A U G U S T 1 4 , 2 0 2 6

FFTT “Tree Rings”: The 10 Most Interesting Things We’ve Read Recently

You can listen to this report at this link:
Stream FFTT Tree Rings August 14, 2026 by FFTT, LLC | Listen online for free on SoundCloud

Here are this week’s “Tree Rings”. Have a great weekend! LG

1. “AI delivers the largest capex-driven boost to GDP in history” (Page 2)
2. In the prior five capex booms over the past 200 years of US history, US Federal debt/GDP has never been >40% (Page 8)
3. “A gentle reminder that y’all out ya minds” (Page 10)
4. “Wall Street sees sign of bond market angst behind Bessent moves” (Page 12)
5. “A problem for bonds: They aren’t responding to softer inflation data” (Page 14)
6. “The US bares its financial weak spot” (Page 16)
7. “The ingredients are coming together for a US financial crisis” (Page 17)
8. “SEC eases securitization rules for data center bonds, boosting debt sales” (Page 20)
9. “There seems to be a growing acknowledgement around the world that Keynes was right when he proposed at Bretton Woods a global trading regime that limited persistent trade imbalances and restricted global financial flows.” -Michael Pettis (Page 22)
10. Latest full, behind-the-paywall conversation between FFTT and Grant Williams (Page 29)

Luke Gromen, CFA
FFTT, LLC
[email protected]
www.FFTT-LLC.com
Follow us on X:
@LukeGromen

“AI delivers the largest capex-driven boost to GDP in history”

Source: AIndicators Hint at Doubts in Credit Markets - Bloomberg – 8/10/26

Tree Ring: The chart above is a macro Rorschach test. Here’s how we thought about it. First, we Googled “Canal building bubble collapse years US history”; once we did, we learned that the first capex boom in the chart above ended in a bubble and widespread financial bust:

The U.S. canal-building boom began soon after the Erie Canal was completed in 1825. It turned into a speculative frenzy in the early 1830s, and the bubble collapsed during the financial Panic of 1837, leading to widespread state defaults and a deep depression by 1842.

Next, we Googled “Railroad building bubble collapse years US history”; once we did, we learned that the second capex boom in the chart above also ended in a bubble and two different widespread financial busts over 20 years:

The two major railroad building bubbles and financial collapses in U.S. history occurred during the Panic of 1873 and the Panic of 1893. Both crises followed decades of heavy speculation, overbuilding of tracks, and massive debt financing through bonds.

The Panic of 1873

• The Bubble: Driven by post-Civil War expansion and the push for transcontinental lines, railroad construction soaked up massive investments (peaking at nearly 5% of U.S. GDP). Over three-quarters of this work was funded by debt and bonds rather than equity.

• The Collapse: Triggered in September 1873 when the major banking firm Jay Cooke & Co. went bankrupt after overextending funds on unprofitably slow rail extensions.

• The Aftermath: Roughly 89 out of 364 U.S. railroads crashed into bankruptcy, helping spark the Long Depression, which stalled construction and drove unemployment to 14%.

The Panic of 1893

• The Bubble: Throughout the 1880s, a secondary wave of intense stock market speculation led to another massive cycle of overbuilding across the American rail network.

• The Collapse: Vulnerable lines began defaulting on their heavy debts, exacerbated by international financial strains (like the Baring crisis in Argentina) and foreign investors pulling funds out of U.S. markets.

• The Aftermath: Prominent lines collapsed, causing widespread bank failures, a severe credit crunch, and a deep economic depression that fueled historic labor conflicts like the 1894 Pullman Strike.

The chart below shows the S&P 500 back to 1871 in blue, v. gold (in red, which is a flat line as the US was on a gold standard.) We can see undulating severe drawdowns and sharp recoveries in the S&P 500 from 1871-1897, with the S&P 500 in aggregate falling 12% in the 26-year period from 1871 to 1897.

Railroads were undoubtedly a massive long-term productivity driver for the US economy, but long-term investors were better off in gold while short-term investors needed to remember to take profits along the way; at the very least, the chart below suggests capex booms should be played unlevered, as highly levered players would have had catastrophic drawdowns multiple times from 1871-1897 (a la Leopold Aschenbrenner a couple weeks ago.)

Next up, we Googled “Electrification bubble collapse years US history”; once we did, we learned that the third capex boom in the chart above ALSO ended in a bubble and a widespread financial bust, and before the end of it, a significant devaluation of the USD (v. gold):

During the 1920s, a massive financial boom in U.S. public utilities and electrical infrastructure led to extreme equity euphoria. When the stock market crashed in 1929, utility holding company pyramids collapsed, and the Dow Jones Utilities Average plummeted from a high of 144 in 1929 down to 17 by 1934.

The Electrification Boom and Overbuilding

• 1920s Speculation: Investors poured massive capital into electrical holding companies and grids, overestimating near-term returns.

• Financial Engineering: Complex corporate pyramids controlled local operating companies, magnifying losses when asset values dropped.

• The 1929 Collapse: The onset of the Great Depression triggered widespread liquidations, regulatory pressure on utility pricing, and a steep drop in industrial power demand.

The Long Bust and Recovery

• Market Trough (1932–1934): Utility share values lost roughly 85% to 90% of their peak values.

• Physical Legacy: Despite the severe financial bust, the underlying physical grids and power plants remained intact, laying the groundwork for the mid-century manufacturing boom.

The chart below shows the S&P 500 from 1920 to 1942 in blue, v. SPX priced in gold (in red; until 1933, they are the same line, they diverge when FDR devalued USD in 1933). Electrification was clearly not the sole driver to the 1920s stock market bubble, but it played a major foundational role, and message is the same – it ended in a bust, and that once the capex boom was several years old, short-term investors needed to remember to take some profits and be unlevered while long-term investors were better off holding gold: From 1920-1942, US equities priced in gold fell 30% in aggregate, as the bubble popping necessitated a USD devaluation to end the Depression.

We did not need to Google “Highway bubble collapse years US history” for the fourth capex boom noted above, because there was a lot more going on from 1956-73 than just the Eisenhower Highway boom. However, the message is similar to the prior three capex booms shown – the fourth capex boom ALSO ended in a bubble and a widespread financial bust, and before the end of it, a significant devaluation of the USD (v. gold).

The chart below shows SPX (blue) and SPX/gold (red), from 1956 to 1982. As you can see, in aggregate, SPX in gold terms fell 80% in the 26 years from 1956 to 1982, and if investors bought in anytime from the JFK assassination (November 1963) on, US stocks fell in excess of 80% in gold (real) terms over the ensuing period until 1982. Here too, once the capex boom was several years old, shorter-term investors needed to remember to take profits and stay unlevered, while long-term investors were better off holding gold.

We did not need to Google “Telecom and Fiber bubble collapse years US history” for the fifth capex boom noted above, because we lived it. However, the message is similar to the prior four capex booms shown – the fifth capex boom ALSO ended in a bubble and a widespread financial bust, and before the end of it, a significant devaluation of the USD (v. gold).

The chart below shows SPX Total Return (since SPXTR data was available to us for these years , blue) and SPXTR/gold (red), from 1996 to 2011. As you can see, in aggregate, SPXTR in gold terms rose 220% 1996-2000…and from there, it was all downhill for SPXTR v. gold, with SPXTR in aggregate falling 36% in gold terms from 1996-2011. Here too, once the capex boom was several years old, shorter-term investors needed to remember to take profits and remain unlevered, while long-term investors were better off holding gold.

And that brings us to now, the sixth capex boom in the chart above and by far the biggest capex boom in US history as a % of US GDP. And yet, despite all the hype, since the January 2025 start date noted in the original Bloomberg chart, SPXTR is up 35% in USD terms but is already down 19% in gold terms (red)…

…and if we use NDX instead of SPXTR from January 2025, it’s the same story: NDX up 43% in USD terms, NDX down 13% in gold terms; if the prior FIVE capex booms in US history are any guide, gold is likely to outperform NDX and SPXTR until the end of the AI capex boom. Let’s watch.

In the prior five capex booms over the past 200 years of US history, US Federal debt/GDP has never been >40%

Tree Ring: Now, allow us to add some CRITICAL context to the AI capex boom, which is the biggest in US history as a % of GDP: In all five prior capex booms in US history cited above, US Federal debt/GDP was NEVER >40% (green arrows) so the capex boom/bubble bursting never threatened the solvency of the US government itself…but today, US debt/GDP is so high that the AI capex boom/bubble likely would threaten US government solvency:

Further note that in the chart version above, 2015 forward was still projected, and net debt/GDP in 2026 was supposed to 78-80% in 2026…but it is actually now >100%:

AND HERE IS WHERE THE RUBBER MEETS THE ROAD: As our friend Dan Oliver at Myrmikan Capital highlights in the chart below, “Gold Outperforms During Credit Busts”:

What the preceding series of charts above conclusively show us is we are presently several years into what could easily (and will likely) become the biggest credit bust in US history, and possibly world history, with the AI bubble being the biggest capex boom in US history, occurring into the highest US debt/GDP in history, at a time when US fiscal receipts WILL fall if US equities fall (more on this in a moment.)

This means that during this credit boom/bust, US equities will NOT be allowed to fall for long, as any time they do, they will quickly threaten US government solvency…which NONE of the preceding five capex booms in the past 200 years of US history did…and the US government can print infinite USDs to avoid said insolvency.

This is likely why a defining feature of this “biggest credit boom/bust in US and perhaps world history” has been and is highly likely to continue to be “Stocks up in USD terms, but down in gold terms.”

The message of the preceding charts is that asset allocators that have high percentages of their portfolio in NDX or the AI capex boom or even SPX would be well advised to hedge their exposures by having an allocation to gold; if/when the 6th (and greatest in US history) US capex boom does finally turn to bust, allocators that own some gold will likely outperform through the bust, which in a relative game, is a big win.

One final thought: Each of the prior five major US capex booms over the past 200 years were massive productivity drivers but were all also cases of “the early bird gets the worm, but the second mouse gets the cheese” – i.e., the initial equity providers/investors ultimately lost a lot of money, even as the underlying capacity (rails, highways, telecoms, etc.) drove massive long-term productivity gains for the US economy (and often massive profits for their second owners who bought them out of distress.)

Let’s watch.

“A gentle reminder that y’all out ya minds”

Source : https://x.com/hussmanjp/status/2086437556636250516?s=43&t=KpXy7oJ5DlYILbF4hFLsTw

Tree Ring: What we just showed is likely the greatest credit bust in US and perhaps world history is occurring into equity valuations that are “out ya minds” per John Hussman, who notes that Nonfinancial Equity Market Cap divided by Nonfinancial Gross Value-Added Including Foreign Revenues is at all-time highs, by a wide margin, with the only other two times this metric was even close to this high coming at the 1929 and 2000 stock market bubble peaks.

And yet despite the above, once we understand that:

a) We are in the greatest credit boom/bust in US and perhaps world history, and that;
b) If stocks fall (blue and green dotted arrows below), US receipts will fall (red dotted arrows below), which means US deficits would blow out even faster and driving UST yields and borrowing costs up in a recession, which virtually no one trading in the US has seen happen in the US…

…we can realize that US policymakers will move heaven and earth to keep the US stock bubble inflated, because it de facto backs the UST market via tax receipts. This is the reason Hussman’s chart looks the way it does in our view, and it is why US stocks are valued the way they are:

Because we are in the midst of an Amerizuela stock market, where stocks go up and to the right in USD terms over time, and down and to the right over time in gold terms, and any time they do not for “too long” a period of time, UST and western sovereign debt markets will begin to dysfunction and before long, the solvency of the US and other western sovereigns will quickly be called into question.

In our view, it is becoming unwise, and perhaps even borderline irresponsible, for investors and fiduciaries NOT to have at least 5-10% allocated to physical gold.

Let’s watch.

“Wall Street sees sign of bond market angst behind Bessent moves”

Tree Ring: With the US in the midst of the greatest credit boom/bust in US history and perhaps world history and LT UST yields already at/near 20-year highs, Treasury Secretary Scott Bessent absolutely could not afford to have Japan selling USTs (or USD equities) to raise USDs to defend the JPY…which is why Bessent accelerated down the road to full-blown yield curve control (YCC) last week with these moves last week after JPY weakness threatened to force Japan to sell USTs to defend JPY:

Wall Street sees sign of bond market angst behind Bessent moves – 8/9/26 Wall Street Sees Sign of Bond-Market Angst Behind Bessent Moves - Bloomberg

Wall Street traders and strategists say US Treasury Secretary Scott Bessent is sending fresh signals that he’s eager to keep bond yields from spiking higher.

First, he staged the US’s first currency intervention to prop up the yen since 1998, mitigating the risk that Japan would dump US government bonds to raise the dollars needed to buy the currency on its own. And he pointed to a Federal Reserve facility that Tokyo could tap in the future.

Then at last week’s quarterly bond sales announcement, a subtle and unexpected change to his department’s guidance was seen as opening the door to potential cuts in long-bond sales.

“The Fed and the Treasury have to be getting concerned about the level of long-end rates,” said Priya Misra, portfolio manager at JPMorgan Asset Management.

“The intervention with Japan, support for Warsh and a possible reduction in long-end supply can be attempts for Treasury to signal that they are aware of the rate-market move and do not hesitate to use the different tools at their disposal.”

US will do “whatever it takes” to support Japan after JPY intervention, Bessent says – 8/4/26 US will do 'whatever it takes' to support Japan after yen intervention, Bessent says | Reuters

"We will do whatever it takes to support them in a way that helps the American economy, the American taxpayer," Bessent said in an interview on CNBC two days after confirming Treasury had joined Japan's finance authorities in an intervention to prop up the yen.

US Treasury’s Bessent: Reasonable for Fed to consider upsizing FIMA swap lines [for Japan] – 8/4/26 US Treasury's Bessent: Reasonable for Fed to consider upsizing FIMA | Reuters

Bessent’s actions of two weeks ago are further confirmation of two important dynamics we have repeatedly harped on:

1. Net International Investment Position (NIIP, chart on the following page) matters greatly, and;
2. The world is NOT net short USDs – they are short USDs on one hand, but long $65 trillion (gross) and $22 trillion (net) of USD assets that they can (and will) sell to raise USDs if they find their currencies under too much pressure relative to the USD, starting with the $9.4 trillion in USTs the world collectively owns, which will quickly push LT UST yields to problematic levels unless Scott Bessent supplies all the USD liquidity they need…which Bessent made clear he will do when push comes to shove, per the above.

And that brings us to what we thought was the most impactful interpretation of Bessent’s JPY intervention and other actions to calm LT UST markets:

The real message in the JPY intervention: Barry Eichengreen – 8/5/26 (via ES) The real message in the yen intervention

The bottom line is that Washington, fearing the consequences for US financial markets, is reluctant to see foreign central banks use their dollar reserves. This is telling us that the dollar is not the attractive reserve currency it once was. When this message sinks in, other countries will redouble their search for more attractive, readily usable alternatives. Reserve diversification is apt to gather steam.

The implication? We are accelerating on the road to explicit YCC; unless we get off that road (which would require allowing UST rates to “find their level”, even if it forces US and western sovereigns into nominal defaults, which will NEVER be allowed to happen in our view), do not be surprised when we arrive at our explicit YCC destination.

YCC is good for gold, stocks and commodities in USD terms (but not in gold terms), and eventually BTC, once the current BTC civil war (BIP-110) and ColdCard hack concerns are resolved to macro tourists’ satisfaction, and once the AI boom and threatened eventual bust overhang are removed from BTC (which is still trading with tech), or once explicit YCC arrives. Let’s watch.

“A problem for bonds: They aren’t responding to softer inflation data”

A problem for bonds: They aren’t responding to softer inflation data – 8/13/26 (via BD) A Problem for Bonds: They Aren’t Responding to Softer Inflation Data - Barron's

Tree Ring: The latest Treasury Borrowing Advisory Committee (TBAC) report showed that US True Interest Expense (TIE = Gross Interest + Entitlements + Veterans Benefits) are 106% of US fiscal receipts through fiscal 3q26…in a decent US economy. TIE being >100% of receipts means the US is firmly in fiscal dominance.

THIS IS THE VARIANT PERCEPTION MANY US INVESTORS ARE STILL ARE NOT GETTING, per the article above: In fiscal dominance, softer inflation pushes fiscal receipts below TIE, which drives US government borrowing to crowd out global USD markets, sending USD up, LT UST yields up, and US risk assets down (per the NIIP chart in the preceding point), until the USD is weakened (then sending inflation back up, on a slight lag.)

Said differently: In fiscal dominance, inflation is the ONLY THING keeping the US government and other western sovereigns from a debt crisis that drives LT UST yields and western sovereign yields HIGHER…so softer inflation has been driving and will CONTINUE to drive LT UST yields HIGHER, not LOWER.

The chart below from the latest TBAC shows that the US fiscal situation is getting worse with the softening inflation, with YTD Federal deficit now higher than 2025 and 2024 (under Biden), and the US July deficit was an eye-watering $432 billion, which means the July YTD deficit is WAAYY higher than year ago July YTD deficit ( dotted line below; note there was reportedly a modest timing issue that pulled some August spending into July, but the broader point stands):

Source: TBAC

In response to the record July budget deficit, we continue to read many investors advocate for spending austerity, but such calls are naïve. The chart below from the fiscal 3q26 TBAC report shows that if the US wants to reduce spending, it can cut Entitlements, Interest Rates, or Defense. That’s it. None of those things are being cut or can politically be cut.

Source: TBAC

Here’s the point: Bessent just showed us yet AGAIN that he is NOT going to let LT UST yields rise beyond a certain point (de facto YCC), while the chart above shows that Bessent cannot cut spending that is driving us toward a $2 trillion deficit or more. De facto YCC into $2 trillion deficits that are growing far faster than receipts = “The Debasement Trade” is back on. This is great for gold, stocks, and eventually BTC again.

When will the debasement trade start to be better for BTC?

In our view, not until the BIP-
110 civil war and ColdCard
hacks are understood by macro
tourists (until they are, it is just
easier for tourists to buy
gold)…

…and also not until BTC (blue)
diverges directionally from NDX
(red) – BTC is still trading
with tech, and per earlier, 200
years of history tells us it’s
only a matter of “when” until
the biggest capex boom in
US history turns to bust…

…and whenever it does, given the chart above, it likely will not be good for BTC, until explicit YCC is implemented.

Let’s watch.

“The US bares its financial weak spot”

The US bares its financial weak spot – 8/7/26 The US bares its financial weak spot

Japan benefits from this extremely rare joint intervention to boost the yen. The weakness in its currency cranks up import prices and intensifies inflation, and if the US can help to slow or even arrest its decline, that is a win.

But the US involvement in the yen smacks of rational self-interest.

The real beneficiary here is the US — a feature highlighted by the fact any future interventions will be filtered through a Fed facility that limits immediate sales of Treasuries.

On one level, this is a magnanimous effort to help Japan at a time of need. The side effect of it, though, is to remind the world where the squishy underbelly of US weakness really lies.

Tree Ring: The geopolitical implications of Bessent’s JPY intervention are critical, but we are not sure they have been internalized yet by many US investors:

• Every elite and policymaker in the world above a certain level has learned two things from the Iran war and Bessent’s policy responses:

o The US cannot go to war without Chinese supply chains, and;
o The US will not continue a war once the UST market is threatened (i.e., once 10y UST yields hit levels that threaten a US and western debt spiral, which is 4.6-4.8%)
Paradoxically, it seems the last people to understand these two realities are the very same Wall Street investors that have spent the last 30 years telling us that “ultimately, the US military backs the USD”, who are for some reason ignoring the following second and third derivative issues:

If the US military ultimately backs the USD, but the US military is backed by China’s factory base, and the US cannot continue any war that drives 10y UST yields above 4.6-4.8% without moving to de facto YCC to prevent UST FX reserve sales that would threaten a US and western sovereign debt spiral, of what use are the US “defense umbrella” and USD reserves?

If the goal of the Iran war was to discredit both the US defense umbrella and UST’s usefulness as an FX reserve asset relative to gold, then the Iran war has been a smashing success thus far. If that was not the goal, then Trump either needs listen better to his advisors, or get better advisors…but unfortunately there is no putting that toothpaste back in the tube.

We continue to like gold and US electrical infrastructure equities.

Let’s watch.

“The ingredients are coming together for a US financial crisis”

The ingredients are coming together for a US financial crisis: Ambrose Evans-Pritchard, UK Telegraph – 8/11/26 The ingredients are coming together for a US financial crisis

A dangerous view is creeping into the markets that the US has already gone so far down the path of a debt compound trap that it dare not raise interest rates to control inflation.

The US treasury has become acutely dependent on short-term funding from hedge funds, many tapping the $8.3tn (£6.2tn) money market and some operating with up to 100 times leverage. The share of purchases coming from stable lenders such as foreign central banks and sovereign wealth funds has been drying up.

Steven Blitz, the chief US economist at TS Lombard, says the Federal Reserve cannot tighten hard without risking a chain reaction. Financing costs would “explode”. Raising rates today immediately impacts the cost of nearly 25pc of the federal debt, where issuance is growing fastest,” he said.

The US treasury has to roll over $6tn of debt every three months in an increasingly sceptical market, as well as issuing $2tn of new debt annually to cover the worst structural deficit in US peacetime history.

Tree Ring: “Raising rates today immediately impacts the cost of nearly 25% of the Federal debt, where issuance is fastest” – AEP, quoting TS Lombard’s chief US economist Steven Blitz. AEP goes on to note that the US “needs to roll over $6T of debt every three months in an increasingly skeptical market, as well as issuing $2T in new debt annually to cover the worst structural deficit in US peacetime history.” Our take? If AEP and the UK Telegraph know this, everybody now knows it. As our friend Louis Gave says, “If it’s in the press, it’s in the price.”

AEP goes on to raise many of the issues we have flagged over the years, including Bessent (and Yellen) shifting an increasing amount of US issuance to the front end, an increasing share of US debt being bought by fickle and highly-levered hedge funds via the UST basis trade…

Annual gross financing needs – the key warning metric watched by rating agencies and bond funds – was 26pc of GDP in 2010. The International Monetary Fund says the figure will reach 45pc this year and is on track for 60pc by the early 2030s on current policies. No great power has long endured at that sort of level.

Scott Bessent, the poacher-turned-gamekeeper now in charge of the US treasury, has been concentrating ever more borrowing on short-term bills. It is a way to keep a lid on the spiralling interest cost of the US national debt, which has quadrupled to $1tn in a decade, now exceeds the US defence budget and is fast heading towards uncharted waters above 4pc of GDP.

But trying to defer America’s fiscal reckoning by monkeying with debt instruments is the trick used by broken hegemons through the ages. It is a Faustian pact.

We know how worried Bessent is about soaring bond yields – approaching a two-decade high – by the way he intervened alongside Japan earlier this month to halt speculation against the yen. He activated an obscure mechanism known as the FIMA Repo Facility to let Japan pawn a chunk of its $1.1tn of US Treasuries in exchange for dollar loans rather than selling these bonds on the open market.

He joined the action by mobilising the treasury’s holding of euros, without first telling the European Central Bank – a shocking breakdown of central bank etiquette. All this screams desperation.

Hedge funds have become the marginal buyers of US debt, doubling their share to 9pc of total US Treasury purchases over the last four years. They have been borrowing with extreme leverage on the repo market – a core part of financial plumbing – in order to extract arbitrage gains.

Both the IMF and the Bank for International Settlements have warned that this structure is an accident waiting to happen. It amplified a spiral of forced selling and a near meltdown of the US Treasury market in the Covid panic of March 2020. The critical point is that the whole US financial and fiscal system has never been so sensitive to short-term interest rates.

…and that Fed Chair Warsh did not raise rates when he probably should have:

Kevin Warsh, the untested new Fed chairman, faces an invidious choice. The indecent manner of his appointment degraded his credibility before he even started. Markets know that Trump persecuted his predecessor for refusing to cut rates and refusing to become the infamous Arthur Burns of our age. They also know that Warsh’s billionaire father-in-law is a close Trump confederate and a key author of the Greenland grab.

Warsh struggled to articulate a coherent intellectual argument after the most recent policy meeting for why he was not raising rates. He could not explain how he intends to bring stubborn US inflation back towards the 2pc target when it is clearly going the other way.

…and that the Iran war has undermined both Bessent and Warsh’s initiatives to improve the US fiscal position:

The US has stopped upholding free trade and open navigation, switching sides to become the chief instigator of piracy and world disorder. It has squandered much of its arsenal on an ill-planned war that it cannot end without accepting humiliation and that has shown the US to be a weaker military power than we all thought. It has further wrecked US alliances and largely played into the hands of Xi Jinping’s revanchist China.

As we read this, we had two takeaways:

• First, that the US is now accelerating toward a more acute fiscal problem, in no small part due to the illadvised Iran war, is now common knowledge at the highest levels of finance.
  • Second, that Trump is now going into a meeting with Xi on or around September 24 with Xi having Trump in a VERY vulnerable position: The AEP article lays out that anything that triggers a jump in US shortterm rates could force the US into a choice of letting the UST market dysfunction or letting the USD fall sharply, into already above-target inflation, which means China knows this as well.
  What could China do to trigger a sharp rise in US short-term rates that could threaten to kick off a US fiscal crisis, unless Trump gave China what they wanted in September? We know what we would do: Start aggressively buying back oil to refill China’s Strategic Petroleum Reserve (SPR) and buy the oil REALLY sloppily.

Imagine a China state oil trader telling their counterparty: “Buy 1 million barrels of crude; do not feel bad if your execution is sloppy – I want the price higher. I’ll be back tomorrow to buy another 1 million barrels of crude, and every day this week and next, for the foreseeable future.”

Notifying their counterparty this way that China plans to buy oil every day for weeks to come would likely get leaked, leading to countless global traders looking to front run China and bid up oil sharply.

Given this hypothetical, we found it interesting that Chinese crude oil imports were reportedly notably higher in July v. June…

…because if Chinese demand for oil raises
oil prices (red, LS in the chart below), it is
likely to keep 2y UST yields (blue, RS) high
and moving higher, and possibly sharply so,
which per the AEP article will put immediate
upward pressure on US interest expense
and the US deficit, at a time when the UST
market has already required JPY
intervention in recent weeks…

…to say nothing of the point that rising 2y
yields would be signaling a Fed rate hike, so
if Warsh continues to not hike, it would
further turbocharge gold, inflation, and US
equity indices (and obviously be good for oil
and oil E&P names).

Given how well China played the Iran war and
Hormuz closure thus far, we would not be
surprised if this is how China is thinking about
these options; but will they deploy them ahead
of the Trump summit, or wait until after?

Let’s watch.

“SEC eases securitization rules for data center bonds, boosting debt sales”

SEC eases securitization rules for data center bonds, boosting debt sales – 8/10/26 SEC Eases Securitization Rules for Data-Center Bonds, Boosting Debt Sales - Bloomberg

The Securities and Exchange Commission has made it easier for data center owners to sell asset-backed securities, potentially opening the door for more debt sales as tech firms scour Wall Street for ways to pay for artificial intelligence.

The SEC said a major subset of data-center securitizations don’t need to have disclosures and investor protections that similar deals require. That includes risk retention, a requirement that companies issuing asset-backed securities retain some of the debt to better align their interests with investors.

Tree Ring: The announcement above came paired with an announcement from NVDA and an X post from NVDA CEO Jensen Huang that “compute is becoming an investable asset class”

NVDA partners with Apollo, BlackRock, Blackstone, Brookfield, Goldman Sachs, and KKR to establish AI compute infrastructure financing platforms to mobilize over $500 billion of third party capital – 8/10/26 NVIDIA Partners With Apollo, BlackRock, Blackstone, Brookfield, Goldman Sachs and KKR to Establish AI Compute Infrastructure Financing Platforms to Mobilize Over $500 Billion of Third-Party Capital | NVIDIA Newsroom

Jensen Huang: “NVDA AI Factory Compute is becoming an investable asset class – 8/10/26 (1) Jensen Huang on X: "NVIDIA AI Factory Compute Is Becoming an Investable Asset Class" / X

We found the summary at right helpful in terms of the practical implications of these announcements above:

We recently finished reading the book “A Very
English Deceit” by Malcom Balen about the
South Sea Bubble and John Law’s Mississippi
Bubble. One of the key lessons of the book was
that one of the tactics the English and John Law
both used as they were trying to keep their
respective booms/bubbles from collapsing was
that to keep bubbles inflated, you must
continuously supply more credit to them.

We showed earlier in this report that if the AI
capex boom/credit bubble bursts, it will likely
threaten US and western government nominal
solvency, and that the US government would
likely move heaven and earth to try to stop that
from happening.

In our view, the way to read the headlines above
is that these are US policymakers attempting to
smooth the flow of ever more credit to the AI
capex boom/credit bubble, as a means of trying
to keep valuations elevated…

…which they seem to need, increasingly
urgently, as the following two articles (among
others), note that US hyperscalers are on the
hook for $1T in off-balance-sheet lease
commitments and another $1T of future
purchase commitments…

Just how big is the hidden leverage of AI
hyperscalers? 8/10/26
Just how big is the hidden leverage of AI
hyperscalers?

…at a time when private credit is already “under growing strain” according to the WSJ this week:

Private credit is under growing strain,
despite industry’s upbeat tone – 8/9/26
Private Credit Is Under Growing Strain, Despite
Industry’s Upbeat Tone - WSJ

Referencing back to the prior five great US capex booms over the past 200 years; we do not know how far away the greatest capex boom in US history presently is from reaching its zenith, but we know three things with a high degree of certainty from the prior five great US capex booms before this one:

1. We are already at least several years into the greatest capex boom in US history.
2. Gold generally outperformed the prior five capex boom sectors in aggregate if you bought gold several years into the prior five capex booms.
3. The supplication of more credit to the prior five booms generally resulted in the booms getting bigger (and more volatile) before they peaked – and more credit appears to be being applied.
   Let’s watch.

“There seems to be a growing acknowledgement around the world that Keynes was right when he proposed at Bretton Woods a global trading regime that limited persistent trade imbalances and restricted global financial flows.” -Michael Pettis

Tree Ring: This week, economist Michael Pettis,
who has long argued that China needed to
change its consumption patterns to fit within the
context of the neoliberal global order, seemingly
made a massive shift in his view (right.)

Pettis is essentially calling for a change to the
neoliberal global order, rather than demanding
that China change to fit that order as he long
has.

In making the argument, Pettis cited the article
below in the recent Foreign Affairs magazine
which says the neoliberal trading order is
ending:

The right way to balance trade: What comes after the neoliberal order – 8/5/26 The Right Way to Balance Trade | Foreign Affairs

Foreign Affairs declaring the end of the neoliberal global order was noteworthy to us because Foreign Affairs is published by the Council on Foreign Relations (CFR), which can be thought of as “the guardians of the neoliberal rules based global order” of sorts. If the CFR’s magazine is saying the neoliberal trading order is over, the fat lady is warming up and getting ready to sing; the neoliberal trading order is just about over.

Pettis’ shift in position was made all the more interesting to us by the fact that CFR fellow Brad Setser, who has frequently agreed with and supported Pettis’ longstanding position that “China needs to change to fit the neoliberal order, rather than the other way around”, wrote an article for the CFR noting that China’s trade surplus is not really shrinking; it is only shrinking because China is importing so much gold (!!).

Is China’s surplus really shrinking? Brad Setser, Council on Foreign Relations – 7/27/26 Is China’s Surplus Really Shrinking? | Council on Foreign Relations

The Economist is now arguing that China’s trade surplus has peaked.

That is a strange argument, as the “real” (price-adjusted) trade surplus is still growing. Net exports have contributed positively to China’s growth in Q1 and Q2.*

But it also isn’t an argument that stands up too much scrutiny. It goes away with a single adjustment.

Chip prices are up, and China imports a ton of chips. But that isn’t in fact the needed adjustment. China’s exports of chips are up almost as much as its imports.

China imports a lot of oil but that too isn’t the needed adjustment. The price of oil imports is up but import volumes have famously collapsed; the commodity import bill is up, but only modestly.

The critical adjustment is to net out imports of gold—year-to-date imports in 2026 are $146 billion, nearly $100 billion above the 2025 H1 total. In q2, gold imports were an incredible 1.5 pp of GDP, so the gold deficit now exceeds

Without that import surge, the overall goods trade surplus would be up by over $80 billion in the first half of 2026.

But gold is the critical adjustment to the headline number, not chips or oil (to my surprise to be honest).** The surge in imports, over a period when gold prices are down, has been massive.

The underlying Chinese surplus is still heading up, just as the underlying U.S. deficit is now expanding (because of “AI”/ data center investment and a big fiscal deficit).***

The easiest way to see this is to look at Chinese trade in manufactures excluding chips and excluding gold (refined gold is classified as a manufacture, the commodity is gold rich ores).

To summarize, before moving on: The CFR is now arguing for a shift away from neoliberal economics, and the CFR’s Brad Setser (one of the world’s foremost experts on trade flows) is noticing that China is importing a BUNCH of gold.

Five weeks ago in these pages, we highlighted Treasury Secretary Bessent’s call for the US to pursue Hamiltonian economics, in which we showed that USTR Greer, VP Vance, and Pres. Trump had over the past 18 months also called for either outright Hamiltonian economics, or the functional equivalent. Here’s what we wrote in these pages on July 10, 2026:

Tree Ring: Two weeks ago, Treasury Secretary Bessent gave a speech at the Economic Club of New York’s America 250 Gala Dinner and simultaneously published the content of his remarks in a WSJ op-ed, which tells us he wanted to both emphasize his remarks and make crystal clear that he was discussing Trump Administration policy.

The policy in question? The US is returning to a Hamiltonian economic system, as laid out by US Trade Representative Jamieson Greer in a speech at Davos in January 2026 (before the Iran war detour/distraction), and by Pres. Trump and by VP Vance before that.

Here is how Greer defined “Hamiltonian economics” in his speech at Davos back in late January of this year (remarks that were mostly ignored by western mainstream financial media):

On another cold day—December 5, 1791—America’s first Treasury Secretary, Alexander Hamilton, delivered his Report on Manufactures to Congress. In that report, Hamilton articulated a plan for the United States to shake off its economic dependency on the British Empire.

Hamilton argued for strong economic policy that would allow America to become an industrial power. He called for a combination of tariffs and subsidies to incentivize industrialization. Hamilton believed that such measures were necessary to promote the development of industries, like textiles, that needed protection from dominant foreign producers to develop the scale that would allow them to supply U.S. needs and be globally competitive. This vision, as I will discuss, laid the foundation for American, and even global, prosperity in the 19th and 20th centuries.

Here is Bessent’s full speech; it is must-read:

Remarks from Treasury Secretary Scott Bessent at The Economic Club of New York’s America 250 Gala Dinner: American Economic Statecraft in the 21st Century – 6/23/26 Remarks from Secretary of the Treasury Scott Bessent at The Economic Club of New York’s America 250 Gala Dinner: American Economic Statecraft in the 21st Century | U.S. Department of the Treasury

In case anyone missed the message of his speech, Bessent made it a point to publish the following op-ed in the WSJ the same day as his speech, again announcing that the US is returning to Hamiltonian economics:

Scott Bessent: Hamilton inspires Trump’s economic statecraft – 6/23/26 Scott Bessent: Hamilton Inspires Trump’s Economic Statecraft - WSJ

Now that Bessent has explicitly highlighted the US return to Hamiltonian economics, it is critical to highlight what it implies for markets, currencies, and economies, as explicitly stated by Greer in January:

The US will have to “balance” exports and imports, but practically speaking, this will require the US to export a lot of gold in USD terms to China and eventually elsewhere for a time, because the US does not make enough goods yet to “balance” exports and imports, which implies gold rising even more significantly in USD terms, and becoming a neutral reserve asset, further replacing USTs in FX reserves:

John Maynard Keynes—the great British economist and the British representative to the Bretton Woods conference— had an idea for how this could be done. He argued that the international economic system needed to be organized around the principle of balance. Nations could pursue what Keynes called “national self-sufficiency” through different models of economic development, but a requirement of long-term balanced trade would protect everyone against socalled “beggar-thy-neighbor” tactics.

Keynes—and his contemporaries like Joan Robinson—argued that, in most circumstances, a country’s persistent global trade surplus is very strong evidence that it is pursuing economic growth at the expense of its trade partners. In other words, a country that is structurally exporting more than it is importing likely is harming the rest of the world to fuel its own growth. It is not producing to meet its needs or trade for import: it is trying to have a short cut to growth at others’ expense. To put it even more clearly—a country should export in order to import, and if that is not happening then it is a clear sign that something is wrong.

Many of Keynes’ most creative ideas for how to deal with this problem, including a proposed global currency, were left on the cutting room floor at Bretton Woods. The system that emerged did not include structural mechanisms to discourage countries from accumulating persistent trade surpluses. If I am being honest, the fact that the United States was running a massive trade surplus at the time may have had something to do with it. That is unfortunate, and we all have to deal with the results today.

-US Trade Representative Jamieson Greer, at WEF at Davos, 1/20/26

Critically, Bessent (along with Greer, Vance, and Trump) are merely laying out what China advocated for in 2009 (and which China has in turn pursued for the past 17 years):

The desirable goal of reforming the international monetary system, therefore, is to create an international reserve currency that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies.

Though the super-sovereign reserve currency has long since been proposed, yet no substantive progress has been achieved to date. Back in the 1940s, Keynes had already proposed to introduce an international currency unit named “Bancor”, based on the value of 30 representative commodities. Unfortunately, the proposal was not accepted. The collapse of the Bretton Woods system, which was based on the White approach, indicates that the Keynesian approach may have been more farsighted.

A super-sovereign reserve currency not only eliminates the inherent risks of credit-based sovereign currency, but also makes it possible to manage global liquidity. A super-sovereign reserve currency managed by a global institution could be used to both create and control the global liquidity. And when a country’s currency is no longer used as the yardstick for global trade and as the benchmark for other currencies, the exchange rate policy of the country would be far more effective in adjusting economic imbalances.

Reform the International Monetary System, Zhou Xiaochuan, PBOC – 3/23/09 https://www.bis.org/review/r090402c.pdf

Bessent’s comments (and Greer’s, Vance’s, and Trump’s comments) are also agreeing with this 2010 proposal from World Bank president (and former US Treasury official) Robert Zoellick…

World Bank president argues leading economies should re-adopt a modified global gold standard – 11/7/10 http://www.ft.com/intl/cms/s/0/eda8f512-eaae-11df-b28d-00144feab49a.html#axzz3cgyPkN4y

Robert Zoellick, a former US Treasury official, calls for a system that “is likely to need to involve the dollar, the euro, the yen, the pound and a renminbi that moves towards internationalization and then an open capital account”.

He adds: “The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values.”

…and with this 2016 proposal from former IMF chief economist Ken Rogoff:

I am just proposing that emerging markets shift a significant share of the trillions of dollars in foreigncurrency reserves that they now hold (China alone has official reserves of $3.3 trillion) into gold…Why would the system work better with a larger share of gold reserves? The problem with the status quo is that emerging markets as a group are competing for rich-country bonds, which is helping to drive down the interest rates they receive.

With interest rates stuck near zero, rich-country bond prices cannot drop much more than they already have, while the supply of advanced-country debt is limited by tax capacity and risk tolerance. Gold, despite being in nearly fixed supply, does not have this problem, because there is no limit on its price.

Source: Emerging Markets should go for the gold – 5/3/16

As we summarized the proposals above in the 2/10/26 full report edition of FFTT:

FFTT: They’re all a version of the same proposal. At Davos, the US told the world it is moving to a system with a neutral reserve asset and high tariffs to reshore the US industrial base.

While multiple world leaders and analysts said “the old monetary system was over”, NOBODY laid out precisely what the new system would look like…but Greer made it pretty clear – neutral reserve asset with high tariffs. The only neutral reserve asset that can serve that role is gold, and it cannot serve that role until its price is MUCH higher than where it is today.

At the NY Economic Club two weeks ago, Bessent highlighted the following five guiding principles for the US’ return to Hamiltonian economics…

So tonight, guided by these priorities, I want to organize our approach to economic statecraft under President Trump around five core principles.

• The first is that economic security begins with national capacity.
  • The second principle is that America’s openness will be matched by reciprocity, which is the basis of durable cooperation.
  • The third principle is that America will write the rules of the next economy.
  • The fourth principle is that financial leadership is a central instrument of statecraft.
  • The fifth and most important principle is that economic statecraft must serve the American people.

…but Bessent is far too smart a man to not realize that his five guiding principles are fundamentally at odds with each other UNLESS the US also returns to a neutral reserve asset (gold).

To use Bessent’s own words, the US cannot rebuild “national capacity”, “serve the American people”, and maintain “the dollar’s place in the world” under a return to Hamiltonian economics.

Here is how we concluded that section of these pages back on July 10, 2026:

The US must choose to rebuild “national capacity” and “serve the American people” OR maintain “the USD’s place in the world”…it cannot do both…as trying to do all three will send the USD to levels that will crash the US and global economies and markets, and Bessent absolutely knows this…

…and so a return to Hamiltonian economics requires a neutral reserve asset, like gold…

…which brings us to an interaction we
had on X this week with Hugh Hendry
about China’s trade surplus that
dovetails with Bessent’s, Greer’s,
Vance’s, Trump’s, Pettis’, and
Setser’s points, a point we have long
made (right):

We concluded our comment on X above by making a point we have made numerous times in these pages:

At somewhere between $26,000 and
$38,000 per oz. of gold, China’s gold
imports in 2024 and 2025 respectively,
balanced China’s trade surplus.

China has been quite clear (to us at least) over the past 17 years about what they have done:

They HAVE opened their capital
account up on a limited basis via
gold; it is up to the west to allow gold
to rise to levels that will allow gold
imports to balance China’s trade surplus…

…which the west has been reticent to do because of what $20,000+ gold implies for the USD and the USD’s dominance of FX reserves (gold will be the de facto reserve asset, dwarfing both USTs and USDs at $20,000/oz.)

How would this be bullish for the US? The US needs a much weaker USD to reshore and compete globally (which this would accomplish), the US needs much higher USD commodity metals prices to spur mining (which this would accomplish, as metals tend to follow gold prices somewhat, on a lag), and this would drive a windfall to Chinese and Indian consumers, allowing them to buy more Chinese goods, and some US goods.

In the 7/24/26 edition of Tree Rings, we reported how China had been encouraging its citizens to get out of levered paper gold and into physical gold ahead of the launch of the Hong Kong international gold hub on 7/24/26, as if they expected gold’s price to possibly rise a lot as a result.

In the last two weeks, these two headlines have hit, further supporting the view that Hong Kong is likely to be a/the new gold trading hub for CNY trade in the new global trading system that follows the “end of the neoliberal trading order” – i.e., any nation that ends up with CNY in global trade can use them to buy either Chinese goods, or if they prefer, gold that floats in CNY and USD in Hong Kong, to settle that trade:

Gold flows to Hong Kong hit decade-high before clearing launch – 7/29/26 Gold Flows to Hong Kong Hit Decade-High Before Clearing Launch - Bloomberg

China’s central bank adds gold in Hong Kong to support hub – 8/7/26 China’s Central Bank Adds Gold in Hong Kong to Support Hub - Bloomberg

PS: These two headlines from this week alone suggest that Europe and Australia may be readying to increase CNY trading volumes further:

Anglo American strikes yearlong iron ore deal with China’s state buyer – 8/14/26 (via PA) Anglo Strikes Yearlong Iron Ore Deal With China’s State Buyer - Bloomberg

Deutsche becomes first European clearing bank for renminbi – 8/11/26 (via DC) Deutsche becomes first European clearing bank for renminbi

We continue to like gold and gold miners. Let’s watch.

Latest full, behind-the-paywall conversation between FFTT and Grant Williams

Tree Ring: In the latest episode of Shifts Happen, my friend Grant Williams and I reconvene for another wide-ranging discussion about the structural forces reshaping the global financial system.

Together, we explore why the United States appears to be moving away from the globalization-driven model of recent decades and towards a more protectionist, state-directed economy inspired by Alexander Hamilton’s vision of industrial development.

Along the way, we examine the difficult trade-offs involved in trying to support domestic manufacturing while maintaining open capital markets, before turning to the growing importance of gold, mounting strains in the Treasury market, and the signals emerging from Japan’s bond market.

As always, we connect geopolitics, monetary policy, and fiscal realities into a coherent framework for understanding where the global economy may be headed next.

www.grant-williams.com/luke-gromen/

GROMEN2024!

The-Grant-Williams-Podcast_Shifts_Happen_013.pdf

Thank you for reading this edition of Tree Rings. Have a great weekend! LG

© Copyright 2026, FFTT LLC.

DISCLOSURES:

FFTT, LLC (“FFTT”), is an independent research firm. FFTT’s reports are based upon information gathered from various sources believed to be reliable but are not guaranteed as to accuracy or completeness. The analysis or recommendations contained in the reports, if any, represent the true opinions of the author. The views expressed in the reports are not knowingly false and do not omit material facts that would make them misleading. No part of the author’s compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views about any and all of the subject securities or issuers. However, there are risks in investing. Any individual report is not all-inclusive and does not contain all of the information that you may desire in making an investment decision. You must conduct and rely on your own evaluation of any potential investment and the terms of its offering, including the merits and risks involved in making a decision to invest.

The information in this report is not intended to be, and shall not constitute, an offer to sell or a solicitation of an offer to buy any security or investment product or service. The information in this report is subject to change without notice, and FFTT assumes no responsibility to update the information contained in this report. The publisher and/or its individual officers, employees, or members of their families might, from time to time, have a position in the securities mentioned and may purchase or sell these securities in the future. The publisher and/or its individual officers, employees, or members of their families might, from time to time, have financial interests with affiliates of companies whose securities have been discussed in this publication.

For more information on receiving Forest for the Trees and Tree Rings:

FFTT, LLC. Email: [email protected]