Hey There Income Hunter,

I frequently talk about debt since policymakers and the media refuse to mention it.

The reason why debt is never mentioned is this: Debt is the lifeblood of fiat (paper) currency.

Governments spend and issue debt that is backed by faith and trust in their ability to pay you interest plus principal at the maturity of the debt (bond).

If this faith in government is damaged – by irresponsible policy decisions, for instance – then the level which investors demand for lending governments money soars.

This was exactly what happened last week to the UK government. And right now as traders we must prepare for a quickly developing debt crisis. 

Ignore all references to the contrary!

Today, I will give you the inside info you need to have confidence in the trades that will take advantage of central banks’ next moves.

Central Banks’ Policy of Choice

Today, the central banks of energy importing countries and regions, including Japan, the UK and EU, are significantly restricted in their ability to raise rates because the governments must buy energy using dollars …

By paying for energy using strong dollars plus having to work around the sanctions on Russia, the current accounts of all three mentioned above have gone far into deficit … 

This forces them to sell their US holdings to finance these deficits. Now, the problem for the UK and EU is they only have two months of reserves left to finance their deficits.

This is really important to understand because once their reserves run out they will be forced to sell their 100s of billions of US Treasury bonds and use the proceeds to fill the deficit gap.

This Crisis Is Coming to the US

The Fed will have to make a choice soon.

You see, the past week’s debt crisis in the UK foreshadows the path the Fed is on, as well. Only a weakening in the dollar can relieve some of the stress …. 

Notice the TLT chart below. It is breaking below the 2014 lows and the Fed will have to step in in the near-term to relaunch quantitative easing in order to stabilize the bond market …

Remember, for the US, the band market provides the foundation for our capital markets … 

When there is trouble brewing there and confidence is lost on the Fed, you can have multiple crises happening together. 

Bring It Home

We are quickly approaching a market narrative of a loss of confidence in the Fed. That is when the currency and the bond market could unravel quickly.

I think this week may present an opportunity to set up shorts in bonds and maybe a long in the dollar against long positions in Gold and Silver. 

Those are the opportunities I am focused on in Power Income Trader.

The global macro flows can be overwhelming, and if the central banks need proceeds, they will sell their US Treasuries and there will not be enough buyers for them.

Stay tuned for more and as always …

Live and Trade With Passion My Friends,

Griff