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Luongo puts out a monthly newsletter for Patreon members Only. I have a membership
This one is Mindnumbing
Tom’s done some incredible research on what he strongly thinks Trumps Financial Team is going to do to bring the USA out of the Debt Quagmire and into a “Golden era… so I am posting it in the comments section
You’re welcome
PS …a lot of this goes over my pay grade…but I am going to keep at it until I “get” it
We are one month into Trump’s second term and everything that
felt wrong about the world at the beginning of the year is
beginning to feel right. While I was cautiously optimistic that
Trump would come in and do some good things, I never
expected to witness what can only be described as a complete
dismantling of the old system of the world.
That system was based on obfuscation, obstruction, and
obtuseness. It’s been replaced with revelation, removal, and
reckoning. Trump came to D.C. with a plan and along with the
rest of the well-prepared transition team have done in weeks what I thought would
take years.
Davos’ dream of universal serfdom for us and unlimited power for them was always
an illusion, but it was one we were conditioned to believe in. Now the illusion is
gone, and the beginning of a true reawakening of the human spirit can begin. This
issue focuses on where it looks like that previously unthinkable future could take us.
Recently, I came across a post on X showcasing Oliver
Anthony’s paean to the lost American, “Rich Men North of
Richmond,” which spoke to so many people last year.
Honestly, I listened to the song that morning for the first time in
many months, and it hit me just as hard as it ever did. But it
hits differently today. Anthony’s song is angry and bitter, and a
bit hopeless. It perfectly captured the zeitgeist of the moment.
In hindsight, the song may have galvanized Trump’s support
with the working class. They had a voice to reject everything
the power-mad grifters running the county told us was all we
deserved.
Even so, Anthony’s song cried that we would endure, no matter
the cost. We were strong enough.
But Trump simply said, you don’t have to endure this. Look up,
not down. The first month of Trump 2.0 told us help is coming.
It’s coming faster and more violently, for those who enriched
themselves on our dime, than any of us could have ever
imagined.
We wake up every morning looking forward to the news versus
dreading it. I no longer doomscroll my feed, but hoping I
haven’t missed something awesome.
The stories don’t even seem real. Every day another ridiculous
government agency is shut down (Dept. of Education), another
massive pillar of the neoliberal/globalist slush fund is gutted
(USAID, NED), maps being redrawn (Gulf of America!).
As Elon Musk and his team at the Department of Government
Efficiency (DOGE) release into the wild information about
where our tax money has gone for all these years, which left us
despairing and bitter, something is replacing that helplessness,
resolve.
I thought it would take time to get Americans worked up to
rage, but I underestimated us. Happily so.
Within hours of getting just a peek at waste, fraud, and
corruption, we were inundated with TikTok and X videos of
people demanding their tax money back.
I heard that anger from every tradesman I talked to who came
fix some two-year old appliance just out of warranty
There’s been an awakening and it is going to accelerate from
here.
Americans knew it was bad. Now they had proof the children
running the asylum in Washington D.C. were spending all day
looting the treasury, lying about it, and attacking anyone who
called them out.
Fear of Trump’s return was real. The sociopaths obsessed with
maintaining power were caught and they knew it. Their edifice
of lies was as brittle as the sugar-glass stunt men get thrown
through in movies.
It looked durable and the enormity of the government’s inertia
should take a minimum of Trump’s second term to begin
tinkering at how to change the country’s direction.
In many ways I believed this was true as well. As often as I said
in the Market Reports and podcasts that America wasn’t beyond
saving, that, “there is a path out of this,” part of me didn’t really
believe it was possible.
But if you don’t imagine that path you’ll never seriously
contemplate a strategy to implement it. To Trump’s credit, he
never wavered, and that fortitude inspired the likes of Musk,
Gabbard and Kennedy to his side.
Their opponents were banking on the same old tactics to
outlast him. They’d built a Maginot Line of slow-walking
requests, ignoring subpoenas, leaks to a complicit media, and
pre-emptive lawsuits to hide the trails of payments.
But this was truly a blitzkrieg, using AI, to force open through
executive power the databases and laying it all open.
That’s why Americans, nee the world, are waking up every
morning to another story of how trillions of their tax dollars
were used to fund their own marginalization and destruction.
That anger now must be channeled into something truly
revolutionary, a complete remaking of America into that which
we were promised but were only allowed to have the illusion
of.
So, this month I am going to piece together what I think
Trump’s real plan is for his so-called “Golden Age” of America
given what we’ve been told and what we can surmise.
It is nothing less than the recapitalization of the country.
But what do I mean by recapitalization? For the US nothing
less than wiping out the debt and returning it to a sounder
money future.
Let’s start with the basic problem.
Ending the VISA Economy
When a company gets into trouble the first thing it must do is
stop doing unprofitable things. In other words, fix the cash
flow side of the financial ledger.
Focus on what works and jettison what doesn’t. If there’s value,
spin it off into a new company and let new investors and
management make the best of it.
Government can’t really do that, but it can stop spending
money on projects not beneficial to the taxpayer. This is Musk’s
job at DOGE. Get rid of the waste, fraud, and abuse. Balance
the budget.
As we approach the budget
Continuing Resolution deadline on
March 15th, that is the primary focus
of the administration. They have to
get Congress to sign off on something
reasonable.
Given how easily Trump’s cabinet
sailed through the confirmation
process, with only some weak
grandstanding by Democrats, it tells
me that between DOGE’s findings and
Trump’s intelligence gathering, he
whipped the GOP side of the Senate
into submission, save Mitch
McConnell, who will likely step down
soon because he can barely stand up.
Treasury Secretary Scott Bessent
stated during his confirmation
hearing the US’s problem is spending
not revenue. He’s echoing FOMC
Chair Jerome Powell who repeatedly
over the past three years scolded
Congress about spending, saying
monetary policy can achieve only so
much without fiscal restraint.
The obvious first asset we have is the country’s gold reserves.
8133.5 tonnes of gold are currently held for the Treasury by the
Fed. They are on the Fed’s balance sheet at the price it paid in
1971, $42.22 per ounce, or $11.04 billion. At $2,900 per
ounce that gold is worth ~$756 billion marked to today’s
market.
That gold can be bought back from the Fed for the price paid
and put into the SWF marked to current prices. This would
now put a floor under the global price for gold.
There’s the first 2% of the recapitalization achieved of the $36
trillion we owe. The Fed now has a balance sheet problem, but
that’s another story.
We had no fiscal restraint under the Biden junta. We had an
accelerated bonfire fueled by what was left of the nation’s
assets and the world’s trust. That is obviously now changing
rapidly. Bessent has put forth his 3-3-3 plan, which translates
to a 3% deficit/3% real growth/+3 million bbls/oil produced
by 2028.
Bessent is throwing red meat at the financial markets to guide
them towards something they believe can get done, while
simultaneously keeping the focus off what they want to do.
Because once the cash flow is stabilized the problem moves
from being an income statement problem, in accounting terms,
to a balance sheet problem, assets vs. liabilities.
And Bessent spoke directly to that in his statements when
Trump signed the Executive Order authorizing the creation of a
Sovereign Wealth Fund (SWF) for the US. “We are going to
monetize the country’s assets.” To me that’s the key phrase.
GOLD
The obvious first asset we have is the country’s gold reserves.
8133.5 tonnes of gold are currently held for the Treasury by the
Fed. They are on the Fed’s balance sheet at the price it paid in
1971, $42.22 per ounce, or $11.04 billion. At $2,900 per
ounce that gold is worth ~$756 billion marked to today’s
market.
That gold can be bought back from the Fed for the price paid
and put into the SWF marked to current prices. This would
now put a floor under the global price for gold.
There’s the first 2% of the recapitalization achieved of the $36
trillion we owe. The Fed now has a balance sheet problem, but
that’s another story.
That gold can be put to work. Just playing accounting games
isn’t enough.
It can be used to help fix the country’s cash flow as well. Some
version of Judy Shelton’s idea of gold-backed Treasury
instruments should become obvious to long-time subscribers.
For the past few weeks, the biggest
story in financial markets has been
the Bank of England’s inability to
deliver on London Bullion Market
Association (LBMA) obligations for
physical gold. Gold is flowing into
the US at record rates, we’re told,
because of a fear about Trump
putting tariffs on it.
I think it’s far more about the US
implementing some version of the
Basel III rules on bank reserve
requirements, beginning in July.
Once Basel III is adopted pooled gold
futures contracts will not be available
to calculate a bank’s reserves, only
physical gold (at a 15% haircut) or
gold futures 100% backed directly by
gold the bank owns will count.
In short, the entire edifice of “paper
gold” futures is collapsing. I wrote
about this moment in Issue #80
(April 2024), where I recounted the
musings of “Another” who described in the late 1990’s that once
the demand for physical gold far outstripped the supply, the
paper gold market would collapse.
No one ever thought it would be the US government calling the
bluff of the global gold markets, because the US for decades
was at the center of the paper gold scam. But here we are.
Then again no one thought that Trump would get rid of USAID
with the stroke of the pen, either. Kinda cool, ain’t it Mr.
Begala?
This makes the US government, through the SWF, a partner in
a rising physical gold price, which is something I’ve speculated
was true for a couple of years now. I talked about it in terms of
the Federal Reserve’s balance sheet, but it works the exact same
way for the treasury.
The price of gold is rising because people think it’s undervalued
at $2,900-$3,000 per ounce. We’re going to find out over the
next few years what the markets really think gold is worth.
Going back to Ms. Shelton’s idea of a US gold-backed
instrument there’s also talk of the US issuing 50- and 100-year
bonds. But that begs the question, what would the market
want as payment for lending that long? Far more than the
~4.55% the 30-year is currently trading at. And that won’t fix
our cash flow problem, only make it worse.
Also asking today’s investors to buy a zero-coupon bond for a
promise 50 years from now to get gold from the treasury is a
fantasy. That’s something you do after you’ve fixed everything
else.
But a hybrid of the two ideas isn’t a fantasy. A hybrid
instrument paying a 3% coupon which is also backed by 20%
gold with a 10-year maturity is something that could make it in
the market.
If over that ten years the price of gold doubles to $6,000, the
total value of the bond rises by 20% along with the 3% coupon
is a nominal 5% yield ceteris paribus. If gold doubles in 5 years,
that yield moves to 7%, but the treasury is only paying a 3%
coupon.
I don’t expect something like this to even be considered until
gold is trading above $5,000 per ounce, where then the SWF is
looking at gold holdings of $1.2 trillion.
Moreover, a key feature of these bonds
would have to be they are only available
to US citizens and companies owned by
Americans.
I give this example not because I think
this is exactly what’s going to happen,
but as a framework of how to put the
asset side of the balance sheet to work.
Cash for Burbclaves
Bessent has talked explicitly about
wanting to do a cash for housing equity
swap to, again, mobilize the savings of
Americans and put it to work. As of Q3
of 2024, there is approximately $32
trillion in homeowner equity in the US,
with more than half of homeowners
having more than 50% equity in their
mortgaged property. The average homeowner has $311,000 in
equity which translates to ~$203,000 in tappable equity, at a
loan-to-value ratio of 80%, or $24 trillion.
What Bessent is likely to offer is a government-backed 0%
HELOC – Home Equity Line of Credit.
That HELOC shouldn’t be transferrable, and no 2nd mortgage
can be taken out against it. It is a simple equity for cash
arrangement.
The Treasury would offer you a 10-year 3% bond in exchange
for the equity against your house.
What kind of money are we talking about here in real terms? A
typical HELOC is drawn up against a 10-year amortization
schedule, meaning your monthly payment is set as if you
borrowed the entire note which you pay back over 10 years.
For a $100,000 HELOC over 10 years at 3% that’s a payment of
$965.61 per month.
This is what the treasury would pay you if you took Bessent’s
offer. At the end of the HELOC, the government would have
paid you back your equity plus the interest and then retire the
debt.
the average homeowner in America is then looking at
potentially a $1,930/month check for lending to the
government against their house. Even a 20% participation rate
here is a $5-$6 trillion cash infusion to the government paying
just 3%, which would both clean up the balance sheet side of
the equation as we now truly “owe the money to ourselves” as
Keynesians lied to us for all these years and undo the damage
done by Janet Yellen over the past four years.
This would stop dead cold the constant churn in housing.
Older people wouldn’t feel obligated to cash in their equity and
move somewhere more affordable for their retirement. This
would set up a positive incentive for people to stay in their
homes and take a real stake in building their communities. It
would stop the deracination of the American family. That
money would circulate locally.
Bessent could take the proceeds and use it to retire a whole
bunch of higher rate debt and radically alter the finances of the
lower and middle classes who would benefit the most from this.
These are the people Oliver Anthony sung so passionately for.
They are the ones most unfairly impacted by the ridiculous cost
of government regulations. This would pay people back for
skyrocketing costs of medical care, insurance, food, and
maintenance.
Spanking Obama’s Fannie
But this still doesn’t really solve the
entire problem. The last piece to this
puzzle is the one that Trump wanted to
solve in his first term but was blocked
from doing so.
It involves taking Fannie Mae and
Freddie Mac out of Conservatorship,
relisting them on the NYSE and
realizing the gains from the
government’s nearly 80% ownership of
these two firms.
Let’s start with the background. During
the 2008 financial crisis Fannie and
Freddie were bailed out and placed into
Conservatorship, which is never
considered to be a permanent
arrangement. Yet they still are.
In exchange for the bailout the government acquired a 79.9%
ownership of these firms in the form of warrants exercisable at
$0.01/share. Up until the election both FNMA (Fannie) and
FMCC (Freddie) traded below $1.00 per share in the over-the
counter markets.
This severely limits their potential investor pool.
In order for them to be relisted on the NYSE they have to trade
above $4.00 per share. Both stocks have been on a tear since
the election, both now trading above $6.00 per share. To bring
them out of Conservatorship requires a simple signature from
the Treasury Secretary and the Director of the Federal Home
Financing Administration (FHFA). Bull Pulte, of Pulte Group
(PHM) one of the largest home builders in the US, has been
tapped to lead FHFA.
My suspicion is that Trump is going to move both companies,
however, under Housing and Urban Development (HUD)
headed by Scott Turner, who earlier this month remarked that
relisting and privatizing Fannie and Freddie is a big priority for
this administration.
In their current states both FNMA and FMCC are incredibly
undervalued. Moreover, the daily trading churn on them is
thin, meaning there isn’t much of a market, and, I suspect most
of the shares are being held like bitcoins (HODL’d).
Fannie and Freddie are not mortgage lenders. They are really
mortgage insurers, with little direct exposure to the underlying
mortgages. They act as the middleman between the lending
banks and the brokers who package them up as mortgage
backed securities (MBS) freeing up liquidity to the banking
system. Their primary revenue is in charging “guarantee fees”
to the borrower which act as the buffer to ensure MBS investors
get paid to cover defaults.
While there are plenty of problems within this financial model
of the mortgage market, Fannie and Freddie work with the
highest creditworthy borrowers in the middle class. FHA loans
are generally ones below $500,000 in today’s market.
The Trump team must protect the values of those homes while
simultaneously restructuring the US economy to make that size
loan not only the base case but affordable to the next
generation of homebuyers.
Bringing them out of Conservatorship would allow both firms
be properly managed by professional staff, which has been a big
issue for the past decade. Holding onto top tier talent is
impossible because these positions are basically government
scale jobs.
So, first privatizing them and then relisting them makes it
possible for Fannie and Freddie to begin operating like normal
companies again.
Why? Because even in their
current state they are extremely
profitable. Between them in 2024
bringing in more than $28 billion
in net profit.
Fannie Mae reported earnings of
$4.1 billion for Q4 and $17 billion
for FY 2024.
Freddie Mac’s numbers were
$11.9 billion for FY 2024.
Together they have a net worth of more than $154 billion,
against fully diluted (which includes the Government’s
warrants) market cap of ~$81 billion.
I checked with Grok, asking the simple question, “How many
companies in the world had net earnings greater than $28
billion equivalent in 2024?”
The answer was nine. Saudi Aramco, Apple (AAPL), Berkshire
Hathaway (BRK), Alphabet (GOOGL), Microsoft (MSFT), ICBC,
JPMorgan Chase (JPM), China Construction Bank, and Meta
Platforms (META).
Taken together Fannie and Freddie are one of the largest
financial institutions in the world and would go from the pink
sheets to the S&P 100 overnight.
Pershing Square’s Bill Ackman put on a 90-minute presentation
in January explaining in detail the history, legal hurdles, and
what a potential path to full valuation looks like. There is too
much for me to go over here, but it is worth everyone’s time to
watch Pershing’s argument.
In short, the bull case for Fannie and Freddie is a series of
simple bullet points:
? They have exited the sub-prime and Alt-A markets
and only deal with the highest quality borrowers,
having jettisoned the financialization business
that got them in trouble in the run up to 2008
? The punitive Full Net Sweep of all their profits
into government coffers ended during Trump’s
first term. This was well after the firms had more
than paid the taxpayer back.
? They have built fortress balance sheets that make
a mockery of every other bank’s balance sheet in
the world (see Ackman’s presentation for details)
in just seven years.
? Obama was using them as a piggy bank and, I
suspect, keeping them off the market to
undermine US government finances.
? The government has hundreds of billions, if not
trillions of unrealized value in these firms which
can be used to relieve taxpayers of servicing some
of our unfunded liabilities.
? Once private there is no reason why Fannie and
Freddie can’t go out into the world to bring the
30-year fixed rate mortgage to other markets.
Their conclusion was a very conservative $38-40 per share by
2032 paying a 5% dividend depending on what happens with
interest rates. They value the government’s warrants at $311
billion in realized revenue over five years.
IMO, these should be considered a
very conservative estimates
because they do not take into
consideration the massive interest
relisting would create. Also,
modeling the price based on a 15x
earnings multiple for companies
with their business models in
today’s market is very
conservative.
Pershing’s is literally an almost zero-growth model. I’m putting
FNMA in the Goats Portfolio at or below $8.00 per share on
the expectation that Fannie and Freddie goes from the thing
Trump is avoiding talking about to the thing he won’t shut up
about by the second half of the year. It’s expected that Fannie
will be the first of the two to IPO, followed by Freddie.
The market already knows what’s coming. If anything, we are
four months late to this trade.
Sticking the Landing
Putting this all together I’m expecting Trump and Bessent to
build the SWF into a massive multi-trillion asset pool over the
next four years which will set the stage for a complete overhaul
of our domestic money supply.
I’ve long believed that Powell at the Fed was laying the
foundation for this if Trump came to power. Once he began
draining massive COVID liquidity printed to destroy us and
Davos counted on to fund their next war, he set the stage for
Trump to do what Trump wanted to do the first time he was in
office
All of these ideas I’ve discussed here were put on the table in
2017-2020, but we were robbed of this and the next four years
by the Biden Junta’s desperate attempt to collapse the US into
civil war and privation.
What gold revaluation, a housing equity swap, and the
privatization of Fannie and Freddie represent is the beginning
of that process. A move away from un-securitized debt and
towards a local lending model based on properly valuing the
pool of a community’s savings to rescue us “from overtime
hours for bullshit pay.”
The current model drives value of savings down and the value
of credit up. The stories of gold and Fannie/Freddie post
bailout have a similar ring to them. Allowing them out of their
cages will finally allow the markets to price them properly and
reverse the current flow of wealth from the lower and middle
classes to the oligarch class.
This is just the beginning of what I see on the horizon.
TOM LUONGO GOLD GOATS AND GUNS
https://www.google.com/search?q=FNMA+price&ie=utf-8&oe=utf-8
I have a problem comprehending the section on how the US Public balance sheet will be recapitalized in part using the Household equity from private housing. In fact, ambitious as this all is, with the Everything Bubble potentially nearing an end (or going into hiatus), I see the aggregate national balance sheet deteriorating soon. Nevermind this funny business in household finance using some kind of Reverse Mortgage Home Equity siphon. I won’t pretend to understand this, but I think everyone is sitting on Unrealized Losses and Mark to Market will have its say. As always, its a question of timing.