Melt Up Before Melt Down?

Trying to explain

Good morning,

A fair warning… what I’m about to explain is a little complicated.

I’ve long quoted Margin Call’s John Tuld when asking for a simple explanation.

He tells an analyst in the epic financial crash film, “Explain it to me as if I were a small child, or a golden retriever…”

Here’s the issue.

It’s hard to explain to a golden retriever how margin calls work.

He just tilts his head, wags his tail, and then somehow leverages a tennis ball into a $6 billion collateral shortfall.

Congress just passed a $3.3 trillion deficit bomb.

The Congressional Budget Office confirms that the "Big Beautiful Bill" adds $3.3 trillion to deficits over the next 10 years. Now, some political junkies might disagree with that assessment and tell me that we’ll grow the economy based on this bill.

That’s not the point of my article.

My point is that the Tax Cuts and Jobs Act of 2017 was a massive turning point for the financial system. It required enormous amounts of T-bill issuance, which increased leverage in the system.

Surprise, surprise… this bill will likely do the same thing.

We're already at 21% of marketable debt in bills.

Bank of America projects this rises to 25%, which translates to roughly $1.2 trillion in new short-term securities flooding the repo market.

This would be a tidal wave of pristine collateral hitting the market...

Which is bullish as hell… until it isn’t.

Here’s where it gets wild… The repo market is about to get a lot of juice.