Once more, I find myself short of time to post here. However, it is not due to a lack of things going on in markets these days. So, here I am on a Friday afternoon with a little time to spare to share some observations. Let’s do it quick and dirty!
Macro
We seem to be at the mercy of central banks these days. The number of Fed watchers and Fed experts is growing exponentially, especially among those with high exposure to risk assets who are gasping for a rate cut! Inflation is coming down, but not as fast as Mr. Powell would like. (remember falling inflation still means prices are going up, just not as quickly as they were) You may notice how the US stock market pumps whenever Fed officials say anything vaguely dovish. It also jumps on any weak economic data. Bad news is good news – ie. if the economy is slowing, the Fed is more likely to cut rates and pump our stocks. Weak jobs report = market up. GDP lower than expected = market up. Whatever you think of the Fed’s performance, they have been abundantly clear that they are data dependent. If inflation comes down and/or the economy weakens significantly, cuts are more likely. My guess is not until late this year, maybe next year.
Despite all this, the US market is near all-time highs. Stocks sure do like to climb a wall of worry!
Of course, there is an election coming. Biden has rather brashly said on camera that he thinks rates will come down. Yes, the Fed is independent and not susceptible to political pressure, right? The last time Trump won, the market went up. And you can bet the orange one will be applying heavy pressure for rate cuts if he wins again.
Of course, worsening economic data puts recession firmly on the table. Stocks do not like the R-word. However, recession also means rate cuts and the mere whiff of them may be enough to reignite irrational exuberance across risk assets. It’s going to be interesting…
Japan
The Nikkei is trading over ¥38,000 with bond yields pushing 1% and the yen at ¥157 to the dollar. If you had predicted this a few years ago, nobody would have believed you! I keep seeing articles about ‘the sun rising on a new Japanese bull market’. I don’t know where these writers have been for the last 2 years… I keep getting tempted to take some profits but doing nothing has worked nicely so far. Still, you might want to make sure your seatbelt is securely fastened. Turbulence is no fun, as we learned in recent news about a UK to Singapore flight.
In theory, rate cuts in the US will reduce the interest rate differential between the US/Japan and the yen should strengthen. Again, I don’t think it will be until later this year at the earliest, and maybe well into next year, but there may be some relief for the yen in the near term. Long term looks dark though, ladies and gents. If you got stuck in yen but it’s not your base currency, I would take any chance you get to reverse that. The market doesn’t owe you anything.
Time to get long on electricity generators?
Remember when Bitcoin was boiling the oceans and drinking swimming pools full of water like tequila shots? Crypto is forgiven. There’s a new bad guy in town and ChatGPT is hungry for electricity and in dire need of a drink! I’m pressed for time so you can google yourself, but data centres for AI are consuming mucho power and they get hot while they do it – I literally saw an article this morning about some crazy number of swimming pools needed to cool everything down. If you think demand for power is going anywhere but up, I don’t know what to say to you.
While on the topic of AI, chip giant Nvidia nailed earnings yet again. And raised their guidance to suggest more next quarter. Absolute monster company. Semiconductors, AI, data centres: all going bonkers.
The stock is up +594% over the last 3 years. Expect volatility, sure, but it’s not slowing down yet…
Crypto bull market progress
The Bitcoin halving is behind us. We got a pretty good pullback to $56k from $70k and now we are back at $67k. We didn’t even get to the good part yet. I still think people are underestimating how crazy this cycle will get. Another thing to strap in for!
The Biden admin, spearheaded by Senator Karen (sorry, Warren) has been openly hostile towards the industry ever since Sam Bankman-Fried torched them. These guys could rival the EU in crushing innovation. But then a funny thing happened: Trump came out and said ‘If you like crypto, you better vote for me’. Then he started accepting donations in crypto. Suddenly the crypto vote is leaning heavily towards orange man. And what do you know? We got an Ethereum ETF. Believe me when I say, there was ZERO chance of an ETH ETF getting approved a few weeks ago.
ETH has underperformed this whole cycle. And judging by today’s weak ETF reaction, the PTSD is real. The Bitcoin ETFs blew away expectations in terms of inflows. Watch for ETH doing the same.
There are many ways to play the crypto bull. Metaplanet Inc, a Japanese company no one had ever heard of, (they do hotel development and some web3 stuff) announced on 8 April that they were adopting Bitcoin as their core treasury asset, a la Microstrategy. The stock went from ¥19 to ¥36 on the news. Now it’s at ¥57, having touched ¥120 on 23 May. They’ve got Mark Yusko on the board and Dylan LeClair as Director of Bitcoin strategy.
I’m not saying you should buy this stock. (Disclaimer below!) I’m saying you should put it on your watchlist and forget about it until Bitcoin breaks out past the previous cycle all-time high, goes parabolic and then you can kick yourself for not owning such an obvious play on the bull market. (insert wink emoji here)
Supply and demand
Being dumb but with a high appetite for risk if you can explain something to me in simple terms, I own a copper ETF. (1693) I was hearing for some time that the demand for copper is going to far outstrip supply, so I got some exposure. So far, so good. A lot of clever people are saying the move is overdone and we are going lower, but these are low-time frame traders and from what I can tell, the long-term supply/demand dynamics are unchanged. But what do I know? Regardless, we’re gonna need some popcorn over here, please.
A note here: we are talking about satellite holdings and my long term diversified portfolio is completely unchanged, moisturised, happy in its lane etc etc.
I’m out of time here but lastly, somebody helpfully reminded me that Ben at Retire Japan is offering a 50% discount if you pre-order his 2024 Guide to NISA. I don’t see how you can afford to miss that. Click here!
Until next time!
Disclaimer: This should go without saying, but the information contained in this blog is not investment advice, or an incentive to invest, and should not be considered as such. This is for information only.
Smart Money Asia 