The Federal Reserve may have once again identified what could end up causing a pretty big correction and Federal Reserve intervention. And it has to do with hedge funds going crazy short on specific parts of the treasury's market. This could be the cash treasuries Market or the Futures Market or both directions. Why? Because in short, they're massive dislocations between the prices of the two, like a 10-year treasury Futures Contract or just a 10-year treasury could have a few basis points of a difference.

so you go super short one along with the other to pick up those bips. Basically, now that doesn't make sense for us to do as normal investors. Or Traders because you might have a difference of one to two basis points and so you'd need hundreds of millions of dollars for this to make any difference at all in your portfolio leading to any kind of yield. So who does it? The hedge funds and what are they doing with sometimes 50x leverage and potentially no protection with actual cash? Position sometimes depends just sort of like zero margin.

Massive margin. Loads. It's insane. In their last beige book, the Federal Reserve actually warned that this kind of stuff was going on.

and now the commodity Futures Trading commission has come out and said yeah, there are unusually high levels of short in the Futures as our treasury. Futures Market We're seeing similar things going on in the regular trash market, and this is generally caused by a lower willingness of banks wanting to lend. There's more cash. Cash is no longer trash again.

Economic uncertainty I Don't know what's gonna happen with rates. So again, people want to hold on to their cash just a little longer. And what does that end up doing well in the near term. It ends up driving up treasure yields, which we been seeing lately and it just sets up for more of that risk that we could end up getting that.

Black Swan Oopsie Dupsies. Now, when's the last time that sort of? Black Swan Oopsy-doopsies happen from or within the treasury's market? Well, it was during March of 2020 and it actually forced the FED to go into the market with even more stimulus than they expected. So long and short out of all of this is yesterday. There's an expiring coupon code linked down below for the programs in building your wealth.

the building discounts, the lifetime access to the course. member lives through all the good stuff and you'll love it. Send us an email at staff at me Kevin.com if you've got any questions for bundling up. We got McKay on standby for you, but otherwise what? What is this actually potentially mean in the near term? Well, what it means is the Federal Reserve has to be careful with not only how much their racing rates because of the actual economic impacts, but also because of the crazy dislocations going on in the trash Market which are actually keeping yields potentially higher than they ought to be right now and tightening Financial conditions more than necessary.

Think about it. as the 10-year treasury yield goes up, you're at and even the two-year and across the curve all yields are going up. You're actually tightening Financial conditions making borrowing more expensive and you're basically is essentially giving the market a rate increase without the FED actually giving the market a rate increase. And at the same time, the height of the FED does go.

the more you potentially exacerbate the short selling disaster which can unwind very very quickly thanks to massive margin calls. So expect. Well, maybe we shouldn't say expect, but it is highly likely that at some point we're going to have another March of 2020 style credit event where all of a sudden the hedge funds absolutely lose it in the treasury market. somebody gets heavily burned, which leads to somebody not delivering.

Which leads to somebody else getting heavily burned because everybody's levered up to the you know what and when it breaks, Fed's gonna have to come in and actually stabilize the trash market. And what's the likely outcome of that? a massive and sudden decline in interest rates. So in the short term, that might not mean anything bad for being exposed to treasuries. Uh, in terms of owning the actual Bond because you know, as yields, fall bond prices should go up.

it might not be so bad either in the stock market because well, eventually would just drive yields lower, especially after the Federal Reserve's intervention. Uh, and well, that's the direction we think things are going anyway. I Mean, think about it. There's no reason overnight repos are trading at five and a half and the 10-year is at 4.3 Like why, you know.

So why would you ever buy the 10-year right now? Well, the only reason you would buy the 10-year bond as opposed to overnight money markets or the which is basically your access to the repo Market is because you thought that rates were going to fall leading to capital gains and appreciation in the trash. Market Point of all of it is, there are so many things Brewing behind the scenes in the market right now. it probably is just a matter of time for something to break. Now the Practical question is, is that bearish? or is that bullish? Well, my opinion obviously.

I Know everybody. He turns everything into bullish. Look, let's just be real. That's let's logically think about this for a moment.

if and when something breaks like this in the treasury market again, the FED steps in and we lower rates. Why is that bad? That's like I Keep listening to these bears like trouble is brewing. It's gonna lead to the great reset. Everything's gonna crash I'm like bro.

rates are five and a half. All the fed's gonna do is oh okay uh. we'll reduce rates to three percent and it'll solve everything and it will. It'll keep the big bad Ponzi Scheme going.

Don't get me wrong, I think it's all a Ponzi too I Just don't think it's gonna blow up. you know, in any point, well in the near future here. So my point is I would rather be positioned to benefit from it by being a little long, some of these uh uh uh, treasury bonds and not only being long some of the treasury bonds, but also being long stocks because I expect when that violent cut comes. Well, let's just say uh, let's just say when that violent cut comes, it's going to be a little enthusiating to the stock market because I think what we'll realize is okay.

Great. This: this sort of Margin Call disaster occurring in the hedge fund. Market Doesn't necessarily mean the economy is screwed. It could happen.

It could coincide with a bad economy in a recession, right? And then you have you have the bear argument. But if there's no recession and there's no massive inflation problem that's left and inflation is gone, and the FED does have the ability to intervene and cut rates right now Michelle Remember back when rates were zero, everybody's freaking out about like, oh, rates are zero. how is the fat ever going to cut rates to bail out markets? Well, now they're five and a half. They got a long way to go to be able to cut rates.

So uh. anyway, that's my take on all this. Yeah, that's another surprise once again, Kevin's trying to get with the bullish argument, but um, it's just what I think it's what I believe Anyway, uh, we almost had eight minutes which is where you add monetization to the video. so I'll end it before that.

Love you bye.