US bond yields have soared in recent years. One reason is that the amount the US Government is borrowing is climbing rapidly.
You can see on the chart a spike to finance the Second World War, but that looks like a blip compared to what is happening now. Life is good when you can fund current expenses by endlessly borrowing more money. I should know, having spent much of my life operating in just this way.
If the great interwar economist John Maynard Keynes were back with us, I expect he would explain the endlessly booming US economy by the money being poured into it by the US government. But life is not that simple. Endlessly pouring more money into an economy will eventually result in a higher cost of borrowing (bond yields going up) and higher inflation.
Both these things seem to be happening, and Trump does not look like the man to reverse the trend. He wants to make the government more efficient, but this is more to fund lower taxes than because he is a fiscal conservative. Like me, I suspect his whole life has been funded by aggressive borrowing. He just wants to bully the Federal Reserve into cutting interest rates regardless.
One way in which a country can erect barriers against imports and encourage exports is by devaluing its currency. As we can see from the chart below, since Trump became president, the US$ has been devalued by around 10pc against a basket of currencies. As a result of my continued reading of ‘No Trade Is Free’, I suspect the Trump administration may want this to happen, either to improve US competitiveness or as a lever to change policies in other countries.
I do warm to ‘No Trade is Free’ and the author’s contempt for almost any international body you care to name. He devotes a whole chapter to the iniquities and general uselessness of the World Trade Organisation (WTO). I had no idea how closely WTO resembled FIFA and its merry band of crooks until I read this.
A US debt figure of $35 trillion and climbing seems likely to affect US policy going forward. Inflation, within reason, is good news if you are a big borrower because the repayments are in nominal dollars, so the real, inflation-adjusted burden is less.
If Trump makes good on his plans to load up with Bitcoins, that could also help because the Bitcoin price is mainly denominated in US$. A falling dollar would tend to push the Bitcoin price higher. Saylor’s massive bet on Bitcoin could then be looked at in a different light. He is betting that US politicians will always choose to buy votes by spending more money.
This has happened on an epic scale in Japan, where the national debt is over US$10 trillion, the highest in the world in per capita terms. If you are not a student of Japanese politics, you may not realise how irresponsible and corrupt their political class is. They get away with it because the private sector generates so much wealth, which may be the get-out-of-jail card for America.
Nevertheless, the general feeling that the supply of dollars into the global economy is endlessly increasing is a powerful background factor driving higher prices for gold, Bitcoin and US equities. A cynic might even ascribe the long-running US bull market to more dollars chasing a relatively fixed supply of shares. None of the megacaps has issued new shares, except to employees, for years and seems unlikely to do so in the future, given their huge and climbing free cash flows.
On the contrary, many companies, even quite small ones, have ambitious share buyback programmes.
For once, AI waffled when asked for the combined free cash flow for the mega caps. So I picked just one, Microsoft, which had free cash flow of a stunning $74bn in 2024. Multiply that by seven for the seven megacaps, which would be too much, and you reach a figure of $0.5 trillion for free cash flow. Whatever the number is, it is big.
A tsunami of dollars is another reason for expecting the great US bull market to continue and for having a bullish bias with regard to gold and Bitcoin.
Trade war fears have again flared up with Trump’s threat to impose 50pc tariffs on Europe and special levies on Apple unless it makes iPhones for sale in the US in the US. Shares look set to open sharply lower. My view is that these are buying opportunities for exciting shares like the ones in my top 10.
People, including investors, worry that the US is taking big risks by printing so many dollars, but the world has no realistic alternative to the US$ as a reserve currency now that sterling is no longer a serious contender. It is a huge advantage to the US that people will accept and hold dollars as payment for anything, but they have earned this through the energy and animal spirits of the US economy, their adherence in an uncertain world to most of the principles set out by Adam Smith and the get up and go of so many individual Americans.
When US shares are retreating it is important to remember these deep-seated factors making the US THE place in which to invest.
A newly floated share called MNTN, for which the actor, Ryan Reynolds, is chief creative officer and a shareholder, has caught my attention. It is helping smaller enterprises to advertise effectively on connected TV, aka streaming, and is growing rapidly as a result. It is an exciting business, worth a look.
The slide below gives a quick insight into how they are doing.
Share Recommendations
MNTN. MNTN
