Cash, Hot Chick Memes, And Gold

“Good night, sweet maiden of the golden ale.” – The Fellowship of the Ring

She got pulled over, and the cop asked, “Whose car is this, where are you going, and what do you do?”  Her answer:  “Mine.”

The economy is currently a carnival funhouse rollercoaster:  interest rates are climbing like a squirrel on espresso, the Federal Reserve® is promising cuts, and the U.S. Treasury is issuing bonds 30-year bonds that are paying a higher interest rate than they have since the 2008 crash.

Meanwhile, central banks around the world are ditching those same Treasuries and buying gold, and the kids?  They can’t get jobs.

I think we might want to buckle up, because this carnival rollercoaster might be bumpy.

The U.S. 30-year Treasury yield hit 5% today, a level not seen since the 2008.  You’d think with the Fed™ signaling rate cuts, yields would chill out and drop like the mood of the Prime Minister when he’s confronted with all those pesky English and Scots he hasn’t replaced yet.

Nope.   Interest rates are spiking like a 35-year-old guy who identifies as a middle school girl volleyball player.

What’s gray, has spikes, and runs around a field?  Barbed wire.

Why?

The Treasury is flooding the market with bonds to finance a national debt that has ballooned to $37.3 trillion.  The Treasury issues the bonds, and buyers (think mutual funds, foreign central banks, and the Fed® itself) are supposed to snap them up.  The problem is, supply of these bonds is growing faster than a vegan’s tears at a butcher shop.

When nobody wants bonds because there are so many of them, they’ve got to sweeten the deal with higher yields or make the Fed© buy them.  People don’t trust the future value of the paper, so they require a higher interest rate to take it.  That’s basic supply and demand.  But here’s the kicker:  the Fed’s® still printing money like it’s auditioning for the “irresponsible German bank” part in a Weimar Republic reboot.

The U.S. money supply (M2) is growing at about 5% a year, pumping roughly $1 trillion into the system annually.  With bonds looking as appealing as a moldy sandwich, where’s the money going?

My maid doesn’t get tired, she gets sweepy.

Two places:  gold and stuff.  Real stuff, like oil, copper, or steak.

Central banks aren’t idiots, despite what their hairstyles suggest.  They’re dumping Treasuries and hoarding gold like it’s the last Twinkie® in a zombie apocalypse. Gold prices are up 2% the day after Labor Day (for you foreigners, Labor Day is the one day in the year that women are legally allowed to give birth in the United States).

Why?  Gold remains a hedge against chaos, and with geopolitics shakier than a Jenga© tower on 9/11, it’s no surprise.  Central banks from China to Switzerland are stocking up, signaling they trust shiny metal more than Uncle Sam’s never-ending stream of Everlasting Gobstopper© IOUs.

Then there’s oil. Prices are climbing reflexively, at a time when oil prices (and gasoline prices) normally go down a bit due to the end of northern hemisphere summer driving season.  When cash is flooding the system and bonds are a hard pass, investors pivot to tangible assets.  Gold doesn’t default.  Oil keeps the trucks moving.

Treasuries?

They’re only as good as the government’s promise not to go crazy and fill piñatas with them.  With deficits soaring, that promise is starting to sound like a drunk uncle swearing he’ll “pay me back next week”.

But the blindfold helped, they said.

Rising rates are usually bad news for stocks.  Why? Companies live on debt.  That cheap borrowing fuels expansion, stock buybacks, and those swanky CEO jets.  When rates climb, borrowing costs spike, squeezing margins like a python on a parrot.  Every S&P 500 company has a line of credit, because if they’re not in debt, some Wall Street shark will swoop in, use the company’s own assets as collateral, and buy it out faster than you can say “beveraged luyout.”  Higher rates mean higher hurdles for profits, and markets hate hurdles more than a couch potato hates a 5K.

Yet, the market’s been elastic, bending without breaking because most of those dollars printed end up in the hands of the companies that make up the S&P 500.  The S&P 500 is near all-time highs, shrugging off tariff tantrums and rate spikes like it’s no big deal.

But markets are funny:  they stretch until they snap.  This time, I’m sure it’s different. (Cue the Seinfeld laugh track.) The last time everyone thought markets were invincible, we got 2008.  Don’t bet on “different” when history has proven to have a mean right hook.

One pirate I know got his hook at the second-hand store.

But at least unemployment is low, right?

Sure, if you’re a boomer with a corner office.  The headline rate is 4.2%, but for 16- to 24-year-olds, it’s over 10%.  That’s not “low”; that’s a generation stuck flipping burgers since 60% of new college grads aren’t employed.  The “quits” rate—how often people ditch their jobs—is at a five-year low, meaning kids aren’t leaving because they know there’s nothing else out there.

A soft labor market plus rising rates?  That’s a recipe for stagflation, not growth.  No wonder Gen Z’s more interested in crypto scams and video games than climbing the corporate ladder.

So, where’s this economic rollercoaster headed?

The Fed© is in a bind.  They’re being pushed to cut rates to juice the economy, but inflation is still hovering near 3%, and it’s flexing upwards.

Keep printing money, and inflation could roar back like a drunken ex with a cell phone at 2am.  Raise rates too fast, and you choke the economy, spiking unemployment and tanking stocks.  Meanwhile, the Treasury is issuing bonds like they’re piñata stuffing, but buyers are scarce.  Foreign central banks own $8.7 trillion in Treasuries, but they’re pivoting to gold because it’s the only central bank holding that’s appreciating.

This all points to a reckoning.

Printed greenbacks are flooding in, but it’s not going to bonds—it’s chasing gold, oil, and maybe that Bitcoin your nephew won’t shut up about while not yet fleeing from the S&P 500, who will end up getting the cash anyway.

Superman® does have a cousin without superpowers.  Poor Norm-El.

Markets might keep bending, but history says they will eventually break.  It could be a slow bleed, like the stagflation of the 70s, or a sharp crash, like 2008.  Either way, the government is spending like a toddler with a sugar high and a credit card, and the bill will eventually be paid by the borrower.

Or the lender.

I worry that we might be seeing an economic rollercoaster, but that’s still better than the most powerful carnival ride:  the merry-go-round.

It has the most horse power.

Disclaimer:  I am not a financial advisor.  You would be foolish to trust me for financial advice, since I have taken my own advice many times and based on the results I consider myself a sketchy source on my best day, so you should talk to someone who knows more about it than an Internet humorist, even though I’m currently sober.  Currently.  As far as you know.