Under President Barack Obama, the central bank manipulated the financial markets, leaving us with a broken system. While there is much to be hopeful about in President Trump, he will have to fix what has been broken, which according to Dawn J. Bennett, won’t be free of pain.
“While the stock market is on a roll, I believe that the market itself is still, to borrow a term from the President himself, ‘fake’. The market is moving up not because people are buying into it but due to continued central bank intervention and derivatives,” says Bennett.
According to Bennett, there are many behind the scenes signs that tell us things aren’t working. It seems foreign interests are seeing things Americans are not. Foreign central banks, reserve managers, sovereign wealth funds, and practically all other institutions holding U.S. Treasury paper are liquidating. Bennett explains the wholesale liquidation of U.S. paper continued in November. According to TIC data for November, foreign central banks sold another $936 million in U.S. Treasury paper. Japan and China have sold off U.S. paper in the billions over the last 4 to 6 months. China now holds its lowest U.S. Treasury holding since 2010.
“This is ongoing, and more than the previous year, and I believe it may indicate a lack of confidence in America and the Trump administration’s ability to fix the problems of the past eight years. Newspapers aren’t reporting this, the media aren’t talking about it, and I have to wonder why,” says Bennett.
She continued, “Even our own allies are selling, and my best guess is that they will continue to sell. Perhaps they think that the United States won’t be able to pay off the debt, along with concerns that we are going to be raising interest rates.”
It’s uncertain whether these foreign investors will come back. Bennett says they might if Trump can clean up U.S. debt, central banks run smarter or are even eliminated, and the dollar is stabilized. These investors who are liquidating are selling to individuals and retail investors, who will be the last to hold the bag.
“The Fed needs to determine how they are going to soak up all this excess supply, along with rationalizing their current interest rate experiment,” says Bennett. “In the meantime, it’s up to us to make sure that we don’t become the final bag-holders.”