ITM Trading analyst Taylor Kenny is connecting three data points other commentators have been treating in isolation — a Federal Reserve treasury-buying spree, a record-high commercial real estate delinquency rate, and a A-list private real estate fund freezing investor exits — into what she calls a single connected stress signal.
The first piece is the Fed's balance sheet. According to Kenny, the central bank has bought close to a quarter of a trillion dollars in US treasuries this year alone, with total holdings now at US$4.4 trillion. "Treasuries now account for 65.9% of the Fed's total assets, the highest level since March of 2008," Kenny says. She frames it bluntly: "They're moving from the lender of last resort to what seems to be the lender of first resort, in a clear signal that the system itself cannot function without more intervention."
The second piece is commercial real estate. Citing Zero Hedge's reporting, Kenny notes that the CRE delinquency rate jumped by 41 basis points in March to 7.55% — the highest in years. "That's not something to turn away from. That's very serious," she says, arguing US banks have been playing 'extend and pretend', rolling loans rather than crystallising losses they cannot afford on already weak balance sheets.
The third — and to Kenny the most uncomfortable — piece is private real estate funds beginning to gate redemptions. "Starwood Capital Group Management, a high-profile management group, is halting redemptions from a US$22 billion real estate fund," she says. The fund's own statement framed the move as protective: "Taking this step now, while it might be frustrating for some shareholders, allows us to preserve the opportunity to realise better outcomes as market conditions improve."
For Kenny, the language is the warning. "If they can close the exits and change the rules on them — billionaires, big private funds — what hope does that leave for the rest of us?" she says, drawing a direct line to the legal mechanism in the United States that allows banks to convert deposits into equity in a stress event. "It's called a bank bail-in, not a bailout… instead of using taxpayer funds, they go, 'No, no, no, this time around we're taking your deposits.'"
She also rejects the Starwood narrative that this is purely a real estate problem. "The issue was not the real estate but rather the pressure created by elevated redemption requests, which rose quite suddenly when interest rates spiked and remained elevated," she quotes the fund as saying — and then drives the point home. "That's the truth right there. We had near-zero interest rates for so long that now we cannot, as a system, handle all of this debt at elevated rates because there's so much of it."
Kenny's broader argument is that the Fed is now squeezed between two impossibilities. Lowering rates would not bring back the central bank buyers who have stepped away from US debt; keeping them elevated continues to crack a system trained on cheap credit. "You cannot attract more buyers by lowering rates," she says. "But if you keep rates elevated, the system that has gotten so used to cheap and easy credit suddenly starts to crack under the weight of its own debt."
If the strain runs further, she argues, the Fed's last lever is yield curve control — capping long-end yields and printing as much as needed to defend that cap. "The last time it happened it was near 20% inflation," she warns. The historical reference is to the World War II era US YCC regime that ran 1942-1951, during which inflation peaks did indeed approach mid-teens to high-teens levels.
Whether or not investors share Kenny's gold-bug conclusion, the three underlying data points are non-trivial: the highest treasury share of the Fed's balance sheet in 17 years, a CRE delinquency rate at multi-year highs, and a A-list private fund gating tens of billions in investor redemptions. As Kenny says of the gating: "Now we have real estate funds changing the rules. Think about that."