Turkey is selling its gold. That's not a

metaphor. They're selling actual gold,

gold bars out of the vaults of its

central bank. Now, they're not doing

this to defend [music] their currency,

and they're not doing it to fund a war.

They are doing it to buy diesel.

And if that sounds like Turkey's

problem, you need to understand what

Turkey [music] sold first, American

government debt, US Treasuries. And that

cascade is what we are going to talk

about today because if countries are

being forced [music] to sell American

debt just to keep the lights on and the

trucks moving, then Turkey isn't the

story. Turkey is the first crack in

something a lot bigger. Here is what

most investors never [music] think

about. When you buy a US Treasury, you

think you own the safest asset [music]

on Earth. But safe rests on one quiet

assumption, that when you want your

money back, somebody will be there to

buy that Treasury from you.

So, what happens therefore when all the

buyers turn into sellers? To understand

why that's suddenly a real question,

look at this. The Strait of Hormuz, 2

years ago, not one analyst on Wall

Street had Hormuz closes on their list.

It was a black swan. It was the thing

that nobody saw coming, and then it

came. Now, 1/5 of all the oil on the

planet moves through that strait. So, if

you shut it, you've choked off 20% of

the world's oil overnight. But the

number's actually a lot bigger than

that, and many people don't realize, but

the Strait of Hormuz accounts for 40% of

the world's export oil, meaning the oil

that is available for sale. So, if

you're a country like Japan that imports

all of its oil, they don't care about

the whole oil market. They just care

about the export market because that's

what they live and die on. What America

produces and consumes was never

available for sale, [music] so it

doesn't matter to them. So, when the

supply gets choked like it is today, the

price does one thing. It climbs, and

you've seen that. [music]

But, follow the money. Higher oil means

oil-importing countries suddenly need a

lot more dollars to pay for that oil.

So, they sell the most liquid dollar

asset they own, which are US Treasuries,

to raise that cash to buy that oil. Now,

here's the part that really matters. Let

me put you in the chair. You run one of

these countries. Your fuel is about to

stop. The pumps are running dry, and

people are beginning to notice, your

voting base. You need dollars today. So,

what do you sell? You sell your US

Treasuries. That's what everybody does,

every country. But, every country that

sells pushes the price of those

Treasuries down a little bit more,

because selling pressure on any asset

depreciates the price.

And a falling price makes the next

country holding that same asset nervous.

So, they sell, too, before the price

drops even further. Selling feeds fear,

and fear feeds more selling. That's not

a market anymore. It quickly becomes a

spiral, almost like a bank run.

Now, who is standing in the middle of

that spiral? It's the United States

government. It funds itself by selling

those same Treasuries. So, it needs

buyers, not sellers. But, although a lot

of people talk about how selling in the

Treasury market is bad for the United

States, and it is, it's actually a lot

worse for many other countries at first.

So, which countries are those?

Starting in March, one specific group of

countries started selling more

Treasuries than we've seen in years. Not

the rich countries, and not the poorest,

the middle of the pack. Countries like

India, Turkey, Indonesia, Thailand, the

Philippines, South Africa, Egypt,

Pakistan, Vietnam.

Still growing, not rich enough to coast,

but here's the [music] key. The middle

pack countries that buy almost all of

their oil from somebody else. Every one

of them has the same two traits, and

this is important. They import their

oil, and they keep their national

savings parked in US Treasuries. So,

when the oil bill explodes, this is

exactly the group that gets squeezed and

taps that piggy bank first. The whole

story effectively compressed into one

country right now is Turkey. Let me show

you exactly what selling Treasuries to

buy oil looks like dollar for dollar.

Imagine you are holding a $1,000

Treasury. It's safe, it's boring, but

it's predictable. But, then the oil bill

lands, and it's bigger than you are used

to. In fact, it's bigger than your cash

flow can afford. So, you tap your piggy

bank. You sell some Treasuries.

But, because you're not alone in this

situation, many other people are selling

the same asset. So, the price of that

asset in your piggy bank is dropping.

So, you don't get a $1,000 for your

$1,000 bond, you get 950. Now, you just

ate a $50 loss to buy some diesel.

But, multiply that by an entire country,

not one person. And then multiply it by

10 countries. Every forced sale pushes

the price down, and a lower Treasury

price means a higher interest rate the

United States has to pay to attract new

lenders.

Now, Turkey didn't [music] trim its

positions. In March alone, it cut its

Treasury holdings

>> [music]

>> from $15.7 billion

to $1.8 billion.

>> [music]

>> 90% of everything it held in a single

month. Now, the stack was never that big

to begin with. So, once it was gone,

Turkey reached for the other asset in

its piggy bank. It's gold. And in the

first 2 weeks of the war, its central

bank sold or swapped roughly [music] 58

tons, about $8 billion dollars worth of

gold.

And that was 3 months [music] ago. The

bleed hasn't stopped. A country does not

start selling its gold to buy diesel

[music] unless it has run out of better

options. Nobody is further down that

road than Turkey. And this isn't a

forecast, right? It's a reported in the

books, already happened fact. Now,

here's the detail that matters. This

data comes out on a delay. That's why

it's June and we're talking about March

numbers, which means that all of that

selling, the treasuries and the gold,

that happened while oil was still

sitting between 70 and 105 dollars a

barrel. Now, hold on to that range

because we're going to come back to it

in a second. But before we do, if you're

wondering what a country running out of

dollars actually looks like, you don't

have to guess because it happened

recently in 2022 in Sri Lanka.

Now, Sri Lanka imports almost everything

it runs on, its fuel, much of its food,

and nearly all of its medicine, and it

pays for every bit of that in dollars.

The biggest source of those dollars by

far was tourism, more than 5% of the

entire economy.

But then 2020 happened and tourism

stopped. So, the country drained its

piggy bank to fill the hole. Its piggy

bank was US treasuries. Foreign reserves

went from 7.6 billion dollars at the end

of 2019

>> [music]

>> to about 50 million by the spring of

2022, exactly the way these emerging

markets are draining theirs today.

And when the savings ran out, that meant

no more dollars in a country that runs

out of dollars runs out of the things

that dollars buy. The fuel lines in Sri

Lanka stretched for literal miles, and

then they ran out completely. The power

went off for hours every single day.

>> [music]

>> Medicine got scarce. Food prices went

through the roof, and that July,

ordinary [music] people had had enough.

They marched on the presidential palace

in [music] such numbers that the

president of the country fled in the

middle of the night.

So, it's not a number on a screen or a

chart. It's a head of state climbing

onto an airplane to escape his own

people.

And here's why this time it's a little

bit bigger. A tourism crisis in Sri

Lanka is a relatively isolated thing. A

global energy crisis is not. It's

systemic. So, the odds of this jumping

from one country to another aren't

small. They're actually relatively high.

Now, most people like to listen to what

governments say. I would rather watch

what they do. Especially the quiet,

strange things that they would prefer

you didn't notice. Because right now the

US government is doing two of them. So,

first, the United States is draining its

strategic petroleum reserve. The

national emergency oil tank, the one you

only ever crack open in a true crisis.

And they're doing it actually the

fastest pace on record. But here's the

strange part. A lot of that fuel, the

majority, isn't going to Americans. It's

being shipped overseas. Now, hold on to

that for a second. The second thing

they're doing is they have quietly

lifted the sanctions on Russian oil. Not

once, but twice in the middle of a war

in which Russia is helping target

American forces. So, why on earth would

they do either of those two things? And

it's the same reason for both. If

desperate countries can get oil from

America's emergency tank or from a

suddenly legal Russia, it keeps the

global oil price down for a little bit

longer. And the lower oil price means

countries have to sell fewer treasuries

to afford that fuel.

So, these moves were never really about

oil. They're about protecting the

treasury market, keeping the most

fragile countries from selling so hard

that one of them falls and starts the

cascade. Now, read that back because

that's the tell. The US government is

burning its own emergency reserves and

unsanctioning its enemies oil to keep a

distant emerging market from going

bankrupt. If the global system were

doing just fine, you would not need to

do any of that.

So, the only question left is does oil

go higher? Because if this is what was

happening at a $100 oil or $90 oil, what

happens if it gets significantly more

expensive?

And in late May, Neil Chapman, a senior

vice president at Exxon, one of the

world's largest oil companies, stood up

at an investor conference and said

[music] this. "We're approaching unheard

of inventory levels. I mean, really,

really low levels.

The cushion the world's been living off

of, the oil sitting in reserves and

storage tanks around the globe, is

almost gone. America's strategic

petroleum reserve hasn't been this low

since the 1980s."

And Chapman put a clock on it. He said,

"You can debate whether we hit these

lows in 2 weeks or 3 weeks, but once we

get to that point, you will see the

price shoot [music] up." And his

expectation for where the price goes,

150 to 160 dollars a barrel. Now, pick

up that range I asked you to hold

earlier. Everything you just watched

from, you know, Turkey selling its

treasuries, then its gold, its emerging

market peers selling as well, that

happened with oil between 70 and 105

dollars. Exxon's number for what's

coming is 150 to 160.

So, let's ask the question that matters.

If selling the gold is what $90 oil

looks like, what happens at 150,

especially if the treasuries and the

gold are already sold? What happens to

those economies at that point? And

here's what almost everyone gets wrong.

The instinct is to think that this just

scales, right? If $90 oil caused some

selling, then $150 oil would cause more,

right? A bigger version of the same

thing. But, that's not quite accurate.

>> [music]

>> And And here's why. $90 oil has been

survivable for the reasons we discussed,

right? Three cushions that have been

quietly soaking up the blow. Number one,

the oil in storage tanks around the

world. As the straight choked supply

countries drew down their storage, their

internal storage instead of bidding the

price to the moon. And number two, the

US emergency reserve has been pumping

oil into the global market at a record

pace to keep prices down. And three,

[music] the reserves of the exposed

countries themselves, right? When Turkey

needed dollars, it had 15 billion in

Treasuries to sell before it ever

touched its gold. [music]

At $90 oil, those cushions absorbed the

hit.

The selling was real, but it was

orderly, and [music] the system held. By

the time oil hits 150, all of those

buffers will be [music] gone. Global

inventories are already at record lows

and falling. The US strategic reserve is

at [music] its lowest level since 1983

and dropping. And the exposed countries

will have already sold much, if not all,

of their Treasuries. Now, let me show

you what a shock looks like [music] when

the cushions are gone.

August 14th, 2003. A single power line

in Ohio was sagging in the summer heat,

and it got tangled in an overgrown tree.

And minutes later, 55 million people

>> [music]

>> across eight US states and Canada were

sitting in the dark. So, what happened?

55 million power lines didn't fail,

[music] just one did. But, when that

first line tripped, the power it was

carrying didn't vanish. It pushed onto

the next line,

>> [music]

>> which then overloaded and tripped, which

pushed its load onto the next one, which

tripped. Each failure made the next

[music] one worse and the entire

northeast of the continent went down in

under [music] 10 minutes. Now here's the

part that matters. There was no flicker,

no dimming, nothing to warn anybody the

power was at full strength and steady

right up until it was gone.

In the control rooms operators were

staring at screens that said the system

was stable minutes before it collapsed.

That is how a connected system fails.

Not slowly, not with a warning you can

act on all at once. One domino hitting

the next and they all fall down starting

with whatever point was carrying the

most load.

So hold that picture over the financial

world. Every country is a power line.

The dollar and the US treasuries

underneath it are the grid that they are

all plugged into and the closure of

Hormuz is making some of those power

lines sag. A shock that lands on a grid

with no slack left doesn't get absorbed.

It lands square and it breaks two things

at once. First, the most exposed

countries run out of things to sell and

they start going Sri Lanka circa 2022.

They can't just sell more treasuries to

buy oil because the treasuries are

already gone.

And second, all that forced selling

drives the US interest rate up through

the one level it cannot survive. There's

there's a number somewhere around 5% on

the 10-year Treasury above which

America's interest bill on its debt

stops being manageable and starts

compounding on itself.

The cushions I would kept yields below

that line. Take them away, force the

selling and yields punch right through

that line. And on the other side of that

line, the United States has exactly two

choices left. Let the bond market break

and default on their debts or

print a record amount of currency to

stop it. Now spoiler alert, empires

throughout history have always chosen

the same option when faced with that

choice. Do you know what it is?

They print. Now, you might be thinking,

"Look, but Jay, the Strait might open,

maybe tomorrow." And And yeah, it might.

Every single week since early March,

we've heard we are a few days away from

a peace deal, and I genuinely hope that

this time it's real. Because if it is,

the whole system stabilizes. The oil

price falls, the pressure drops, the

emerging markets steady themselves, and

we all go back to arguing about

something else. That's the off-ramp.

That's the good ending. Just by the way,

don't mistake a reprieve for a pardon.

Even if the Strait opens tomorrow, the

destination of the US dollar doesn't

change, only the timetable. Hormuz

didn't start this fire. It just poured

gasoline on it. So, let me wrap up what

this is really all about. The thing I

said that Turkey was just the first

crack in.

Every money that has ever run the world

eventually lost its crown, right? The

Roman denarius, the gold dinar, the

Islamic empires, the paper money of

Imperial China, Dutch guilder, British

pound, right? Rome, Baghdad, Beijing,

London, different countries, different

continents, different currencies, same

ending.

Every single one. It always ends the

same way. The country at the center gets

too deep in debt, prints too much of its

own money, and the world slowly stops

trusting it. And one day the United

States will either default or it will

print so many dollars to avoid that

default that the dollar quietly bleeds

away its value instead. That's the fire.

That's where this ends. So, the question

isn't, "Where are we going?" The

question is, "Which dominoes will fall

next and in what order?"

Two years ago, nobody had Hormuz closes

on their list. A black swan reshuffled

the whole board. If the street had never

shut, the same ending would still be

coming just on a different schedule with

the dominoes falling in a different

order. So, that's what I'm actually

watching. Not a chart, not a number. I'm

watching a country. The next one to run

dry, the way Sri Lanka did in 2022.

And right now, the most likely candidate

is Turkey. It already sold its

treasuries and started selling its gold.

Nobody is further down the road.

Now, it might not be Turkey. And I can't

promise which one goes first. And a

shock that nobody sees coming could push

a different country over the edge first.

But one of them goes.

And the day they do, the day a real

economy actually collapses the way Sri

Lanka did, but this time as part of a

systemic crisis is the day this stops

being a forecast and becomes the news.

Because that collapse isn't the end of

the story. It's the start of a cascade.

And the fear it sets off spreads to the

next country and the next. Each one

selling its treasuries to buy oil. Each

sale pushing the price down. Each drop

scaring the next country into selling

too until it reaches the one market the

entire system is built on, the United

States. The biggest domino of them all.

Okay, so what's the point, Jay?

Where you're watching this from changes

how fast this reaches you, not whether

it does. If you live in the United

States or a comparably wealthy country,

you're probably not going to wake up to

empty fuel pumps. Your version is

probably slower and quieter. It's

inflation. All that selling eventually

forces the US to print. And every dollar

printed makes the ones in your account

worth a little less. The number in your

savings stays the same. It just buys

less food, less housing, less fuel, less

rent year after year. You know this by

now.

But if you live in one of the exposed

countries, and a lot of you do, I don't

really need to explain any of this.

You've likely lived through a currency

losing its value or you're watching it

happen right now or your parents told

you how it felt last time. For you, this

isn't a forecast, it's a memory, maybe a

warning. But the lesson is the same on

both sides of that line. The thing that

fails

is paper.

Dollars, lira, rupees, pesos. When a

government gets cornered, it protects

itself by printing and whoever is

holding the paper pays the bill. And the

things that survive are the things that

cannot be printed. So, I'm not going to

tell you what to buy or sell. I don't

give investment advice, things like

that. I will tell you how I think about

it. The most dangerous place to be is to

keep your savings in the one that feels

the safest at a time like this. And

that's promises to be paid, IOUs, and

cash. The safer place is the things that

can't be conjured up on a keyboard, the

gold, the energy, the producers of raw

materials, the real physical things that

the world cannot run without.

Now, the people who've already lived

through this, they know that in their

bones. And if the strait reopens

tomorrow and I'm wrong,

owning those things early cost you

almost nothing. But if it stays shut,

there would hold their value when the

paper loses its.

One side of that bet costs a little. The

other protects everything you've saved.

The countries on the edge always fall

first, but they're never the end of the

story. They're the warning that a

cascade has already begun. And then it's

moving, one domino at a time, toward the

biggest one of all,

the dollar that every other currency and

every saver on Earth ultimately leans

on.

So, Turkey sold almost all of its

treasuries and now they're selling their

gold. And now you know why that matters

and what to watch next. Honest question,

what am I missing? Let me know in the

comments.

I'm Jay Martin and this is the Jay

Martin Show. If you enjoy my content, do

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look forward to seeing you next week.

Thanks so much.