't find9:20it. It's completely fabricated quote in9:22a suit and a tie, a bow tie maybe. Um,9:26okay. Correction number three. The claim9:29of a excuse me 15 to 20% return on9:33equity. No regulator publishes that the9:36IMF actually found basis returns rarely9:39hit even 2%. Five basis points times 509:43leverage is 2.5%.9:46It's math. To get to 15% you would need9:48a spread six times wider than anything9:51trading in reality. So anyone who does9:55what I've done for a living immediately9:57would question that claim. Now9:59correction number four. The panic claim10:01that quarter end destroys dealer balance10:03sheets and forces repo haircuts to10:06spike. Okay, the other day was the10:08quarter end. Okay, let's look at the10:11desk reality. The Fed standing repo10:14facility took in exactly 0 the other10:16morning. Zero overnight sofur that sofr10:21that short-term rate of fell two basis10:23points at 3.88%. It's flat with Fed10:26funds and 12 basis points below the10:29ceiling. And the reverse repo facility10:32jumped to 11.4 billion. Money is not10:35struggling to borrow from the Fed at10:38this point. Cash is flooding into it.10:41That is not a collateral squeeze. That10:43is a cash glut. Okay. Correction number10:47five. Regulatory constraints are running10:49backwards. The enhanced supplementary10:51leverage ratio that took effect in April10:54loosened leverage constraints on the10:56biggest dealer banks explicitly to10:59encourage Treasury intermediation.11:02Correction number six, the claim that11:04the S&P suddenly drops 2% at 1:30 in the11:08afternoon because desks dump equities to11:10post Treasury margin. Okay, there is11:14zero documented empirical evidence for11:16that. past two weeks didn't have a11:18single 1% down day in the entire S&P. So11:22where did the risk actually go? Because11:25leverage never disappears. It only11:28mutates. And this is what financial11:30media has completely missed. According11:33to the Fed's own financial stability11:35report, the unwind of the basis trade11:37was largely offset by hedge funds11:40rotating directly into swap spread11:43trades. And the Bank for International11:45Settlements, BIS, confirmed this month11:48that the swap spread trades went from11:50$100 billion to $300 billion in 1211:54months. It tripled. The leverage walked11:57across the street, my friends, into a11:59trade with zero public positioning12:02reports and zero zero regulatory12:05visibility. Now, here is why every12:09homeowner, saver, and retirement12:11investor must care about this shadow12:14migration. The bond market doesn't12:17operate in a vacuum. When $300 billion12:20in leverage rotates into swap spreads,12:22while the benchmark 10-year sits at12:245.26%.12:26It systemically alters how capital flows12:31main flows, excuse me, to mainstream12:34America. First look at your mortgage12:36rate and home equity. When the move12:38index s remember the move index the that12:41VIX for bonds surges past 100. It tells12:44primary dealers that bond prices are in12:47a state of intense unpredictability.12:49Primary dealers are the exact entities12:52that warehouse residential mortgage back12:55securities. Because dealers are12:56uncertain where swap spreads and12:58long-term debt will settle, they demand13:01an enormous volatility buffer. The13:04result, the spread, the spread between13:07the 10-year Treasury and the 30-year13:09conforming fixed mortgage remains blown13:12out above 260 basis points. That's why13:16your mortgage rate is pinned above13:187.405%13:20right now. It's not because inflation13:22headlines are high. Yesterday's PCE13:25cooled to 3.01%.13:28is because volatility and institutional13:30plumbing forces dealers to pass the risk13:32premium directly to the homeowner to you13:35and me. Second, look at commercial bank13:38credit availability. When hedge funds13:40run $300 billion in offbalance sheet13:43swap derivatives across Wall Street13:45trading desks, major clearing banks must13:48allocate working liquidity to backs stop13:51those bilateral contracts. Every billion13:54dollars of tier 1 mega bank sets aside13:56to co-sign a swap spread facility with a13:59Cayman Islands hedge fund is a billion14:02dollars extracted from the real economy.14:05I know this is complicated stuff, but it14:07definitely affects you and me on a daily14:09basis. It means lower credit card limits14:11for prime consumers. It means commercial14:14lenders requiring 35% equity down on14:17small business expansions. And it means14:20regional banks quietly clamping down on14:22revolving working capital lines. We14:24reported this to you in several videos14:26here at Wall Street Truth Bombs14:28recently. Third, look at your 401k. The14:31stock market is sitting at record14:33territory with a VIX of 16 because14:35investors are looking at topline14:37earnings rather than balance sheet14:40plumbing. But as institutional traders14:43know, a VIX at 16 sitting directly14:45beneath the bond mark, sorry, bond move14:47index at 101 is an absolute mathematical14:52divergence. The last eight times the14:55move index shot up 35% in a single month14:58into 100 plus territory, equity markets15:02experienced a sharp nonlinear catchup15:06repricing. That's a fancy way of saying15:09they got whacked pretty good. Uh when15:11the bond market experiences a seismic15:14shock, stocks eventually wake up and15:16price the reality of expensive capital.15:20Right? When you have a divergence like15:21that uh in the octagon, as I like to15:24say, between the stock market and the15:26bond market, uh usually the bond market15:29emerges the winner uh in that fight. Not15:33always, but usually. Now, now that you15:35know where the real risk resides and why15:39the mainstream narrative is focused on15:41the wrong trade, you can't sit on15:44autopilot.15:47As a chief investment officer and15:49portfolio manager, I run money based on15:52desk reality, my friends, not consensus15:55delusions. So, I'm constantly searching15:58around seeing these uh when I see these16:01headlines, I'm constantly having to16:03search around and run them to ground and16:05find the facts. And what I'm sharing16:07with you today are these facts. Now,16:09here's your concrete three-point desk16:12defense playbook to protect and uh to16:15protect and position your capital before16:18this diversion uh divergence actually16:21reconciles. Okay. Step number one, of16:24course, audit your volatility and trim16:26duration sensitive multiples. Don't16:29trust an equity VIX sitting at 16 when16:31bond market volatility based on the move16:33index is printing above 100. One of16:37those two markets is wrong, my friends.16:38And as I said before, the bond market is16:41virtually never wrong on cost of16:43capital. Audit your 401k and brokerage16:46portfolios today. Identify high beta16:49unprofitable growth stocks and funds16:52trading at 30 to 40 times forward16:54earnings. Guys, that doesn't mean16:56they're all bad, but make sure you check16:58them and make sure that your thesis is17:00still very, very strong. My friends,17:03when the benchmark 10-year yield sits at17:055.26%17:07and swap spreads are under pressure,17:09multiple contractions is an unforgiving17:12hammer. So, please check that thesis,17:15make sure it's still strong. Rotate17:17capital toward cash generative value17:19producers with minimal near-term17:22refinancing debt hurdles, right? Because17:24those debt refinancing, near-term debt17:26refinancing is going to be very17:28challenging for them, right? Because of17:30tighter capital and because of yields17:32that are probably right now higher than17:35the analysts initially projected when17:37they got in to that debt. Now, step17:40number two, avoid long-term fixed income17:42bond funds and co-mingle duration traps.17:45Millions of retirees are sitting in17:48popular intermediate and long-term bond17:50funds under the delusion that bonds are17:52always safe. Well, look, they are safe17:55mostly if you hold them to maturity, but17:57they're not safe when the 30-year yield17:59touches 5.59%18:01and the move index surges to uh by 35%18:05in a single month, especially if you18:07don't plan to hold those bonds to18:09maturity. And if you have one of those18:11bond funds, it's not the same thing as18:13owning a bond and holding it to18:15maturity. Commingled funds, they carry18:18substantial embedded capital losses. You18:20see, if you wanted fixed income defense,18:23step out of illquid corporate debt and18:24avoid that duration belly. Don't18:27speculate on a rapid collapse in yields18:29while debt issuance floods the primary18:32dealers. Step number three, hold direct18:36unencumbered sovereign treasury bills18:38over commercial bank deposits. Take18:40advantage of the specific anomaly that I18:43explained. While long yields are high18:45and volatile volatile, front-end cash is18:48highly yielding with absolute18:50convergence assurance. Lock a18:54significant portion of your idle working18:56capital and cash reserves directly into18:58one month to 3 month or maybe even six19:00month treasury bills. When you hold19:02sovereign bills directly, you have zero19:05counterparty risk to Wall Street19:06clearing houses or trapped regional19:09lenders. You earn a clean risk-free19:11yield above 3.8% while maintaining19:14complete dry powder to deploy when the19:16gap between the bond market and the19:18stock market finally snaps shut and we19:21find what we like to call um let's say19:24politely buying opportunities in stocks.19:27Okay, pull this entire intel package19:30together. Mainstream financial media19:32wants you to obsess over a fictional19:34basis trade apocalypse because19:36sensationalism, well, it attracts19:39clicks, even when the official audit19:41data shows zero emergency repo borrowing19:44and an 11 billion cash glut. They look19:47at the smoke detector going off in an19:49empty room while ignoring the fact that19:51$300 billion in actual shadow leverage19:54has quietly entered unregulated swap19:57trades. My friends, I know that was very20:00very complicated, but again, as I said20:02earlier, they all affect you and me at a20:05very basic level. So, your truth bomb20:07for today is this. The Treasury basis20:09trade is not blowing up today. It's20:11being wound down voluntarily because it20:14stopped actually paying and the entire20:16$300 billion leverage apparatus has20:18walked across the street into opaque20:20swap spread trades that have zero public20:23positioning reports with 10-year yields20:26at 5.26%. 26% and bond volatility20:28spiking 35% in a single month. The20:32danger in this market is not the trade20:34every doomsday outlet is watching. It's20:37the unmonitored shadow derivative20:40siphoning dealer liquidity pitting20:42mortgage rates above 7% and preparing to20:46blindside an asleep a very asleep equity20:49market. Join me every day for Wall20:51Street truth bombs where I drop them20:53right here before the market figures20:54them
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