Category: Asset Allocation

Nikkei ¥50,000 party!

You can’t time the market. Except those times when you can. Last week, I wrote a post called Melt Up? Maybe I got lucky, but the meltup began right after and is now in full swing. Gold, Bitcoin and of course, Japanese stocks.

Not that I’m claiming clairvoyance here. I had no idea how the market would react to the LDP leadership vote. Generally, I discount politics as it has far less effect on asset prices than people think. At first, I thought the market reaction was relief that the younger, less experienced guy didn’t get in, but clearly it’s not that. It’s all about the new leader.

I won’t delve into political analysis. I don’t have any edge here. Takaichi’s economic stance is perceived as expansionary, and there seems to be an expectation that she will go full Abenomics on us. That remains to be seen, but here are a few observations:

  • Taro Aso was clearly instrumental in getting Takaichi elected and will be a key figure in the administration. He opposes ‘modern monetary theory’ and argues for fiscal discipline. Watch the yen over the coming months to find out who is really in charge.
  • When Abenomics was implemented, USD/JPY was at 80 and inflation was negative. Now we have the dollar at 152 and 3% inflation. It’s a very different world. You can’t just cut rates to zero and reimplement QE without inflation blazing out of control.
  • The BOJ may not be entirely free from political interference, but it will make its own decisions. It may or may not hike at the next meeting, but it’s not going to go the other way any time soon. No doubt, Chairman Ueda’s job just got a little more complicated, though.

I’ll stop there. Prime Ministers don’t seem to last very long these days, so we should probably give it 6 months or so before expecting a clear indication of where this will land. For now, you can probably give up on any hopes of a stronger yen. And you’d better own stocks and hard assets.

The meltup continues. I joked about having a Nikkei ¥50,000 party on X, but I think we should do it. It may be soon, so get ready!

Running it hot

If you are seeing posts and mentions about the ‘debasement trade’, it’s no wonder.

I’ve been harping on about monetary debasement for some time. People seem to be getting the idea. I’m seeing more and more people who don’t own gold capitulating and buying it at all-time highs. They should have owned it earlier, but that doesn’t make them wrong for getting some now.

Reminder: if you run a diversified portfolio, you will already have a 5-10% allocation to gold. You don’t have to play catch-up. People who only own stocks are learning this now.

Take a look at this silver chart from Kevin Gordon’s post:

And Helen Meisler posted this palladium chart in response:

Is that going where I think it’s going?

Here’s Paul Tudor Jones again:

Blanket recommendations are generally not a good idea, but if I had to put my current investment thesis in a nutshell, it’s this:

A diversified portfolio matched to your base currency and risk profile with satellite holdings in debasement assets.

Top signals?

A few weeks back, I wrote a post on spending money well. Just this morning, I found a great post from Ben at Retire Japan on the subject in my inbox.

It’s clearly a sign that people’s portfolios are at all-time highs. We should probably be a little careful about getting too greedy, but it’s a wonderful time to consider how to get joy out of the money we have worked for and taken risk to grow.

I ordered the orange iPhone. It’s due to be delivered in early November. I wasn’t planning on becoming a walking top signal, but maybe I’m about to…

See you at the Nikkei ¥50,000 party!

Top image by Mate Holdosi from Pixabay

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.

Japan’s bull market – room to run?

As I type, the Nikkei 225 index is over ¥44,000 after closing on 10 September at a fresh all-time high. Do you think this market looks tired?

It’s a great feeling as I know that many readers are invested in Japanese companies, whether by picking stocks or simply buying the index.

For those who feel they don’t have enough exposure, where do the opportunities lie? Is it a little late, or does this bull have longer to run?

Why own Japanese stocks?

There are many reasons to own Japanese stocks. Not least, the fact that the Tokyo Stock Exchange’s campaign to pressure/shame companies trading below book value to improve their P/B ratio is paying dividends – literally! Corporate governance has improved significantly and share buybacks have been another major market catalyst.

Personally, I have been accumulating Japanese stocks for the last few years for three main reasons:

  • As a long-term Japan resident, I have a future base currency need in JPY
  • With the yen so weak, I have been less inclined to convert JPY to buy overseas stocks
  • With inflation at around 3%, plus the effects of currency debasement, stocks that pay solid dividends are a massive improvement on cash in the bank

Money is flowing into Japan from overseas due to the powerful combination of the weak yen and a booming stock market. Japan is hot right now!

As ever, the long-term economic situation here is cause for concern. High debt, rising long-term yields, and poor demographics. The problems are well-known. Investing in Japan from overseas still carries that ‘picking up dimes in front of a bulldozer’ kind of vibe. The big boys like Warren Buffett, of course, are borrowing cheaply in yen and collecting dividends above their borrowing cost. They can stomach some volatility. However, for an individual planning to spend their money outside Japan, the currency risk is a genuine concern.

Of all the things that might derail this bull market, the Prime Minister quitting doesn’t seem to be an issue! That’s good to know, given the revolving door nature of that role.

Buy the index or pick stocks?

For most people, buying the Nikkei 225 index is the best advice. I also like the JPX Nikkei 400 index for more investor-focused companies. You may remember that 1489 High Dividend is a favourite of mine, and I also like the 1624 Machinery ETF.

Along with these ETFs, I like to pick a few stocks. Owning the index is great, but you are missing out on a lot of golden opportunities and can get dragged down by large caps struggling with global issues, such as US tariffs. Smaller-cap value stocks are outperforming the indices and generally come with a lower volatility profile.

I’m no securities analyst, and I’m well aware of the fact that we are in a bull market. You could pretty much throw darts at the Nikkei Shinbun and make money over the last 3 years. That won’t last forever. Keep that in mind if you are just getting into this market.

I maintain a Japan Stocks list on X. There are some excellent accounts in there doing valuable work. Try to use it as a source of ideas for research rather than just aping into whatever they write up. (although we’ve all done that!)

I love this Trading View list of cash-rich stocks – that’s been a great hunting ground for me. I also like this list from Simply Wall Street: Japanese net-cash stocks with a growth track record.

A little googling turned up a couple of Japan market outlooks that are worth a read, one from a Japanese asset manager and the other from an overseas manager:

Sumitomo Mitsui DS Asset Management

JP Morgan Asset Management (from May 2025)

The Federal Reserve and Bank of Japan both meet next week, with the Fed expected to cut rates and the BOJ, well… who knows what the BOJ will do, but there’s a chance they could hike. That could affect USD/JPY, although I’m in the camp that longer-term rates will be the drivers of currency moves over time. A sudden stock market correction is always a possibility, and those dips offer buying opportunities.

In summary:

  • Japanese stocks are hot; be aware that we are pushing all-time highs
  • Dividends alone are a good reason to own Japanese stocks
  • Think about your base currency before making decisions
  • A combination of index funds and individual stocks is a good approach, but if you are not sure, stick to the index
  • US stocks will start to look more attractive from a Japanese resident’s perspective if the yen strengthens over the next few months
  • Keeping a little dry powder to buy dips is always a good strategy
  • Don’t worry too much about politics!

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.

Gold rush

Gold has broken out again. With all that is going on in the world, you may not have picked up on the recent move. I noticed when the gold stock fund I bought kind of early suddenly came to life. I note that Goldman Sachs is recommending diversification into commodities, particularly gold.

I sometimes struggle to convince people to allocate to gold; some see it as an unproductive asset, while others find it boring. It’s only when it takes off that everyone wishes they owned more.

So, why is a safe-haven asset making all-time highs at the same time as the stock market? In fact, why is gold outperforming a hot stock market this year? Isn’t it supposed to go up when stocks are beaten down and investors are panicked? What’s behind this move?

The answer is relatively simple: gold is rising because the market expects higher inflation and higher deficit spending. While central banks control short-term interest rates, they can’t dictate the direction of long-term rates. The bond market is clearly signalling the expectation of higher inflation.

Makes sense? Let’s look at the world’s most important bond market. As the US deficit approaches $2 trillion, the government is issuing more debt. More supply means bond prices are falling. International investors would normally view US bonds as the premier safe haven. Now they are looking elsewhere.

Yes, central banks themselves are upping their allocation to gold ahead of treasuries. Meanwhile, many of them are cutting rates into rising inflation due to concerns about unemployment. If Jerome Powell’s Jackson Hole speech is anything to go by, the Fed is about to join them.

The one central bank that is actually looking to raise rates is right here in Japan. However, it looks like the BOJ has already lost control of the long end of the bond market with the 30-year yield now over 3.2%. Remember, rising bond yields mean falling bond prices. No wonder gold is at an all-time high in yen…

Ray Dalio can be a little long-winded, but if you are trying to understand the economic environment we are in, it’s worth reading this interview with the Financial Times. Apparently, the FT was not entirely accurate in reporting his responses, so he published his answers to their questions in full.

For those who are pressed for time, here’s a quick summary (I will try not to mischaracterise the man!):

  • America’s debt problem is not new. It is due to decades of excess by both republican and democratic governments
  • It’s likely to become a major problem in around 3 years
  • If Trump succeeds in bending the Fed to his will, US bonds will lose even more trust and demand for them will continue to fall
  • Letting inflation ‘run hot’ is also bad for bonds and for the US dollar

There’s more covered in the article, but you get the gist. The debt problem is not specifically Trump’s fault, but his actions are only going to exacerbate it.

Bad for bonds, good for gold. This doesn’t mean sell all your bonds and buy gold, but if you are running a diversified portfolio, you can expect the bonds to perform worse and gold to perform better for a while. The MOVE Index, the bond market’s equivalent of the VIX, has risen over the last few days. If you see that continue to move higher, look out for an increase in bond market volatility.

If you are wondering what satellite holdings work well in an inflationary environment, you may want to recap this post from October last year: Facing inflation – the four assets you should own

Gold, Bitcoin, commodities and tech stocks. Pretty solid call from Paul Tudor Jones.

If you don’t own Bitcoin already, be careful about getting involved now. I’m inclined to agree with this post:

Gold still looks strong, though. Don’t fade it, fool!

Top image by wirestock on Freepik

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.

Are we due a market correction?

Chaos by Christmas? I do like a bit of alliteration, but this doesn’t sound good.

That nifty little turn of phrase came in a message from a friend. He’s been concerned about the way things look for a while, even as markets melted up following the Liberation Day debacle. The chaos message was timely, as I was already working on this post.

Exhibit A: Wall Street’s New Obsession? Japan’s Market Just Went Vertical – a short article about foreign investors returning to Japan in size. The Nikkei 225 is at real deal all-time highs. You see the latest price on the news each night. Is there perhaps a little euphoria creeping in?

Expectations are high. The Fed is supposedly going to ease in September. The BOJ seems to be due to hike. But will they? Federal Reserve Chair Jerome Powell is set to speak at Jackson Hole this week, but I doubt he will give much away. He has been under considerable pressure from the Trump administration to cut rates and has held firm so far. There are signs of cracks in the job market, but does JPow really have enough data to justify a cut? We’ll see, but I’m sceptical.

The same goes for the BOJ. Pressure is also coming on Governor Ueda from the US administration. Does the central bank feel certain enough about the inflation outlook and tariff outcome to take the plunge? One thing is certain: if the BOJ is going to hike, it will be leaked ahead of time. No one wants a surprise like this time last year. If you don’t hear anything in the days before, expect no action.

In the US, the S&P 500 is also pushing all-time highs, driven as ever by the Magnificent 7 tech stocks, which are driven in turn by the AI boom. Despite the furore over job numbers, the consumer seems to be doing ok on the face of things. However, the tariffs are yet to show up meaningfully in the data. Expect that to change soon.

Where are the Robin Hood gamblers going to get their funds from when their cost of living keeps rising? Cash handouts from Trump? You can’t write anything off these days…

It’s not just eggs that have gotten expensive:

The final innings for crypto?

Bitcoin topped $124k last week and has now ‘crashed’ to $113k. Ethereum went on quite a run and got the crypto bros fired up about the alt season they’ve been waiting for. If history is anything to go by, then the next couple of months should mark the top of this cycle. I have no idea where it goes in that short time, but you should probably block out the people calling for $200k by the end of the year. $120k was my best guess, and we have done that. Maybe there’s a little more left in the tank, but who knows? When it feels euphoric, that’s the signal. The fear and greed index shows fear, so I’m not feeling it yet…

What to do?

Expecting a bit of chaos and doing something about it are two different things. And maybe there is no need to do anything other than just mentally brace for a correction. After all, prolonged bear markets are illegal these days. (I jest, kind of. See: It’s going up forever, Laura)

Let’s do Japan first:

I have thoroughly enjoyed the interaction on X between investors in Japanese stocks over the last few years. What a glorious time to be invested in this market! Japan has clearly turned a corner, both in terms of putting the bubble-era all-time high behind us and making strides in corporate governance. But at ¥43,000 in August, things feel a little hot. I don’t think there’s reason to panic and dump your J-stonks, but with almost everything going up, it’s perhaps time to take a look at holdings that you might have got a little lucky with.

For me, that means going through my list and asking myself some basic questions: Why do I own this? Am I happy to hold it through a storm? My Japan account holdings now span two pages. I think I may have a few too many stocks. For some of them, I don’t really remember why I bought them in the first place. Would I buy them again now?

The majority of my holdings were bought for the dividends. That’s my way of keeping up with inflation and currency debasement in yen. I actually didn’t expect them to go up this much. I’m pretty comfortable keeping them and collecting my dividends through whatever may be on the horizon. NISA I won’t touch at all – that was all bought for a long-term hold.

I would like to get my holdings back to one page and a bit more dry powder in the cash account.

How about other markets?

You may own a bit of everything in your All Country fund, but performance has really been driven by tech stocks. Here are your top 10 holdings:

Is tech dominance going to ease? Bank of America thinks so. You may know from my previous posts that I believe that tech stocks and Bitcoin are the two assets that will reliably outperform currency debasement. Are they due for a correction? Maybe. Is the AI bubble going to burst? Probably, but what do we mean by ‘burst’? The AI genie is out of the bottle. It’s not going away. The world will continue to hunger for more computing power. I don’t feel like selling any of this stuff, but I would like to have some dry powder to buy more when there’s a panic.

Got it, but we sell all the crypto, right?

I have said before, you need to have a plan for crypto and execute as best as you can. It gets harder the higher the level of euphoria.

My two cents: I’m not sold on the idea of dumping actual Bitcoin in order to buy it back cheaper. It comes with its own risks: the treasury companies and BlackRock suitcoiners want as much as they can lay their hands on. I don’t want to sell to them and then struggle to get it back later. Plus, the tax reporting is a pain!

ETFs are not Bitcoin; they are Bitcoin exposure. They can go. The treasury companies are probably going to be the FTX/Luna of this cycle – beware. Alts are struggling to attract enough attention and money in the middle of a bull market – you don’t want them hanging around your neck next year when everyone is depressed. (see my February post, Exit liquidity)

Chaos by Christmas? Maybe.

I would love a bit more euphoria first, though…

Top image from Pixabay

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.

Dumb money

I am reading “When Genius Failed: The Rise and Fall of Long-Term Capital Management”. It’s the remarkable story of a ’90s hedge fund comprising a group of big-brained academics, including Nobel Prize winners, who were so convinced that their models were infallible that they built a gigantic book of highly leveraged derivative trades. Even if you’re not familiar with the story, you can imagine how that ended.

The smart money doesn’t always win.

One of my favourite books is Jon Krakauer’s “Into Thin Air”. LTCM is like the hedge fund version of that cautionary tale. Hubris and leverage are a dangerous combination. The academics somehow convinced themselves that they had modelled out every outcome, and even if things went bad, there would always be enough liquidity to get out of their positions. Of course, ‘one in a million’ events happen more frequently than we expect, and when they do, nobody is around to buy what you desparately need to sell.

At least we learn our lessons, right? Well, LTCM blew up in 1998, and it was only 10 years later that Bear Stearns, which was closely linked to the fund, faced its own meltdown.

There’s a lot to be said for keeping things simple. Viva le dumb money!

Wait, isn’t this site supposed to be SMART Money Asia?

This is easily the greatest meme ever created. It applies to so many areas of life, and none more than investing. The LTCM guys were just too far out on the right of the curve that they no longer lived in reality.

Generally, the smart money and the dumb money follow the same strategy. They buy risk assets and sit on them. In my previous post, Liquid Refreshment, I covered how tech stocks and Bitcoin are the two things that outperform currency debasement. And what do the Robinhood degenerate gamblers do? They buy Mag 7 and IBIT and print money. When these assets dip, they buy more! What are the older, wiser retirement accounts buying? NASDAQ and IBIT, by the looks of it!

Wait, is the diversified portfolio guy telling us to just buy tech stocks and Bitcoin?

I have always said, if it’s a meaningful amount of money, you should have a core diversified portfolio weighted toward your base currency for about 80% of your wealth. You can allocate 20% or so to satellite holdings to take advantage of opportunities for higher returns. This is where you can go hard on tech stocks, gold, commodities and Bitcoin/crypto as you wish.

Overthinking and mid-curving are the killers. See my post, It’s going up forever, Laura, on why dumb money wins in the end.

I see that USD/JPY is back at ¥150. Let’s do the meme:

Simple!

Of course, mid-curve guy is right. Short-term, barring any crazy events (which happen a lot!), the yen should strengthen against the dollar. However, if you are doing long-term planning and trying to figure out how currency could affect you, it’s pretty clear that the country with the worst debt/demographics profile is going to lose against the country with the global reserve currency.

Plan accordingly.

Trump wants rates lower, and Powell won’t play ball. So, Trump and Bessent will find ways to work around Powell and add liquidity regardless. This is bullish for stocks. If there is some kind of panic and a dip in stocks in the meantime, they will turn on the fire hose. Back up the truck and buy the dip!

The TSE apply pressure to listed companies to improve their governanace and return capital to shareholders – it’s a great time to own Japanese stocks if you have a JPY base currency need! (not so great if you don’t, see above)

Every four years, Bitcoin goes down around 80%. Then it spends about a year floundering around and recovering slightly, and the next two years in a powerful bull market. If it goes down 80% next year, you swing like Happy Gilmore!

See how it works? Dumb money stays winning!

Have a great weekend.

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.

Liquid refreshment

The hot summer months usually mark a quiet period for markets, but there are no signs of a lull so far this year.

While the upper house election last weekend likely had a limited impact on stocks, the trade deal announced shortly after certainly got things moving. The Nikkei 225 index surged over 3% on 23 July and is creeping up on ¥42,000 as I type today.

Shigeru Ishiba may have lost his ‘mandate from heaven’, but the Japanese auto industry is saved!

Perception really is a funny thing. Automaker stocks surged yesterday as investors cheered a 10% ‘reduction’ in US import tariffs from the 25% touted by Trump. However, before Trump took office, the tariff on cars was 2.5%. So there has actually been a 12.5% increase. Trump’s big stick negotiation tactics may be crude, but they appear to be working.

By the way, Weston Nakamura isn’t buying the coincidental timing of the trade deal announcement.

Probably the biggest pressure release for markets will be the end of tariff uncertainty. If Trump can secure a similar deal with the EU, then we are likely through the worst of it.

He’ll still have to come up with a pretty big distraction from the Epstein files, though, so we should stay on our toes.

Anyway, moving swiftly on

I find a lot of people struggle to understand the concept of currency debasement. If this is you, I highly recommend this episode of Forward Guidance with Raoul Pal and Julien Bittel:

You only actually need to listen to the first 10 minutes to get the picture, although it’s all good stuff.

A quick summary:

  • Governments restructured their debts after the ‘debt jubilee’ that followed the 2008 financial crisis, forming an almost perfect 4-year liquidity cycle
  • We’re in the 4th year of that cycle now, where the larger part of the debt is due
  • The liquidity that gets added never really gets taken back and is rising at a rate of around 8% per year
  • That is about the rate of debasement of fiat currency
  • If you divide an asset by the rate of global liquidity, you find out it’s true performance vs debasment
  • The S&P 500 is basically flat, same with other countries’ indexes
  • Gold is also flat, as it should be
  • The only assets that outperform debasement are tech stocks and crypto

Governments are now just servicing their debt. i.e. paying interest and not repaying the principal. GDP is falling due to the declining birth rate and shrinking labour force. And so, governments are debasing currency to pay for the debt.

Until political parties appear that are willing to tackle this problem, elections and politics are pretty much meaningless when it comes to investing. And, of course, no party wants to deal with the giant elephant in the room as it will mean years, likely decades of pain. That’s the reality. If you don’t want your spending power to get eroded over time, you need to be invested appropriately.

Now, should you only own tech stocks and crypto? Clearly not. But, in my humble opinion, you would be crazy not to have an allocation to them.

Incidentally, the Bitcoin 4-year cycle dovetails remarkably neatly with the 4-year liquidity cycle. I have come to realise that this is also not a coincidence. In fact, BTC lags global M2 money supply by around 90 days. Here is Julien Bittel’s chart of projected M2 from back in May:

Are you surprised that BTC is now near $120k? You shouldn’t be!

Now imagine if the Fed cuts rates in the next few months…

As long as that M2 line keeps going up, expect risk assets to follow. If you see it turn down later this year, that’s the purest signal possible that the Bitcoin bull market is nearing its end.

Inject that chart directly into my veins!

If you want to get deep into the weeds on liquidity, Arthur Hayes writes some entertaining posts. His latest is here. Be warned, Arthur is a liquidity/crypto uberbull.

Meanwhile, here in Japan, stocks are in celebration mode. I don’t see any reason to fade the mood, although my bullishness is always tempered by the fact that I’m living right here next to the canary in the debt/demographics coalmine.

You can only worry so much, though. Stay cool, and if the world ends, it will probably be a great time to buy stocks!

Top image by Jonas KIM from Pixabay

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.

Be uncorrelated

I keep seeing posts declaring the 60/40 portfolio dead. No sh*t, Sherlock! Markowitz’s Modern Portfolio Theory dates back to 1952. I learned that 60/40 was no longer relevant in 2005. Where the hell have you been?

In case you are not familiar with it, the 60/40 refers to the traditional portfolio strategy that allocates 60% to stocks and 40% to bonds. The stock part aims for long-term growth while the bonds smooth out the volatility in rough periods.

Markowitz advanced this idea by blending a range of assets to produce a more efficient portfolio, recognising that the typical investor wants reasonable returns without excessive risk. See my post on Asset Allocation for more on this.

Can’t I just long equities?

Yes, it’s perfectly acceptable to just average into one or two stock ETFs and hold them for the long term, especially if you’re young. In fact, you can do that and read no further – you don’t need any help!

However, if you believe in passive investing and market indexing, which many people do these days, you must understand that the market encompasses more than just stocks.

Also, if you are investing a significant amount of money, it’s unwise to be 100% invested in one asset class, unless you have specific knowledge and overwhelming conviction. (which, by definition, a passive investor does not)

What’s a lot of money then? Great question! It’s different for everyone, but let me put it this way: If you are a passive investor, 100% in stocks, and you are starting to get concerned about the damage a market crash could do to your net worth, you might be getting close!

The funny thing about the 60/40 idea is that young people these days are probably already allocated 60/40, but to tech stocks and crypto!

Yeah, crypto, so where does that fit in?

This question is doing the rounds. If crypto is a new asset class, then where does it fit in a diversified portfolio? How big should the allocation be?

I saw this article recently: Bigger bitcoin HODL: Time for 10% to 40% of portfolio in crypto, says financial advisor Ric Edelman

I was not familiar with Ric Edelman, but it turns out he is pretty much a superstar financial adviser – check out this clip:

We can argue all day about whether the allocation should be closer to 10% or 40%. It clearly depends on an individual’s situation, risk profile, level of conviction, etc. The notable thing about this article is how it mixes up the whole Bitcoin vs. crypto terminology.

It mentions Bitcoin to start, but then it refers to crypto. So you should be putting 10-40% of your portfolio in what exactly? Bitcoin ETFs? Cryptocurrencies? Which ones? It’s not very clear.

I mean, they’re all the same thing, right?

Not even close! And ETH is the second-largest digital asset. Think how many coins have gone to zero since 2017! In my opinion, if you’re going to allocate part of your portfolio to this asset class, you need to get smart about it.

Here’s a pretty solid definition:

I’m not saying you can’t have mad conviction on a particular coin and hold it as an investment. If you have that level of certainty, then go for it. Hardcore XRP hodlers don’t care what I think, and they shouldn’t. They believe in the coin. But should the average investor put 10% of their net worth into it? Of course not!

The mainstream media are leading lambs to the slaughter if they can’t get their terminology straight.

Here’s the only truly investable cryptoasset in my humble opinion. Doesn’t it look beautiful?

Uncorrelated assets for the win

The modern portfolio enhances 60/40 by adding assets that are uncorrelated or only lightly correlated to stocks and bonds. That’s how you achieve better risk-adjusted returns. (similar or better returns with less risk) Back in 2005, I never imagined a shiny new, uncorrelated asset would emerge. It really is a remarkable thing.

If you are interested in understanding how a modern diversified portfolio benefits from the addition of Bitcoin (and even other crypto), this report from 21shares is worth a read: Primer: Crypto assets included in a diversified portfolio – Q1 2025

Here’s a quick summary: between April 2022 and March 2025, Bitcoin’s correlation to the rest of the asset universe was 36%. People like to compare Bitcoin to tech stocks, but its correlation to them was only 40%. These levels are significantly lower than traditional assets’ correlation to each other, which typically comes in at around 60-70%. This makes Bitcoin an ideal asset to add to a diversified portfolio in order to beef up returns without meaningfully increasing risk.

What makes Bitcoin especially interesting is how sometimes it behaves like a risk asset, like equities, and other times, it acts as a defensive asset, like gold. Over time, it is expected to become more of a gold-like store of value asset.

“This makes Bitcoin unlike any other asset in the market. It is structurally independent, behaviorally adaptive, and still offers significant asymmetric upside relative to legacy safe-haven assets. For portfolio construction, Bitcoin stands out as both a potential long-term hedge, and a high-impact diversifier at present.”

Adding a 1% allocation to Bitcoin to a modern portfolio over the 3 years resulted in stronger risk-adjusted returns. (It improved both cumulative returns and shape ratios)

Adding Bitcoin did not increase downside risk.

When scaling up to a 5% Bitcoin allocation, the risk-adjusted returns were even stronger, and the volatility remained manageable. Interestingly, they also tried a 3% allocation to the top 5 cryptoassets and achieved a similar uplift in performance without greatly increasing the risk.

So what’s the conclusion to be drawn here? You don’t have to go 40% into Bitcoin! Just a modest allocation increases portfolio efficiency without meaningfully increasing risk.

What are we trying to do again?

The whole point of investing is to beat inflation in your base currency. Doing it most efficiently with the least amount of risk is just being smart.

You can be overweight certain satellite holdings if you have a high level of conviction in them.

I still run a boring diversified portfolio, despite currently exceeding the recommended daily dosage of Bitcoin and Japanese stocks.

What’s my level of certainty?

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.

It’s going up forever, Laura

What if the market just goes up forever?

I am starting to see people discussing the idea that the stock market has been so pumped up on debt steroids that it simply won’t be allowed to go down for an extended period again. Normally, this kind of talk would be a massive flashing sell signal, but it’s not an idea that is being broadly discussed. It’s just popping up in pockets here and there.

Of course, stock markets go up and down. In fact, the mighty US market took a hit in April due to the Liberation Day tariff malarkey. But did you notice how quickly it bounced back? Pretty much a V-shaped recovery. Same in March 2020.

I’ve said it before: the money has been funny since the 2008 global financial crisis. Many institutions that should have gone under were propped up at the expense of taxpayers and we’ve been getting screwed ever since. Economies and big business have become addicted to liquidity.

Sounds like tin foil hat stuff?

That’s the MSCI World Index. See what happens after the 2008 crash?

Here’s the gold chart for comparison.

So, are the assets going up, or is the unit of account going down? Check out the purchasing power of a dollar over time.

Ding ding ding ding ding! So, 2008 clearly wasn’t the start of the pattern. It just intensified after that.

The Federal Reserve of St. Louis puts together some pretty charts, doesn’t it?

Take a look at this one – currency in circulation:

Hello! So, if you keep creating more dollars, the purchasing power of a dollar goes down, and the value of assets and other stuff goes up against your inflated currency. I’m picking on USD here, but everywhere else looks the same. Probably worse.

Here’s a question I get asked a lot: “How do I convince my very conservative partner that we need to invest more?”

Answer: Just teach them that the market is going up forever!

If assets are going up forever, you’d better own some! You probably don’t need to fret too much about timing the market. Just make sure you keep a nice cash reserve so you don’t have to dip into your investments in a crisis, and yolo the rest into stocks, commodities, real estate, bitcoin and anything else that isn’t cash in the bank.

Of course, this is all somewhat tongue-in-cheek. But is it really much more complicated than that?

Please don’t misunderstand. Stocks can still go down 30-50% at any time. Bitcoin can still dump 50-80% and probably will next year. You should be prepared for these outcomes and never let yourself become a forced seller. But, over the long term, these assets go up and to the right because the denominator is cooked. Did you notice how long the whole DOGE ‘let’s reduce wasteful government spending’ drive lasted? It’s not even June, and Elon and Trump are melting down in public.

If you’re wondering why you have to become a money manager just to break even with inflation, here you go:

Nothing stops this train.

I leave you with this classic 2021 clip of Michael Saylor on Laura Shin’s podcast: “It’s going up forever, Laura.”

Act accordingly.

Top image by Peter Eichler from Pixabay

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.

Inflection point

You might have noticed an uptick in articles covering bonds recently. In particular, bond yields and bond auctions. Bonds are confusing, and it’s often easier to just go and read something else, but you might be getting the sense that something is happening in the bond market. Like it’s trying to tell us something.

If you need a refresher on bonds, feel free to read my post, Bond investing – a simple guide.

The market always finds something to worry about, and usually, those worries are temporary. This year alone, we’ve had inflation, stagflation, recession, tariffs, and trade wars, and the sky hasn’t fallen yet. But now the market is worried about bonds. And it’s not just worried about US treasuries. The same concerns surround UK gilts, Euro bonds, and Japanese government bonds.

Here’s a Reuters article about record yields on Japanese long-dated bonds.

This week, the US 30-year treasury yield has been flirting with the closely watched 5% level. Last Friday’s Moody’s US credit downgrade got things rolling. Then, on 21 May, there was a weak treasury auction, and the 30-year closed at 5.09%.

As yields move inversely to price, rising yields indicate that investors are selling bonds. The weak treasury auction, like recent weak gilt and JGB auctions, illustrates a lack of appetite for new bonds. So why are people so worried about bonds these days?

It’s the debt, stupid

At 237%, Japan is the heavyweight champion in debt-to-GDP. The UK is at 96% and the US is at 124%. None of these figures is encouraging. Japan is clearly not paying that back. The UK economy is in disarray, and you may remember Liz Truss almost blowing up the bond market in September 2022.

Trump talks a lot of smack, but his big beautiful tax bill is only going to inflate the problem over time. Anyone who believes he is going to cut deficit spending lives in MAGA fantasyland.

The bond market clearly doesn’t like it.

Is it happening?

The macro-heads I read are all fixated on yields, deficit spending and the massive risk flashing in the bond market. But is something really going to break, or is this just another worry that will soon make way for the next thing?

I’m not going to macro larp here, and I dislike doomers, so here’s a solid thread from Capital Flows on why we could be at an inflection point. It’s recommended reading for anyone trying to get their head around the current situation.

The tldr: Central banks are behind the curve – surprise! Meanwhile, banks are issuing debt like there’s no tomorrow. These big credit deals are feeding money into the economy and preventing a slowdown in growth. When central banks fall behind in a credit cycle like this, bond markets can crash because growth and inflation rise while everyone expects a recession.

Does this mean I should not own bonds?

This is an important question. For traders, the trade is definitely sell long-term bonds. (TLT)

For investors with a diversified portfolio, should they be dumping their bonds and buying gold, copper, bitcoin, etc? I don’t think so. This is short-term tactical thinking and only for people who know what they are doing. By nature, a strategically diversified portfolio is always going to contain some assets that aren’t doing so well. Right now, it’s just the turn of bonds. Unless your time frame has changed dramatically, you can just sit tight.

Big developed economies losing control of yields is a scary proposition, and they are likely to do whatever they can to kick the can down the road and avoid the pain. Just last month, a surge in treasury yields caused Trump to back down on tariffs, remember?

Is this why Bitcoin is ripping?

It’s one of the reasons, yes. BTC is fundamentally a release valve for macro liquidity (I was dying to say that, but I got it from Capital Flows too!) What it means is, the more liquidity that gets pumped into the system, the higher the BTC price goes.

Here’s the Capital Flows report to read if you want to geek out on that one: Bitcoin Strategy – The Macro Liquidity Release Valve

BTC is also going up because it’s at that stage of its own 4-year cycle. But it’s funny how that seems to align so well with global liquidity cycles. There’s probably a bit of mileage left in this bull market yet!

Right now, let’s enjoy the all-time highs. It takes me back to this post from February 2023: Do you want to be right, or do you want to make money?

Sometimes you get to have both.

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.

Sit tight

“It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight! It is no trick at all to be right on the market. You always find lots of early bulls in bull markets and early bears in bear markets. I’ve known many men who were right at exactly the right time, and began buying or selling stocks when prices were at the very level which should show the greatest profit. And their experience invariably matched mine–that is, they made no real money out of it. Men who can both be right and sit tight are uncommon.” – Jesse Livermore, in Edwin Lefèvre’s “Reminiscences of a Stock Operator”

We are so back!

Little more than 6 weeks after Donald Trump nuked markets with his “Liberation Day” blusterf**k, stock indices are right back where they started. Congratulations on surviving! The circus is far from over, but it feels like we just went through boot camp on how to operate under this administration. My personal goal from now on is to ignore every word the man says and focus on what actually gets done. There is way too much noise!

Anyway, check in on the doomers. They probably need to come out of the bunker, touch some grass and catch some Vitamin D.

The great dealmaker is in Saudi Arabia now, doing deals, I presume. Note the presence of Nvidia’s Jensen Huang among the tech CEOs there with him – I would not bet against that company to emerge from the chaos stronger than ever.

So what’s going on?

Checking on the news, Nvidia isn’t the only AI/semiconductor play catching a bid. Advantest, Tokyo Electron and Disco are all perking up too.

Softbank Group is also on the rise after posting its first full-year profit in four years.

Department store operator Mitsukoshi Isetan announced an expected net profit of ¥60 billion for the current fiscal year, up 14% year-on-year. Those tourists must be spending hard while we plebs struggle to buy rice!

Things don’t look so rosy for the Japanese auto industry, though, with Honda and Nissan crumbling under the uncertainty around tariffs. There is more than tariffs at play here as both have struggled with sales in the US and China. The two companies abandoned plans to join forces earlier this year and who knows where they go from here. Nissan is clearly worse off and will shut 7 vehicle plants and cut 20,000 jobs globally.

Gold rush?

Meanwhile, The Mainichi reports that gold investment is booming in Japan. Investors appear to be snapping up everything from coins and bullion to used gold accessories. They are also buying gold funds and ETFs for the NISA accounts.

Come for the global recession fears, stay for the long-term debasement of the yen!

USD/JPY is back around ¥147 after the BOJ needed a breather from raising rates. If they are planning to wait for some respite from global economic uncertainty before hiking further, we will be back in the ¥150s soon.

Wakey wakey

“If you own crypto, I can’t stress this enough: the best thing you can do is go to sleep for about 3 months. Block out the noise.” – I wrote this in my opening post of the year in January. There have been many dips and ‘it’s so overs’ since then, and yet here we sit in mid-May with Bitcoin back over $100k.

It’s probably time to start paying attention again. Metaplanet is creeping back towards the highs. I sold half of my holding in the run-up in Jan/Feb, and it’s looking like time to start averaging out the rest. Maybe take out half in the next few weeks and save the rest for Valhalla?

Even Ethereum has woken up!

Alts have been battered in the dips. With a tidal wave of ETF inflows, BTC dominance shows no sign of slowing down. Alt holders would like to see the orange coin break the all-time high and then chill for a while. Will they get their alt season? The exit is narrow and it won’t be open for long…

Where does BTC top? Gun to my head, I say we get a run now, followed by a quiet summer, then one more assault on the summit in autumn.

However, if you are looking to take profit, don’t listen to me or any other people on the internet. Nobody knows anything. The smart money is scaling out already. Execute your plan.

If you are a long-term BTC investor, and for at least part of your stack you should be, all you gotta do is sit tight!

Top image by Pexels from Pixabay

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.