In this issue:

• What to do when debt buybacks backfire
• SIA is caught between a money pit and a hard place

If this sounds like distant and unintelligible shouting to you, just know that earlier this month, the US Treasury made this unusual buyback move, saying it would double the size of each US debt buyback operation that it carries out. 

The Treasury framed this move as routine liquidity management, but absolutely nobody believed this. Instead, the market interpreted it as a sudden expansion in the Treasury’s job description: intervening to stabilise the US’ borrowing costs. 

If these buybacks were intended to instil confidence, they have ironically amplified three major market anxieties instead:

1. The gargantuan scale of the US national debt burden, which just breached a historic US$40 trillion.
    
2. The cost of servicing this debt, which reached its highest in almost 20 years earlier this month when the yield on 30-year US Treasuries hit 5.31 per cent.
   
   The Treasury, in inadvertently signalling that it’s worried enough about thing 1 and thing 2 to intervene in the debt market this way, has given us thing 3 to fret about:
    
3. US dollar debasement: If the Treasury manages to artificially put a lid on yield, foreign investors will need the US dollar to get cheaper in order to compensate them for the lower return. If the greenback weakens overmuch, the debt crisis could mutate into a currency crisis.

Complicating the calculus, a different US agency, the Federal Reserve, will probably push rates upwards this coming September as it tries to get a grip on inflation. When a hawk and dove collide, feathers will fly.

All that Treasury meddling, ineffectual as it’s been, has set off domino effects in the greenback, gold and Bitcoin markets. 

The US dollar has slid to multi-month lows thanks to debasement fears, whether these are warranted or not. 

Where the US dollar goes, gold prices tend to go in the opposite direction, so the precious metal has hit a three-month high, gaining some 15 per cent this month alone.

And Bitcoin, in a rare instance, did what it was supposed to and behaved like digital gold, rising 16 per cent within a week and breaking above US$80,000.

Insuring against meddling

To project where these three asset classes are headed, you could try to figure out how debt market dynamics work or how much spending the US has to cut in order not to look like a drunken fiscal sailor. 

Ray Dalio, the billionaire investor, explains both those things in his Aug 22 missive. If this is how you like to start your Mondays, knock yourself out. 

Or, you could scroll to the bottom of his post where he suggests the three things you can do to navigate these upside-down times:

1. Diversify well in asset classes and countries with healthy income statements and balance sheets, and which are free of domestic and external drama.
   
   Dalio did not name any specific countries, but it would be reasonable to say that Singapore fits this description. The Straits Times Index (STI), for all its concentration in banking and real estate, has a surprising amount of larger geographical exposure – 29 per cent of its constituents’ revenue comes from Greater China and Australia, while 23 of the index’s 30 firms have operations outside the Asia-Pacific region.
   
   At the same time, the STI has a relatively low correlation to other major global indices from the US, Europe and Hong Kong, based on data compiled over a five-year period, which could help to dampen the shock from a global equities freakout if one happens.
    
2. Underweight debt assets like bonds. Buying less or none of something is pretty simple.
    
3. Overweight gold and Bitcoin. “Having a small percentage – maybe 10-15 per cent – of one’s money in gold can reduce a portfolio’s risk, and I think it would also raise its return,” Dalio wrote.

Beyond this current kerfuffle, there is sense in staying warily diversified over the longer term. 

The sensible projection here is that the US Treasury stops this upsized debt-buying folly once it’s proven thoroughly futile. But these are not sensible times. Even if the Treasury stops making these mistakes, there are plenty of other parties in the current US administration who are making their own. 

I wonder if someone at Singapore Airlines (SIA) inhales sharply every time an e-mail from Air India pops up in their inbox.

What did the header for the latest one say, I wonder? “URGENT: Need US$1.5 billion”, cc’ing both its shareholders SIA and Tata Sons?

Air India’s reported fresh equity request comes months after the second-largest Indian airline posted a record annual loss of more than US$2.3 billion for its fiscal year ended March.

SIA, which holds a 25.1 per cent stake in Air India, might have to pony up its share of about US$375 million for this latest SOS call. “Nothing has been decided, and any investment would likely be made in several tranches,” BT’s Jude Chan wrote last week. 

“But if SIA writes that cheque, it will ironically be paying a small fortune for the privilege of making its own financial results look worse.”

Chan added: “The question, perhaps, is not about this cheque, but the one after it, and the one after that.”

Singapore’s national carrier is stuck between a money pit and a hard place where Air India is concerned. It could continue to carry the latter’s losses on its books, not answer the cash call or try to unload its stake in the beleaguered asset. For reasons that Chan’s piece gets into, none of these moves are palatable options. 

(Disclosure: I am long gold and Bitcoin.)