As markets cheer Qatar’s massive $200 billion jet deal with Boeing Co. BA, economist Peter Schiff has a warning that has little to do with planes, and a lot more to do with America’s structural vulnerabilities.
What Happened: On Wednesday, Schiff highlighted the potential financial fallout of Boeing’s mega deal with Qatar, which involves acquiring 160 jets for its state-owned carrier, Qatar Airways.
While acknowledging that this was “great for Boeing,” which hit a one-year high following the news, Schiff cautions that the transaction could come with a hidden cost for the U.S. economy.
He says that to help finance this purchase, “Qatar will likely sell a lot of Treasuries and other U.S. assets,” further straining the U.S. bond market that is already under pressure.
Schiff says that this capital reallocation might contribute to “pushing up inflation and interest rates in the U.S.,” which comes at a time when the Federal Reserve is already grappling with persistent inflationary pressures amid a ballooning Federal trade deficit.
Why It Matters: The deal, which is one of the largest jet purchases ever made, comes at a time of growing concerns regarding America’s debt sustainability.
Early this week, economist Stephanie Pomboy raised similar concerns, asking, “Who’s going to buy $2 trillion worth of paper?” with major buyers such as China pulling back.
As U.S. 30-Year Treasury yields approached 5%, analyst Gordon Johnson warned of a potential “Liberation Day 2.0,” as it risks jeopardizing $8 trillion in U.S. debt that is set to be refinanced in 2025.
On Tuesday, Schiff too called out the rising yields and the decline in the U.S. Dollar Index (DXY) despite the trade truce with China early in the week, which he says is because “the world is losing confidence in the dollar,” and the country’s ability to get its fiscal house in order.
“The consequences of de-dollarization will be profound,” Schiff said, especially as the U.S. Treasury Department ramps up its borrowing, projecting $514 billion in net debt issues during this quarter, which is 317% over its own forecast of $123 billion, just two months ago.
Fund manager, Michael Kao, however, has a different take on this deal with Qatar, referring to it as “Petrodollar recycling,” while adding that the Petrodollar system “isn’t going away anytime soon,” in a post on X. Kao also included a list of multi-billion dollar transactions between U.S. companies and Middle-Eastern states to drive his point.
Price Action: Boeing shares were up 0.64% on Wednesday, trading at 204.72, and are up 0.67% after hours. The U.S. 10-Year and 30-Year Treasury yields continue to inch upward, at 4.536% and 4.968% at the time of writing this, respectively.
The U.S. Dollar Index is down 0.23% on Wednesday, trading at 100.818, and is currently down 1.49% over the past four weeks, and 3.48% over the past 12 months.
Boeing stock ranks in the 88th percentile on momentum, according to Benzinga’s Edge Stock Rankings. How does it compare with Airbus SE EADSY and Lockheed Martin Corp. LMT? Find out here.
Photo Courtesy: Andreas Zeitler On Shutterstock.com
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