Dear Reader,
Happy Monday.
Today is Monday, February 2nd — welcome to February!
A quick personal note before we get started. It's career week at my son's elementary school, so I'll be heading in to explain what I do for a living. I'm hoping the kids don't fall asleep before I'm done…
Now let's get to the markets.
President Trump has signaled that his choice to replace Jerome Powell at the Federal Reserve would be Kevin Warsh.
I like this pick. A lot.
Kevin Warsh has been inside the Federal Reserve. He's also spent real time on Wall Street. He was deeply involved during the financial crisis and is respected on both the policy side and the market side.
That matters — especially right now — because the Fed is no longer just a referee. It's one of the largest participants in the bond market. That's not normal. And it makes this job extraordinarily difficult.
This is not a role you want filled by someone who simply follows the president's wishes. Because after this president, there will be another president. And once the Fed becomes a political tool, inflation gets far worse — not better.
So from an institutional standpoint, I'm encouraged by this choice.
But let's be clear: whoever sits in that chair is inheriting a mess.
Here's the problem in plain English.
If the Fed cuts rates too aggressively, investors who buy U.S. Treasuries will walk away. They'll say the yields no longer reflect reality — especially inflation — and they'll sell. That creates a buyer strike.
Ironically, that means cutting short-term rates too fast can actually cause long-term interest rates to spike.
It sounds backward, but that's exactly how it works.
On the other side of the ledger, we're issuing massive amounts of short-term debt because nobody wants to lend to the U.S. for 20 or 30 years at current rates.
Why would they?
Why lend for 30 years at 4.5% when inflation is likely higher than that?
So investors say, "We'll lend — but only for a year or two."
That's dangerous.
Short-term debt has to be rolled over constantly. It's the national equivalent of running a balance on a credit card that comes due every year.
This year alone, we're looking at roughly $3 trillion in new issuance plus about $10 trillion in maturing short-term debt that needs to be refinanced.
That's roughly $13 trillion that needs buyers.
And here's the uncomfortable truth.
There aren't enough buyers.
And this is where things get interesting for investors.
When debt gets this large, markets start creating forced buyers and forced sellers.
That's when traditional bonds stop working the way people expect — and when new income opportunities start showing up outside the usual places.
That's something we spend a lot of time breaking down in America First Fortunes — where government policy and debt stress turn into real investing opportunities.
We're actually releasing a brand new opportunity TOMORROW at 9am est. so if you aren't on the list to receive the "Buy Alert"... make sure to get on the list now.
So what happens?
The Federal Reserve steps in and buys the debt.
When people say the Fed has gotten too big, they're missing the point. The Fed didn't create this problem. Congress and the White House did — by passing budgets with trillion-dollar deficits and no fiscal discipline.
The Treasury sells the bonds.
The Fed buys them.
The left hand buys what the right hand is selling.
That's the box Kevin Warsh is stepping into.
Personally, I'm a bond buyer — but only at the very short end. Treasury bills under one year. That's it. I don't trust long-term bonds here. I don't believe inflation is being fully captured, and I don't want fixed payments that lose purchasing power year after year.
This is a delicate balancing act. Cut too fast and long rates spike. Don't cut and the debt burden grows heavier. Meanwhile, global buyers are less willing to fund U.S. deficits than they were a decade ago.
We've seen this movie before.
Arthur Burns was once considered the perfect Fed chair. Brilliant economist. Respected. He still folded under political pressure — and helped ignite the inflation of the 1970s.
That's why character matters here.
You need someone who understands markets, understands policy, and knows how to play the ball where it is — not where they wish it were.
Kevin Warsh may not have an easy job. But given the choices, I think this is a good one.
That's all I have for today.
Have a great Monday.
I'll see you tomorrow.
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