Category: Investment Basics

USD/JPY: ¥160 and beyond!

I came back from the gym this morning and found my wife at her desk.

“Wow, my stocks are up again!”

This is good news.

“But why are they going up so much? News on the economy doesn’t seem so great.”

I begin an explanation of how low interest rates have finally reignited inflation in Japan and fueled a boom in stocks. And despite the recent rate hike by the Bank of Japan, real rates remain negative, which means the price of things, including assets, will continue to rise.

Her eyes quickly glaze over, and she goes back to work. I put some coffee on. Then I begin writing this, in case someone is actually interested!

USD/JPY is at ¥157. GBP/JPY is ¥210!!!

Last week’s BOJ rate hike was viewed mainly as an effort to prop up the currency. But it seems unlikely to halt the slide back to ¥160. Could we go further than that next year?

Here’s a quick reminder about the bind the central bank finds itself in, from my January 2023 post How screwed is the yen?:

The BOJ is caught in a spiral of rising bond yields and a falling yen. And between the bond market and the yen, it can only save one. The programs you would have to enact to save the yen are the exact opposite of the programs you would have to enact to save the bonds. To save the currency, you have to raise rates. To save the bond market, you need to keep rates low.

Last week’s rate hike was a band-aid. Many were hoping for at least a short-term bounce in the yen, but it didn’t come. The BOJ can’t manage an aggressive hiking cycle without destroying the bond market and taking down the banks, pension funds and insurance companies that own the bonds.

Nobody wants to say it, but further devaluation of the yen is the only option. And the new Takaichi administration is implementing policies that will only accelerate the decline. (Japan Diet enacts 18 trillion yen extra budget for PM’s expansionary stimulus)

¥160 and beyond is firmly on the table.

This is all very depressing, I know. However, I imagine many of us will be looking to allocate money to NISA, etc, next year and need to begin thinking what to do with it. I haven’t made any decisions myself yet, but I’m beginning to put together a list of themes that will influence these decisions:

Themes for 2026

  • Japan’s base interest rate is 0.75%, inflation is around 3%, so we have a real rate of negative 2.25%
  • The BOJ can maybe squeeze in one more hike to 1%, so real rates could go to negative 2%
  • This is still very accommodative monetary policy and will support asset prices
  • The weak yen will persist and perhaps go beyond 160
  • Rice isn’t getting any cheaper, and people’s spending power will continue to decline

To be clear, I’m not in the doomer “Japan has reached the end of the road” camp. Japan is the world heavyweight champion of muddling through with extraordinary monetary policy. There’s still a lot of road to kick this can down. However, those who do not own financial assets will struggle. It’s not going to be pretty.

Outside Japan, things could get pretty spicy, too.

Better have a plan to not get knocked out!

A few additional themes:

  • Trump’s new Fed pick will likely force lower rates
  • Trump will want to pump the stock market ahead of the midterms
  • However, the AI trade will continue to come under scrutiny
  • The debasement trade is very much still in play – own hard assets
  • Bitcoin bear market – an opportunity to accumulate

I will think on this some more and come back with a plan for 2026 in the next few weeks. Let’s see if the yen breaches the ¥160 mark before the year’s end.

Thanks for reading. Wishing you all a wonderful Christmas!

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.

Bear with me

Markets are not looking so hot right now. I really hate to be bearish, but it’s becoming unavoidable.

Last week, Bitcoin made its first daily close below $100,000 in 188 days. Then yesterday it closed below the 50-day moving average on the weekly chart. This is always bad news for bulls. Some of the people who were telling us the 4-year cycle is over are still holding out for a reversal, but they are probably grasping at straws.

We are so done. Thank you for playing.

I know it’s unlike me to be so negative, but when a situation changes, it’s important to confront reality quickly. Crypto is heading into a bear market, and it’s right on schedule.

Initially, Bitcoin is acting as the pressure release valve as investors lose faith in an overheated risk environment. You will note how, over the last week or so, Bitcoin is lower when you wake up. Asia propped up the price in the daytime, and then America sold hard while we slept. Now Asia is selling, too.

Worse still, BTC tends to lead equities, and in my humble opinion, BTC is heading lower.

Stocks are already wobbling. In particular, the AI trade is coming under increased scrutiny. Nvidia earnings are due on Wednesday. I don’t think there are numbers big enough to satisfy the masses this time, although the numbers will likely be impressive regardless.

I talked about Michael Burry in my last post: In this economy?

Burry put on his Nvidia/Palantir short and then closed his fund. Now he doesn’t have to worry about investors trying to pull their money when the market moves against him. People are debating whether he is actually any good at calling this stuff, which is a valid question. It’s such an obvious trade that you wonder if it can really be that simple, especially with Trump there to pump the markets every time they stumble.

But it doesn’t look great to me. In the short term, at least, I’m siding with the bears.

Time preference is key

It’s ok to be bearish, but the big question is: over what timeframe?

BTC is a good starting point for this discussion, as it is highly sensitive to both global liquidity and overall risk sentiment.

When Bitcoin topped in November 2021, it was just as the Federal Reserve pivoted to begin a brutal tightening regime. Interestingly enough, in November 2025, the Fed is going in the opposite direction. In fact, the market was pricing in a further rate cut in December until the US government shutdown delayed the data and muddied the waters. Uncertainty around rates is a huge factor in sparking the sudden loss of appetite for risk.

The liquidity picture for 2026 actually looks pretty rosy. Trump is effectively going to gain control over the Fed, and he has the midterm elections to pump the market for. On the flip side of that lies a slowing US economy.

Bitcoin’s level of institutional adoption was meagre in 2021/2022. In fact, it turned out the industry was on the brink of collapse. And collapse it did: Terra/Luna, Celsius, Blockfi, 3AC, and, of course, FTX all fell during the bear market.

The picture is very different now. US Bitcoin ETFs have almost $120 billion in assets under management. $72 billion of that is in BlackRock’s IBIT alone. What’s more, the Trump administration is pro-crypto. This is not an industry on the brink of collapse any more. It’s just going to need to take a breather for a while.

Plan for the worst

The typical bear market drawdown from the peak for Bitcoin is 80%. So, worst case, we are going back to $25,000. Ouch! Not pleasant at all, but I would not bet against this outcome.

If ETFs and institutional adoption, plus a favourable liquidity cycle count for anything, which I think they do, we may not go that low. Personally, I’m not really interested in bidding $90k. I’ll get interested at lower levels. $50k seems a bit more like it. (this is my finger in the air, best guess if you are wondering how I got this number)

Here’s a little perspective:

What about stocks?

Nvidia’s P/E ratio is around 53. Investors are willing to pay that amount for each dollar of the company’s earnings. I probably don’t need to tell you that future earnings expectations are a little on the high side. The Magnificent 7’s average P/E ratio is around 28 to 35. Those expectations may well be due for a sharp adjustment.

The other 493 stocks in the S&P 500 are not looking so bad, although they could get dragged down somewhat in a Mag 7 correction.

Global stocks, Japan included, are unlikely to emerge unscathed, but we could well be looking at an interesting buying opportunity.

Personally, I kind of like the idea of reducing US exposure (particularly Mag 7) and increasing Japan. The only problem is then you get trapped in yen. Finance Minister Katayama is making the usual concerned noises about exchange rates, while taking absolutely no action to counter the yen’s decline. Real interest rates in Japan remain negative, and as long as they persist, the currency will continue to struggle.

Negative real rates are a boon for stocks, though. If rates somehow ever turn positive, it’s time to rethink.

All in all, it comes down to where you are in the financial planning process. I covered this in the Burry post, but here it is again in simpler form.

I see three key stages in the personal finance journey:

  1. Accumulation – spend less than you earn and invest the difference into stocks and other high-growth assets. If asset prices decline, don’t panic and keep buying. In fact, buy more if you can.
  2. Diversification – a mix of protecting capital, whilst continuing to accumulate. The key to knowing when to diversify comes down to three factors:

a) The data tells you – you hit your number and simply don’t need as much risk any more

b) You become conscious of the amount of money you have at risk and start thinking about what to do

c) Asset prices are considerably higher than the average price you paid when accumulating. Despite the wobbles, we are still in this zone for anyone who has been accumulating for a while. It may not last much longer, however…

3. Distribution – you begin living off the income generated from your accumulated assets, or simply spending the money

If you are in stage 1 or 3 and are properly allocated, a stock market correction should not bother you too much. If you are at stage 2 but have not diversified yet, the current window of opportunity may be about to close for a while. Don’t panic, but perhaps give it some thought.

Personally, I have been selling stocks that have done well over the short term, particularly tech/semi/AI-related stuff. A few Japanese tech stocks I owned got a big boost when PM Takaichi was elected and are probably due for a reality check.

In other business

My next casual meetup, billed as the Nikkei ¥50,000 party, is on 26 November from 7pm at Hobgoblin Roppongi. Everyone is welcome. You don’t have to talk about investing, and you don’t have to drink unless you want to. Some of us may need to!

Before you ask, yes, the event will go ahead even if the Nikkei is below ¥50,000. That is an achievement unlocked, and I’m sure we’ll be back above that level in due course.

Don’t get too bearish!

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.

In this economy?

It’s been another interesting week. ‘Big Short’ legend Michael Burry returned to X to call out the AI bubble, posting charts that question whether the ongoing mega AI capex boom really matches demand. Burry pops up every now and then to predict disaster, and his hit rate post-2008 is not all that spectacular. However, he followed up by filing his investment firm’s 13F 11 days early, showing that he is short 1 million Nvidia shares and 5 million Palantir shares.

Money where his mouth is.

The market took notice and US tech stocks tumbled on 4 November. Japanese stocks followed suit, with Softbank Group dumping almost -17% over 2 days. This comes at a time when the US government shutdown is blocking the liquidity faucet and tightening things up considerably.

Crypto didn’t like it either, but hey…

Predictably, President Trump issued some positive comments about stocks and Bitcoin overnight, and the situation calmed down. Every time I think this market is ready to begin its descent into hell, I’m reminded that the guy in charge of America has a vested interest in keeping it above ground…

Clearly, Burry is hitting a nerve with AI bubble enjoyers. Here’s a great thread from Marko Bjegovic covering why he is probably correct.

The ‘K-shaped’ economy

You are probably hearing this term lately. The K-shape represents the latest expression of wealth inequality. Essentially, high earners and large corporations are getting richer as asset prices rise, while low-income households and small businesses, the lower leg of the K, are struggling to get by.

High-end products are selling, while companies like Chipotle are finding their customers poorer and less inclined to visit.

Here’s another way of looking at the K-shape, from a different Marko:

Speaking of liquidity and the AI bubble, Ray Dalio just posted about how the Fed is stimulating at an odd time. I’m not sure the Fed is really beginning QE, as he says, but it is certainly ending QT, cutting rates and taking an expansionary stance. This is something it would generally do when the economy is in trouble. Instead, the backdrop for the Fed’s easing is high asset valuations, a relatively strong economy, inflation above target and abundant credit. Not to mention a bubble in AI-related stocks – the elephant in the room, so to speak.

The Trump administration is taking a bold and probably reckless bet on growth, and particularly AI growth. What could go wrong???

Time to take profit?

We’ve been talking about a melt-up before a melt-down, but that’s by no means guaranteed, and we’ve already melted up a lot.

Stock investors, belonging to the top leg of the K, have done very well, but are now faced with a choice: remain invested and ride through the bubble or protect capital. As Michael Burry experienced in 2008, bubbles can keep inflating and punishing shorts for a long time before they finally pop. Younger investors can probably handle the drawdown, provided they are disciplined enough not to sell the bust. We all know the drill when panic hits: as the last desperate few capitulate, central banks will cut rates, stimulate, and markets will surge back over the next 12-18 months.

People who are getting closer to spending their investment money should probably think more carefully. There may not be a better opportunity to take risk off the table and diversify for some time. Nobody ever went broke taking profit, especially around all-time highs.

For people in between, US treasuries are holding up as a safe haven as well as anything else at this time. Spreading some of the risk also serves an often overlooked purpose: offering the opportunity to rebalance and buy the bottom in stocks if we do suffer a crash. I stand by my belief that anyone with a meaningful amount of money should be well diversified at a time like this.

The stock market is not the economy

Here in Japan, we are enjoying the Nikkei holding above the ¥50,000 mark. That doesn’t mean we escaped the K-shaped economy. In a rare quiet moment the other evening, I was thinking about Japan’s economy and why interest rates don’t seem to go up much. Aside from the rich asset holders, many people are struggling. Wages still lag inflation. 5kg of rice is almost ¥5,000. The lower/middle classes do not have a lot of money to spend.

Fewer people spending money is bad for the economy. The general expectation seems to be that interest rates will rise gradually. They certainly won’t rise quickly. Higher rates would mean higher interest payments on government debt. PM Takaichi is focused on growth, not inflation.

Should we really expect a meaningful rise in interest rates? I simply can’t see it.

If rates can’t rise, then the yen remains weak, prices increase, stocks and Tokyo property appreciate, and low-income families continue to struggle.

If all this is true, then what’s the trade?

Own dollars, own financial assets, own hard assets, and be kind…

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.

Hyperliquidation

Well, that was fun…

I woke up last Saturday morning and, as is my habit, checked on the overnight market movements. I did a double-take and wondered what the hell had happened. Bitcoin, perhaps the nimblest indicator of global risk appetite, had dumped heavily. Several possible scenarios ran through my mind, but I knew it could only mean one thing…

Donald Trump has posted something!

Bingo! After market hours on a Friday, America’s fearless leader had somehow mangled a Chinese announcement on rare earth exports and sent out a post threatening further 100% tariffs on China. After all the TACO earlier this year, I had forgotten about the trade war!

Had stock markets been open, they would not have liked it at all. As they were closed, crypto bore the brunt, and anyone unfortunate enough to be awake got to witness the biggest liquidation cascade of all time. Bitcoin fell to around $104,000 initially before bouncing. Alts were nuked without mercy, with $ATOM token getting as close to zero as you can really get without going negative.

Something in the range of $18.7 billion in positions got liquidated in a matter of minutes, and around $560 billion was wiped from the total crypto market cap. Fun times!

I won’t get into the whole conspiracy theory of what happened. Suffice to say, a very large and very suspicious short position appeared in the market shortly before the fun began. This seems to be the only person who made money that day. It could be a coincidence, of course. I guess we will never know…

Japan is moving to ban insider trading in crypto, by the way. Seems like a good call.

Bitcoin hodlers would be a little concerned to see the price fall so quickly, but most take it in their stride. Leveraged traders, however, some of whom don’t even own Bitcoin, did not make out so well. Many got a lesson in risk management they will never forget.

Of course, by the US open on Monday morning, Trump had already straightened things out, and stocks acted like nothing had ever happened.

It’s always the leverage

Most people should stay away from leverage. Hell, even skilled traders should handle it with care. And yet, Volatility Shares just filed for a total of 27 leveraged 3x and 5x single asset ETFs. If approved, every Robinhooder will be able to go 5x long Nvidia, Palantir, XRP and more. What could possibly go wrong?

Wall of worry

We’re so back! Add to this the growing concern over the AI-driven boom and whether it is, in fact, a bubble, and you have to wonder if the Q4 melt-up might be cancelled.

The AI bubble talk is understandable. OpenAI has around $1.5 trillion in AI build-out plans. This for an unprofitable company with only $13 billion in annual revenue. Both smart money and dumb money alike are positioned for a bullish Q4. Tech stocks sure have a long way to fall if investors lose their nerve.

A week or two ago, the CEO of Goldman Sachs warned that a stock market correction could occur in the next 12-24 months. Thanks for the deep insight, bro! Jamie Dimon is talking about gold possibly going to $5,000 or even $10,000.

Throw in the US government’s shutdown, and you may wonder how stocks can possibly rise further. Surely the Bitcoin bull run is over, too?

While Trump was busy TACOing, Jerome Powell came out on Tuesday and said that “the downside risks to employment appear to have risen.” That appears to imply a further rate cut at the Fed’s end-of-month meeting. More importantly, JPow signalled the end of the Fed’s balance sheet runoff. If quantitative tightening is really over and liquidity flows, the wall of worry could melt rapidly.

I don’t know what’s going to happen, and you certainly shouldn’t be making investment decisions based on my offhand opinions, but if we get a strong earnings season, I still see a bullish Q4 and then trouble on the horizon in 2026. It’s never dull, is it?

Yes, Prime Minister

Organising a Prime Minister seems to be a tough gig these days. France had a guy quit and then get reappointed in the same week! Here in Japan, Sanae Takaichi went from being a done deal to less than Liz Truss in a couple of days. Now the LDP is courting the opposition, and it’s looking like they might find the votes to anoint the country’s first female Prime Minister after all. Who knows?

The market has already tipped its hand if the deal gets done. JP stocks up and yen down. I will unapologetically cheer for our iron lady just because I want my Nikkei ¥50,000 party. The yen is cooked anyway.

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

I sound like a broken record, don’t I? By the way, I found a Japan Physical Palladium ETF (1543). It’s amazing what is available these days. Don’t do anything I wouldn’t do!

Thank you for your attention to this matter.

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.

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.

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.

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.

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.

Taps the sign

It’s been a long week. Is it me, or are +/-9% swings on the Nikkei 225 index starting to feel normal? Traders must be loving this – at least the good ones.

I’m not so impressed. Of course, there are buying opportunities, but it gets a bit tiresome when markets swing this wildly based on the pronouncements of one guy who just can’t STFU for 5 minutes.

Orange Swan Event.

Click it, I dare you! And don’t get me started with the Simpsons memes.

Where was I? Tapping the sign, right. The free lunch quote has been attributed to Harry Markowitz, although I have heard Ray Dalio say something similar. It’s a drum I have been banging for years, sometimes with minimal effect.

When the stock market is going up, nobody cares about diversification. Why would I want to own bonds and gold and other stuff when stocks are on a tear? Just buy the index and chill, right? It’s easy to forget that stocks take the stairs up and the elevator down.

Until you get a reminder.

In 2002, psychologist Daniel Kahneman won the Nobel Memorial Prize in Economic Sciences for his work on the psychology of judgement and decision making. Kahneman points out that individuals are more depressed with investment losses than they are satisfied with equivalent returns. In other words, people hate losing money considerably more than they like making money.

Big liquidation events are like waking up after a party. It was fun, but now it’s time to sober up and review your time horizon, risk profile and asset allocation.

Are you diversified enough?

If recent events haven’t troubled you, and you have barely looked at your investments, the answer to this question is probably yes. Carry on!

If things have been a little nervy, then maybe you were over-exposed.

Don’t get me wrong, I’m all for buying stock indices and holding them forever. It’s not a bad strategy, as long as you can stomach the downturns. And as long as you don’t need the money soon. And, it’s not like a diversified portfolio doesn’t go down in times like these either. When panic sets in, people will sell anything they can get their hands on, but pretty soon you will see a flight to safety.

An underappreciated aspect of diversification is the opportunity to tactically rebalance and take advantage of market events. I sold some of a gold ETF this week near all-time highs and bought stocks while everyone was puking them. I didn’t need dry powder. Just a little reallocation.

You can’t do that if you don’t own the gold in the first place. You have to find more cash.

A quick thought experiment

If you are reasonably young and earning good money, then the recent market gyrations are just a blip, but do me a favour: imagine you are 65 years old, about to retire, with a nice fat nest egg invested in the MSCI World Stock index.

And the market dumps 20% in a couple of days. It takes a breather over the weekend and then resumes dumping in earnest. 30% of your retirement pot is gone. Financial media is screaming about recession, trade war, deleveraging or whatever it is this time. Remember in March 2020, when the market crashed and we faced the reality that the entire world was about to shut down? The doomer economists are running victory laps, and the market looks like it is never coming back from this.

How do you feel?

Remember that feeling when you are making future investment decisions, especially as you get closer to spending the money.

Of course, what happened after March 2020 was that central banks slashed interest rates and unleashed a tidal wave of stimulus, and the markets came roaring back before the year was even over. But that type of thing comes at a cost – that’s why your hard-earned cash doesn’t buy as much stuff any more…

Ok, so how do we do this diversification thing?

There are various ways to get yourself a diversified portfolio. How hands-on do you want to be?

For the people who want to put as little effort as possible into it, you can simply buy multi-asset ‘balanced’ mutual funds. I recently came across a collection of Japanese funds that are divided up by age group: “Happy Aging 40”, “Happy Aging 50”, “Happy Aging 60”. The allocations get more conservative the higher the age. These types of funds are available everywhere. Simply dump your money into the fund that fits your time horizon and get back to whatever you’d rather be doing.

In my advisory business, for larger chunks of money, I recommend professionally managed investment portfolios fitted to the client’s base currency and risk profile. Yes, they cost more than an ETF, but they are incredibly well diversified. The asset allocation is reviewed annually, and every quarter the managers implement a ‘tactical overlay’ and buy more of the assets they like and sell some of those they don’t. These guys don’t just buy a broad stock index – they are breaking equity holdings down by style: value, growth, small/large cap, etc. Of course, the entire portfolio is rebalanced annually.

I also recommend a core/satellite approach for even broader diversification. That’s how you slot in the algorithmic trend following strategy that trades stocks, interest rates, currencies, metals and other commodities with very little correlation to any one market. Funnily enough, it likes volatile times like this.

For coaching clients, I take the knowledge I have gained from watching professional money managers and help them develop their own asset allocation using low-cost ETFs. Click the coaching link to find out more.

Keep it simple

Here are a few action points if you want to take on this job yourself:

Separate regular and lump sum money. Regular is the money you invest every month in a pension, savings plan or Tsumitate NISA. If you are relatively young, you can just allocate all of this to stock indices/funds. Let Dollar Cost Averaging do the work for you.

Lump sum money is a chunk of cash you have saved up that you are looking for a better return on. Here, you are going to want more diversification, and you should focus on the currency you are most likely to spend the money in (your base currency). The asset classes you want to look at are: cash, domestic (base currency) bonds, overseas bonds, domestic stocks, overseas stocks, property, and commodities. Hold more stocks if you are young, and more bonds and cash if you plan to spend the money soon. Allocate 70-80% of the lump sum to this broad portfolio, and the remainder can go into satellite holdings to beef up the areas you are most bullish on. For example, if you like Bitcoin, that’s a great satellite holding.

I have written plenty about base currency, asset allocation and core/satellite in the past. Feel free to take a look at earlier posts.

If you are gonna get really serious though, you are going to want to diversify your bonds.

Peace out!

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.