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(Kitco News) – The decline in the bond market is signaling that investors are fed up with massive debt, according to James Lavish, managing partner of the Bitcoin Opportunity Fund, who is warning of a potential systemic credit event, which could There will be another massive trigger. Liquidity dump by the Federal Reserve.Thank you for reading this post, don't forget to subscribe!
Earlier this week, markets digested the 10-year US Treasury yield crossing the 5% mark for the first time since 2007 and then rebounding.
The reversal was partly caused by billionaire investor and Pershing Square CEO Bill Ackman’s announcement that he was ending his bearish bets on long-term Treasuries. Ackman posted on X that “there is too much risk in the world to remain short bonds at current long-term rates.”
Ackman earlier in August revealed his short stance on 30-year Treasuries, adding to the pressure on bond markets.
At the time of writing, the 10-year yield was 4.9%, and the 30-year yield was 5.03%.
One reason yields on long-term Treasuries are rising is that investors are worried about the growing amount of debt, $33.5 trillion.
Lavish told lead anchor Michelle Makori, “Why would the 10-year go up? It makes no sense until investors now see that the Treasury has pumped $2 trillion of debt into the market in the last three months.” Editor-in-Chief of Kitco News. “In the last three weeks alone, they pumped $600 billion of debt into the market this week. We’re seeing investors step back and say: ‘Wait, that’s too much debt. There’s no way that’s going on. We can maintain it. ,
What makes things worse is that the only way out of this situation is inflation, which is why investors are demanding higher yields. Lavish expects higher inflation going forward.
Watch the video above To explain what could trigger this major systemic credit event.
Another massive liquidity dump?
When the Treasury market sees these types of signals, the Fed knows it is approaching the point where it can no longer raise rates. “They’re worried that they’re going to have to come in and do what’s called yield curve control and the Fed is going to have to come in and start buying in the open market again,” Lavish explained.
If there is a contagion factor to the credit event, the Fed will be forced to step in. “The problem is that it could get so big or so far-reaching that there’s a risk of what we call contagion, which affects other companies. And if that happens, you’ll see the entire market go down. That’s the danger. ,” Lavish said.
The market has come to rely on the Fed to step in with a rescue plan when things go bad, which is the only thing holding the market up right now, he said. “We have been taught since Black Monday of 1987 that the Fed and the Treasury together will step in and save the market.”
Lavish explained what this credit event might look like and what impact it would have on financial markets, Watch the video above for information.
Gold and Bitcoin have ‘tremendous upside potential’
According to Lavish, once the next credit event hits the markets, gold and Bitcoin will have “tremendous upside potential.”
“A credit event will be a situation where you will have a higher probability of contagion from counterparty risk among larger banks or larger institutions. It will force a selloff in the market in almost everything,” Lavish said.
The first thing that will happen is a decline in broadly all assets including gold and Bitcoin, followed by a strong rally.
Lavish described, “On this kind of market event you have this V type decline. And then the recovery comes when the Fed and the Treasury inject tremendous liquidity into the market to make sure it doesn’t collapse.” “The only thing the Treasury really cares about is making sure the Treasury market remains liquid so they can continue to borrow, they can continue to sell bonds to the world.”
To achieve Lavish’s gold and Bitcoin price targets, Watch the video above,
Lavish also outlines Bitcoin’s reaction to the Spot Bitcoin ETF approval. Watch the video above To get the percentage profit estimate.
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