Banks Are Preparing For Something BIG

Big global companies and big banks, especially those in the United States, they're all betting big and preparing for lower interest rates. It's not what they say or what a few of their high profile CEOs might be saying, it's what they do. And one thing that they're all doing is issuing a ton of commercial paper, which is an unmistakable signal about what it is they're actually thinking. We never really hear about any of this because narratives dominate the mainstream. And those are set by people like Jamie Dimon, who continues to say the opposite from what his and everyone else's banks are actually doing. They're all buying massive amounts of government bonds rather than rejecting them. Same goes for foreigners. Overseas bondholders have been binging on not just US government agency bonds, they've been doing so at a record pace. Sell America? Not even close. The whole financial world is gearing up for lower rates and really what lower rates truly mean. And that means a ton of defensive activity, bond buying being only one of those. American banks are tightening up their balance sheets and just in time, because it looks more and more like the US dollar is heading higher. And if it does, that would validate why there is so much of this going on everywhere. And what you most often hear is that the out of control government is getting its comeuppance as the world starts rejecting government bonds. Nothing could be further from the truth. That's what we would all like to happen, and myself very much included, but fundamentals in the monetary system and real economy matter far more than what we would wish. You have to set aside your emotion and what you want to happen in order to see what actually is happening. The entire monetary, financial and even commercial system is gearing up for lower interest rates. Not just lower interest rates, a lot lower that stay there a long time. Everything is tilting in that direction, including even some central bankers like John Williams of Federal Reserve Bank of New York. They're starting to see it too. Everyone but maybe the financial media and Jamie Dimon. We've got all the bank and bond details here starting with commercial paper. And that's a big one. As Bloomberg reported, the renewed embrace of commercial paper is feeling the biggest expansion in the market since 2006. It underscores just how dramatically corporate America has been shifting its funding mix. Faced with elevated interest rates and tariff turmoil, companies have moved to shore up cash buffers while also avoiding locking in higher longer-term borrowing costs, especially with potential Federal Reserve rate cuts and market rates going lower on the horizon. The pivot mirrors a similar move by the treasury, which has ramped up issuance of short-term treasury bills to cover the U.S. budget gap. Quote, "'We're buying more commercial paper than we've ever bought,' said Deborah Cunningham, who's the chief investment officer for global liquidity markets at Federated Hermes, which manages $846 billion of assets." Now, setting aside, that's not why the government is issuing gobs of treasury bills. I mean, treasury bill issuance is giving the market what it wants, not the government. From banks to big companies though, the real financial world, divorced from mainstream commentary is positioning for rates to go down by a lot and likely to stay that way for a long time. And the evidence is overwhelming at this point. And there's a ton more, especially from banks and even some policymakers, as we'll see later in this video. But the idea the financial system is loading up for much lower interest rates is shocking to most people, maybe even the vast majority, because all they hear in every form of media, whether traditional or social media, is exactly the opposite. Inflation's going to be big and it's going to be 2021 all over again. Or government bonds are being rejected, especially U.S. treasuries. Right now, it's fashionable in the mainstream to focus exclusively on ultra-dated long issues as if there's some kind of canary in the coal mine for the yield curve. But none of it is true and it's easy to disprove. Behind everything, nobody wants to admit they were completely wrong about the long run. By 2022, everyone, and I mean everyone, said it was going to be a new paradigm. The 2010s were over with. Rates were going to go permanently higher. Inflation was here to stay and so was central bank hawkishness. Higher for Longer was sold by the entire media and commentary complex as a done deal. They're now resisting the growing proof that they were totally wrong about all of it. Inflation, central banks, bonds, and rates. That's really all this is, starting with Jamie Dimon, oddly enough. Back in early July, Dimon had said that there was a greater chance the Fed's next move would be a rate hike, not a rate cut, because tariff inflation was being underappreciated by the marketplace. And it was all hogwash. Now, a good way to stay up to date on all of this, especially what's taking place in the markets, the curves, all the stuff you never hear about in the mainstream, is with Uradala University's one big weekly theme. It's our subscription service over at Substack. As the name implies, we'll give you the week's big weekly theme and all of the details that go along with it, drawn from all over the Uradala University's vast landscape. From the daily briefing, our deep dive analysis, what we put together on YouTube, and a whole bunch of stuff that you don't get to see anywhere else. So check out the subscription service. It's over at Substack. There's a link in the description below to check it out, to sample it, and to sign up. We've got a special price going on right now. So like I said, check it out. Link in the description over at Substack. Dimon backed up Jay Powell, saying that he was right, at least in Dimon's mind, to at the very least pause and assess where central bank policy rates were gonna be. Inflation, according to both of them, would be the greatest threat moving forward. And a lot of people seem to believe this, at least outside of the marketplace, outside of the marketplace. It was never taken seriously in bonds, and as we'll see, by the banks either. And for Dimon, there's a pattern here. Go back to October of 2023, just as the bond rally was getting started. As CNN reported on October 2nd of that year, JPMorgan Chase CEO Jamie Dimon issued a stark warning to Wall Street. The Federal Reserve may be far from finished with its aggressive regimen of interest rate hikes in the fight against elevated inflation. Most analysts say the central bank will raise interest rates just one more time in November 2023 by another quarter percentage point from its current range of five and a quarter to five and a half percent. However, Dimon told Bloomberg TV, it's possible the central bank will continue hiking rates by another one and a half percentage points to 7%. And every single part of that was absolutely wrong, especially Jamie Dimon talking about a 7% for federal funds. Yet here we are two years later, it's clear that all of that was wrong, and yet when Jamie Dimon shows up on TV, and everybody, oh, he says the Fed's gonna have to hike rates, everybody nods along in agreement. Why? Because they wanna believe that they were not wrong about the inflationary conditions and hire for longer and hawkish central banks and everything else that went along from 2021 forward. Remember when Dimon said that 7% Fed funds, the Fed was already done, and that was just days before the global bond rally got started. In fact, Germany's two year, that had already started to rally several weeks before Dimon even started talking. So Dimon is either an irredeemable inflationist, which means he's an ideologue rather than independent observer interested in the truth. And the only other option, one that I've explored several times here on YouTube and other places, is that Mr. Dimon is trying to influence public and market opinion in order for the bank that he leads to better position for the opposite of what he's saying in public. Those are the only two possibilities here because Dimon keeps doing it, and so does JP Morgan, and indeed, as we'll see here, the entire banking system. They're saying one thing and doing quite the opposite. So you've gotta look past all this noise, which is designed to obscure the facts and the truth. And it's not easy when everyone says everyone does something else, especially when it's coming from a very smart guy like Jamie Dimon. I mean, he runs one of the biggest and most important banks on the planet, but that doesn't make him anything more than just good at running a bank, and his shtick might actually be a good part of that. I mean, from the very, just ask yourself, does it look like the world is rejecting US Treasury? Start there with the actual evidence. Don't leave it up to some curated opinions across the financial media or from guys like Jamie Dimon who might actually have an agenda. Just look at the evidence. Look at the way things are going. Look at a chart. Does it look like the marketplace is rejecting treasuries, specifically US Treasuries? As it currently stands right now, just before I started recording, the benchmark 10-year bond is yielding just 4.18%, its lowest since April. That's also 15 basis points below the effective federal refunds rate and 21 basis points below SOFR. If the market is rejecting treasury bonds, it's doing a horrible job of it. In fact, interest rates are down sharply from where they were earlier in the year, so none of that is taking place, which is why the media has been left and forced to focus on the ultra-long end of the yield curve as if 30-year bonds are somehow more representative of what's going on in the entire curve or 30-year bonds in Japan or the UK somehow represent some canary in the coal mine. Well, they do. The canary in the coal mine is bull steepening, not the rest of this bull crap. And up at the front, short-term rates are dropping fast, and it's not just that the Fed is cutting rates. The market is saying the situation has gone so far, even the inflationists like Jamie Dimon's guy, Jay Powell, won't have any choice in the matter. He and the rest of the FOMC committee would prefer to wait until, what, 2028, to be perfectly sure there is no tariff inflation, but he doesn't get that luxury. Instead, as I showed you yesterday, there is every reason to believe the US right now is actually shedding jobs. Not only the establishment survey, what it showed post revisions, Jolt's labor turnover showed negative, net negative turnover in both June and July following the drastically awful job losses that were picked up by the household survey. That's part of the problem too. The mainstream narrative is that the economy is solid and therefore more likely to be inflationary when the facts and the evidence, especially what's priced into the market, are completely the opposite of that narrative. And that's all it was, Dimon's fantastic narrative in support of a solid Jay Powell and his hire for longer. And none of it is true now because none of it was true the entire time. The economy was forgot how to grow and the market recognized it almost straight away, which is why the yield curve inverted so heavily when it did back in 2022. And the swap market and everything else that goes along with that. But what are US banks actually doing? We'll start with US banks. Since the week of May 21st, collectively the US banking system has added another $90 billion in non-MBS agencies and US treasuries to their holdings, which are now just short of 2 trillion. These are the last instruments any rational person would own if inflation is going to be huge and the Fed might be hiking rates. You don't even want to hold these things if the economy is going to be legitimately booming, which is why we would expect interest rates to rise if there ever was an actual boom. But there isn't, there hasn't been, and sadly there still won't be. And going back to the middle of November, 2023, again, the start of the bond rally, US bank portfolios of treasuries and non-MBS agencies have soared by 451 billion. That's an enormous 30% increase. All the while, the Fed, Jamie Dimon, the entire financial media, all of them shouting about inflation constantly, higher for longer, rejecting treasuries, and all of, it's all a lie. It's all just a narrative. And the narrative has no facts and evidence to back it up, just pure emotion. We would love it if the governments are getting their comeuppance because they borrow too much, because they have borrowed too much. But as I keep telling you, and the market keeps showing you, and the evidence keeps backing up, the fundamentals are what matter here, and those are getting more, not less certain. And it's global too. The same narrative being spun here is being spun practically everywhere, even in China. Inflation, inflation, inflation, solid economy, nascent recovery, everything is picking up. Nonsense, completely false. Like their American counterparts, European MFIs, which is what the ECB labels European banks, they're called monetary financial institutions over there, but they've also been on a bond binge, whatever you wanna label them as. One that is still going, by the way. As of the end of July, the latest update that we have from the ECB, European MFIs added another 27.4 billion euros in their government bond holdings, which brings the total for the year up another 281.9 billion euros. And going back to January 2024, just after the bond rally really got started, government bonds being held by European banks have soared by a very similar 31% or half a trillion euros to now total more than 2.1 trillion euros. Anyone who thinks the ECB is done cutting rates needs to look at the European banks just as a start. Again, interest rates, marketplace, what banks are doing, what foreign bond holders are doing in euros, U.S. dollars, and a whole bunch beside. No one is rejecting government bonds. Yield curves are steepening, sure, but that's not the same thing at all. According to the U.S. TIC series, foreigners continue to buy all kinds of U.S. dollar assets. That includes U.S. government debt like treasuries as well as quasi-government agency bonds. No one is doing anything remotely like rejecting either of those. The only time, especially foreign private investors, sell their U.S. dollar assets in the U.S. treasuries is when dollar conditions, funding conditions in the euro-dollar system are so acutely deflationary, they have no choice but to liquidate these reserve assets to cover any short-run funding shortfalls. So we see private holders sell U.S. treasuries and the like in, for example, April 2025, very clearly deflationary, or back in November, December 2024, when the dollar was spiking at the start of that global euro-dollar deflationary wave, which crested in April. But other than being forced by deflationary dollars to liquidate, overseas participants, as you can clearly see, keep piling in on U.S. dollar assets, so much for Sell America, which is another lie of a narrative. And yes, U.S. treasury bonds are being bought hand over fist. So U.S. banks, European banks, global market participants, financial participants, monetary participants, all of it consistent with what we see in market prices and curves reshaping, bull steepening, not higher for longer. And we can't forget there are also monetary reasons behind these lower interest rates too, not just faltering macro and questionable job conditions that have forced central bankers to act in the way that they don't want to. The dollar has been making some noises about reversing course and heading higher. That was after it hadn't weakened, let alone crashed since April. The exchange value soared from late last year on deflationary conditions and largely kept going right on into April. Since April, the exchange value has come down, but only from those extremes. And since June and really mid-July, the dollar isn't even doing that anymore. It isn't surging, but the fact that it's rising even a little bit, especially against a few key currencies like India's rupee or others like the New Zealand dollar and the Korean won, that's a significant signal. And as far as the won, just last week, Bank of Korea's Governor Ri was defending the government using the central bank to intervene against the falling South Korean currency. As Bloomberg reported on the 28th, the South Korean won rose after central bank Governor Ri Chang-yong defended the monetary authority's intervention to curb the currency's weakness, adding the won had been part of talks with the U.S. government. And the won advanced to as much as 6.25% to around 13.85 per dollar, with gains accelerating after Ri's remarks at a press conference following the central bank's decision to keep rates unchanged, even though the Bank of Korea signaled it will be rejoining the race to the bottom likely at its next meeting. The U.S. may view South Korea's intervention efforts as desirable, Ri said, adding that the U.S. Treasury is holding foreign exchange discussions with several Asian nations, including South Korea. And while the Trump administration may want the dollar to weaken, the Eurodollar is in charge, not any government or central bank, including those in the U.S. itself. If Eurodollar conditions are tightening because of heightened defensiveness and risk aversion, which we continue to see, there's nothing Scott Besson, Jay Powell, or any of their counterparts are gonna be able to do about it. So by the way, as of this morning, Korea's won is back down right around 1,400 to the dollar. The rising dollar indicates that after remaining tight this summer, just not as extremely tight as in earlier in the year, the Eurodollar world is tightening up all over again in combination with growing awareness of economic deterioration, which goes right along with lower interest rates. And even some policy makers are starting to see this for what it really is. After thinking that something had substantially and categorically changed for interest rates, thus why everybody believed rates were structurally higher in the 2020s, now they're starting to think, well, maybe we need to rethink all of that. FRB and WISE president, John Williams, for example, told an audience in Mexico last week that his calculations show that the overall long-run interest rate environment is looking more and more like the 2010s than something different. Now, economists like Williams call this our star. And what was supposed to have happened is that inflation and global recovery would have meant a fundamental improvement, generally speaking. And yes, they think inflation is an improvement so that 2020s were supposed to be on a different path than the 2010s, and therefore, structurally interest rates would end up being a lot higher for a lot longer. Our star was supposed to have risen after all that stimulus and all that purported overheating in the economy that the constant narrative told you about. Again, it was all price illusion. It was all just a lie. And now, John Williams says, well, maybe our star didn't change after all. Rather than structurally higher interest rates, he's beginning to get the sense nothing about interest rates actually did improve from the 2010s, which would mean that a long-run interest rate environment here in the 2020s looks entirely too much like the one from the 2010s. Yeah, I know, where have we heard that one before? Well, we've heard it basically everywhere. And I mean everywhere outside the financial media and from Jamie Dimon's mouth. Banks and even big corporates are betting on preparing for sharply lower interest rates. And there's every reason to be so defensive. And lower rates are absolutely defensive. Banks the world over are buying government bonds and they can't get enough of them. While they aren't perfect and they're not the sole determinant for the course the world will take, that's already a huge red flag. And they're being joined by basically everyone else, even if none of this gets printed in the virtual pages of Bloomberg or make the TV screens showing CNBC or get trending on X. Instead, you'll hear what Jamie Dimon has to say and all the train seal talking heads will clap along like it's pure gospel. The world is rejecting treasuries. Inflation is the greatest risk. Interest rates have nowhere to go but up. Meanwhile, down in the real financial and monetary world, the entire system is gearing up for the opposite. It's not what you want. It's not what you would wish. This is what happens whether you like it or not. Yes, you did hear that right in the video. According to Joltz, the U.S. had net negative employment turnover in June and July. All the details like the beverage update in the video link below. As always, thank you very much for joining me. Huge thank you, Uridal University members and subscribers. And until next time, take care.