Rick Rule Warns the Fed May Have to Print Again to Bail out Markets

Rick Rule says the biggest threat to markets right now sits inside high-yield bond exchange-traded funds (ETFs) that investors mistake for cash.

“If I had to think about one thing that really scares me, that’s it,” Rule told Lin.

Rule explained that high-yield and subprime credit ETFs hold trillions of dollars in combined assets, much of it owned by retail investors who do not understand the underlying credit risk. The ETF shares trade freely, he said, but many of the bonds inside them do not.

Some of those bonds trade only once every six weeks, according to Rule. If redemptions force a fund manager to sell that debt overnight, the sale price will reflect the seller’s distress rather than the broader market, he said.

Rule tied that risk directly to interest rates. Higher rates make it harder for stressed borrowers to keep paying, and credit that is already struggling at current rates would struggle more if rates climbed further, he said.

Rule compared the current setup to the 2008 financial crisis, when the federal government stepped in to backstop major institutions. He said the difference now is the size of the debt behind that promise.

Rule pointed to bond market behavior as evidence that the market is already pricing that constraint. The government has been buying longer-dated Treasurys while issuing more short-term debt to fund the purchases, he said, yet long bond yields keep climbing anyway. He described that as investors demanding compensation for both time and risk.

Rule said his firm vetted every exhibitor before the four-day conference, accepting 68 companies and rejecting 135. He said the goal is to let attendees allocate their time efficiently and to offer refunds if they feel the event did not deliver value.

He noted that junior resource stocks fell roughly 40% into the conference, compressing valuations across both strong and weak companies alike. Rule said that the selloff created value on the exhibit floor that would not otherwise exist.

“The time to take hors d’oeuvres is when they’re passing them out,” Rule stated.

On mergers, Rule cited BHP’s $4.2 billion transaction with Wheaton Precious Metals as evidence that royalty and streaming companies retain a lower cost of capital advantage even as interest rates rise, a dynamic he said points to more large deals ahead rather than behind the sector.

Rule said he screens companies for three things before including them in his rankings: a management team with a track record relevant to the specific project, sufficient scale, and a clear answer for how the company plans to add value.