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.
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…
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.
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.
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.
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.
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 risewhile 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.
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!
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 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.
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!
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.
Remember when everyone thought a Trump presidency would be business-friendly?
I admit to belonging to that camp initially. Stocks soared the first time he was elected, when most people expected them to tank. They also ripped between the election and the beginning of his second term, as people bet on a golden age of deregulation. Remember all the tech CEOs at the inauguration?
And then the madness began.
I’m not interested in getting into political commentary, but I will say this: it really couldn’t have been handled much worse. Anyone who has read Chris Voss’s book knows that you don’t start a negotiation with belligerence and threats and expect everyone to come meekly to the table. Anyway, my opinion doesn’t matter. The markets have spoken. So far, Trump 2.0 has been an unmitigated disaster.
Wall Street is openly disussing a “Sell America” trade. The great dealmaker must hate that one. It’s happening, though – look at treasury yields, look at the S&P 500, look at the dollar. And look at gold!
Gold isn’t just a safety trade here. It represents a stampede away from USD-denominated assets. European and emerging market stocks are also seeing inflows, but they come with their own risks as the haphazard tariff ‘negotiations’ blunder ahead.
So what happens now?
Is America really done? Does gold go up forever?
No and no are the short answers. However, the world is clearly changing before our eyes. Here’s an excellent thread summarising Howard Marks’ recent comments on what is happening. Like it or not, globalisation made a lot of things cheaper. As countries become more inward-looking and focus on domestic production, prices will rise. America is still expected to outperform in the long run, but it will need to work harder to attract capital. It is no longer the obvious go-to market, at least while all this chaos is raging.
Can gold still go higher? For sure, but it’s starting to look like Bitcoin does in blow-off top phases. Weekly cycles also suggest it is close to a top. If you’re a long-term diversified investor, continue to hold it. If you’re looking for the next trade, then digital gold is where it’s at.
Even the macro guys are starting to agree that Bitcoin looks good right now. This article from @fejau_inc puts it all together nicely and is a must read.
Here’s the conclusion from that piece for easy reference: “And so, for me, a risk-seeking macro trader, Bitcoin feels like the cleanest trade after the trade here. You can’t tariff bitcoin, it doesn’t care about what border it resides in, it provides high beta to a portfolio without the current tail risks associated with US tech, I don’t have to take a view on the European Union getting their shit together, and provides a clean exposure to global liquidity, not just american liquidity.
This market regime is what Bitcoin was built for. Once the degrossing dust settles, it will be the fastest horse out of the gate. Accelerate.”
Meanwhile, the Financial Times reported that Howard Lutnick’s son, Brandon is cooking up a $3 billion Bitcoin acquisition investment vehicle with Cantor Fitzgerald, Softbank Group, Tether and Bitfinex. Reuters summary here.
Is the yen strengthening going to hold?
If you are looking for proof that capital is flowing out of America, it’s right there in the exchange rate, currently around ¥142 to the dollar. It’s quite possible the yen could strengthen further from here, but beware the orange man running his mouth. If Bessent can put the gag on him for a while and they get a few wins on the board in terms of trade deals, then the picture can change very quickly.
Yes, I’m aware that the typical trade deal takes around 18 months to complete. Most likely Trump extracts a few concessions from the major partners, including Japan, and declares some ‘tremendous trade deals’. Then he can move onto pumping the markets back up before the mid-terms.
Long term, I believe the yen is cooked. Nothing has changed there. Short term, we could be at ¥120 just as easily as ¥160 in a month or two. Who knows?
So, sell America or not?
Traders gotta trade, and right now the trade is sell America for anything else you can lay your hands on. For long-term investors, I would view cheaper US asset prices as an opportunity to accumulate. Don’t change your monthly investment allocation too hastily!
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 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.
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 diversificationthing?
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.
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.
I know I shouldn’t be posting about the guy everyone is sick of hearing about this week, but he’s proving hard to ignore.
I always argue that political changes have far less impact on asset markets than people expect, and I still believe that is true, but you have to hand it to the new Prez – he is pumping everything!
I write this following a highly enjoyable meet-up in Tokyo last night. We finished at a very responsible hour but I can’t say I am firing on all cylinders today – that’s the price of getting old. So, I will try to make this update as quick and painless as possible.
We all know about the flood of executive orders issued in the past few days. Trump sure loves a good fanfare. However, it was his online address to the World Economic Forum that caught my bleary eye this morning:
Trump said he would ask OPEC to lower the oil price and “with oil prices going down, I’ll demand that interest rates drop immediately,” adding that “likewise they should be dropping all over the world.”
Fed chair Jerome Powell will have something to say about that, of course, but it’s clear that Trump’s intention is for the US to lead global interest rates on a downward path. The S&P 500 reacted by notching its first all-time high close of 2025, rising +0.53% to $6,118.71.
Powell is not the type to be bullied and the Fed is actually signaling a slowdown in rate cuts this year as it awaits further economic data. However, the central bank is going to come under a lot of pressure to pave the way for higher asset prices.
Trump wants a booming stock market to brag about.
He wants higher crypto prices, too.
Last night he signed an executive order establishing the Presidential Working Group on Digital Asset Markets. Here are the main points:
Secure America’s position as the world’s leader in the digital asset economy
Create a federal regulatory framework for digital assets
Prohibit the creation of a central bank digital currency
Evaluate the potential of a strategic national digital asset stockpile
Hot on the heels of the executive order, the SEC rescinded the controversial SAB 121 accounting guidance, opening the door for banks to custody crypto assets. This one is bigger than many people realise, although it brings new risks as tradfi will surely make the same mistakes crypto lenders made last cycle – you shouldn’t dabble in under-collateralised fractional reserve lending on an asset you can’t print. But no doubt they will try!
The Bitcoin price whipsawed overnight, rising initially and then dumping in disappointment that the order did not explicitly mention Bitcoin or plans to acquire more Bitcoin. The most likely outcome seems to be that the government will hold onto existing crypto assets seized in legal proceedings.
My two cents: traders and Bitcoin maxis have become too fixated on the idea of the Strategic Bitcoin Reserve and are probably going to end up disappointed. However, the new administration’s appetite for clear regulation and openness is a huge positive for the industry. It is probably also going to provide a healthy level of support for the ongoing bull market. Too much good news all at once could easily have led to a Q1 blow-off top.
Let’s hope the shenanigans I wrote about earlier this week in Are you tired of winning yet? were a blip and the new admin will focus on the long-term health of the industry rather than pumping dumb stuff. I can’t say I’m convinced on that one…
Meanwhile in Japan
It’s BOJ day! Japan didn’t get the memo about cutting rates. No shocks this time as the Nikkei Shinbun was ahead of the decision to raise rates to 0.5%, the highest in 17 years. The BOJ expects wages to rise this year with inflation at around 2.5%. Real interest rates are expected to remain negative and policy is still largely accommodative.
The Japanese stock market is calm this afternoon but let’s give it a day or so before we judge the reaction. Part of me hopes for chaos next week and a chance to allocate the rest of my NISA with blood in the streets but I think I would prefer peace and quiet.
All roads lead to inflation?
In the US, the Fed is cutting rates without first scoring a decisive victory over inflation. Trump’s tariffs, if enacted, are likely to be inflationary. The resurgence of inflation appears to pose the biggest risk to markets this year.
With debt to GDP at 263% and little chance of growing out of the hole, Japan seems destined for higher inflation. It’s going to be tough for the BOJ to raise rates high enough to prevent this outcome and the weak yen will only accelerate price rises. JPY cash remains a bad place to hang around for too long.
I covered the four assets to own to face inflation back in late October and I don’t see any change there. Bitcoin, commodities, gold and tech stocks remain the best plays. If you don’t own Bitcoin already, I would caution jumping in at this point in the bull market. I don’t know what innings we are in but it’s certainly not early. If you own it and are planning to exit this year, we are approaching the time to begin averaging out. I sold around a third of my Metaplanet holding just before the inauguration as expectations of something special from Trump drove it close to ¥5,000. Euphoria and hopium should be sold more and more aggressively in my opinion.
The last word on Trump: he loves to brag about stock market performance as proof he’s doing a great job and has even started taking credit for the Bitcoin price. I wouldn’t bet against US stocks and BTC this year while he is in the driver’s seat.
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.
Happy New Year, everyone! Welcome to the year of the snake. Just as we get back in the swing of things, a three-day holiday lies ahead. I watched the news last night and was reliably informed for 20 continuous minutes that it is snowing in the places where it always snows at this time of year. It’s nice when things go to plan, huh?
If you enjoy winter sports, it looks like a great season for it!
It would be nice if the investment climate was equally predictable, but alas, it’s complicated. In many ways, 2024 was smoother than expected. Global stocks gained around 19%, led by the Magnificent Seven and the hype around the AI trade. Japanese stocks kept pace well, although gains were concentrated in the first half of the year and things got a little scary for a minute there in August!
I had a look back and over the year I wrote 26 posts, covering the usual financial planning and asset allocation stuff along with macro views, currency, stocks to watch, crypto, AI, quantum computing and more. I hope it kept you entertained and maybe provided some actionable ideas. I plan more of the same in 2025, with the focus remaining on action. There’s already far too much information out there and the key for me is uncovering what we can actually do with it.
January is prime NISA allocation season and I’m sure many of you are already getting your accounts organised. If you are a ‘keep it simple’ type and have already completed this task, I salute you! Just like the gym, most of the battle is simply showing up and getting stuff done.
If you haven’t started yet, here are some things to consider:
Consensus views
So what is the forecast for 2025? The Bloomberg Outlook is always an interesting read. In short, the ‘experts’ are calling for more of the same: a strong US economy, a continued AI-led boom, albeit with a slightly tempered outlook on stocks.
Smart consensus sees US interest rates continuing lower, a weaker dollar, gold higher, and oil lower, with a mild stock market correction likely, but no bear market. Simple enough!
The potential spanner in the works is inflation reigniting as you know who takes office in the US. For what it’s worth, I think a lot of Trump’s tariff talk is bluffing/negotiating but we will know more in a few weeks. All bets are off if he invades Greenland lol! The inflation risk is a more pressing concern. You may have noticed how slightly stronger PMI data sent rate-cut expectations plummeting earlier this week. The market is near all-time highs, yet ultra-sensitive to the rates higher-for-longer narrative.
Liquidity drives markets. How high will risk assets go? Well, that probably depends on the money supply more than anything else.
Bubble watch
Getting away from the consensus views, this morning I found legendary investor Howard Marks writing about bubbles – his memo here is worth a read.
If you want to skip to the Tldr and know where the potential bubble could be, get a load of this:
So much for Mr & Mrs Watanabe being conservative. In my experience, the average ‘balanced’ Japanese investor has half of their money in the bank and the other half in whatever went up the most last year. And they are buying this with a weak yen???
So, how about Japanese stocks?
Global asset allocators that I pay attention to are still overweight Japan. And why not with USD/JPY at ¥158! There are many positives here in the land of snow in winter, with companies expected to post record profits for the 5th year straight. On average, wages increased +5.1% in 2024 and are expected to rise again this year, which is good news for consumer spending. The question is whether the hikes will keep pace with inflation. Remember, real wages have been down only over the last three years…
Still, there are several good reasons to own Japanese stocks: the TSE has successfully pushed companies to enhance returns for investors, resulting in a marked increase in dividends and buybacks. Companies also continue to unwind cross shareholdings.
Of course, the elephant in the room is the Bank of Japan. Having skipped a December rate hike, the BOJ is poised to continue its efforts to ‘normalise’ in 2025. In true Galapagos fashion, Japan boasts the only developed-world central bank trying to tighten policy this year. If you’re looking for a potential wrecking ball, look no further. A sharp upward move in the yen would severely curtail exporters’ profit. Not to mention the whole carry trade unwind thing. (oh, another elephant!)
On the other hand, banks will benefit from rising interest rates due to improved margins on their loan business. Homeowners won’t enjoy that one so much.
With demand for electric vehicles and smartphones flattening, the semiconductor sector will rely heavily on AI growth. A lot is riding on the rise of the machines.
All in all, though, the outlook is constructive for Japanese equities.
Time for some action!
Ok, I promised some action points. Obviously, I can’t give broad advice here, but this is how I am organising NISA this year:
Tsumitate is set and forget. I’m at 40% JPX 400, 30% All Country, 30% NASDAQ
Growth – I allocated about a third this week and plan to allocate the rest in the next week or two
I am leaning toward a much broader ETF allocation this year rather than trying to pick stocks. The last two years have been too easy – you could just throw darts and the stocks you hit would go up. I’m not convinced it will be so simple this year
At ¥158 to the dollar, I will keep a sizeable allocation to Japanese stocks. 1489 High Dividend is a favourite of mine and I also like the 1624 Machinery ETF
Can we forget about Bitcoin now?
Bitcoin has crashed to $93,000. These are desperate times!
If you are new to crypto, allow me to remind you that -30% dips are normal in a bull market. We had a -50% dump right in the middle of 2021. You get used to it, kind of…
If anything, the drawdowns have been mild so far. Unless you own Alts – those dips sting!
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 think we are all aware that 90% of what the orange man says is hot air, so if you are relying on the President-elect to send your bags higher, you may be disappointed. However, make no mistake, the new administration in the US is massively crypto-friendly compared to that of the outgoing dinosaur dude. It will be a factor.
The best indicator is right here – keep an eye on it: (chart from MacroMicro)
Money supply has just taken a dip of its own, hence the market reaction. However, it won’t stay down for long. Unless inflation really runs wild, conditions will loosen.
You may think I am nuts. A year ago I wrote The Investment Case for Bitcoin with the price at just under $40,000. Some guy on Facebook called me a scammer and proceeded to spout a bunch of talking points I recognised from mainstream media circa 2017. These people are everywhere and they are brimming with confidence. I wonder if he has any other assets he thinks we should avoid?
Currently, sentiment is remarkably bad for $93k. ‘Crypto influencers’ are stressing over every dip. When we reach the top, these same people will tell you that dips are mathematically impossible and we are going up forever. Welcome to magic internet money musical chairs!
Long term, it’s going way higher than you think against Fiat. Don’t sweat it if you fail to execute a perfect dismount from the bull. Just don’t FOMO in money you can’t afford to sit on for a few more years.
If you haven’t subscribed, feel free to do so to get my posts by email. If you need help, please check out the coaching link, and follow me on X for jokes and details of Tokyo meetups.
I wish you all the best for the year ahead. Let’s make it a sensational one!
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.
I don’t mean to think about the Bank of Japan this much.
As we enter December, US markets continue to push to all-time highs and Wells Fargo just got all bulled up and issued a target of $7,007 for the S&P 500 in 2025. Here in Japan, stocks have hardly been in easy mode but are still up around +17% year-to-date. Yesterday, the Nikkei 225 index jumped +1.91% as hopes rose that Japan will be spared the wrath of the incoming US President’s trade controls. These days people seem to love Japan as a destination for investment as much as they do for tourism.
What could go wrong?
The Bank of Japan meets on 18/19 December. For some reason, these dates are marked on my schedule. It must be some kind of PTSD hangover from the July meeting. Remember when they surprised markets with a hike then? I bet you remember the few days that followed. Is Governor Ueda poised to spoil our Santa rally?
Judging by Ueda-san’s recent comments, he aims to avoid any surprises this time around. Earlier this week, he told the Nikkei that rate hikes are ‘nearing’ as economic trends line up with the central bank’s forecasts. The market is interpreting the comments as a signal of a hike with bond yields rising and the yen strengthening against the dollar. In fact, you could say it would be more of a surprise if the BOJ didn’t raise rates this month.
I’m not saying we will see volatility like early August but, once again, Japan’s mainstream financial media seems remarkably calm about the potential impact on markets. With the US in a rate-cutting cycle, tightening in Japan will drive a stronger yen and could lead to another dramatic carry trade unwind. A stronger yen is also not kind to Japanese stocks.
Keep an eye on the Nikkei news for early leaks of the BOJ decision to soften the impact.
What do I care?
Given how quickly markets recovered from the August plunge, it doesn’t seem like there is much to worry about for long-term holdings. However, I once more find myself sitting on some Japanese stocks that have done rather well. And again, I am tempted to take some profits while the going is good. The benefit here is that I could use this money in January to fund my NISA instead of adding more cash. I’m sure I’m not the only one considering this. Imagine how clever we’ll feel if we sell before the meeting, sidestep the crash and buy it all back cheaper in January. (of course, it is never that easy)
Given the possibility of impending central bank shenanigans, the deadline for profit-taking is looming. I’ll give it a few more days and see.
What else is going on?
In other news, Fast Retailing Co. Ltd (9983) shares got a boost as the clothing giant announced a 12.2% rise in domestic same-store sales for November. People must be stocking up on their heat tech!
Donald Trump seems intent on blocking Nippon Steel Corp’s (5401) takeover of U.S. Steel. U.S. Steel released a statement on Tuesday in support of the acquisition. The company is crying for help but foreign takeovers are not a great fit with Trump’s ‘America First’ agenda.
SBI Holdings Inc. (8473) seems to be the beneficiary of the demise of DMM Bitcoin. DMM is giving up the ghost after losing some ¥48.2 billion worth of crypto in a leak back in May. Customer assets will be transferred to SBI VC Trade Co. by around March next year. SBI shares have seen a nice move as a result. One thing about Japanese crypto exchanges – the customers tend to get their money back these days.
Staying with crypto, I’ve joked before that it’s time to sell when hostesses start trading on their smartphones, so make what you will of this post:
Bull market things…
Finally, Saxo has released its annual Outrageous Predictions list, which is always a fun read. Nvidia surging to double the value of Apple, the end of OPEC and Trump blowing up the dollar feature on this year’s list of unlikely, yet intriguing events.
You never know…
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.
The American people have spoken, and it’s about goddamn time! We may argue about politics but I think there’s one thing we can all agree on: there is no need for a presidential election campaign to take all year. Can’t you just get it over with in a month or so?
You have likely already had your fill of election hot takes, so I will spare you mine. I will, however, use this post to explore what the result could mean for our investments over the weeks and months to come.
Risk on, for now at least…
The initial market reaction to Trump’s win was well-expected. Stocks pumped, and Bitcoin surged to a record high. Add to that above-trend GDP growth and gold around all-time highs and you have an intriguing risk cocktail in the mix.
And then, last night, Jerome Powell delivered another rate cut. The Santa rally is well and truly in play.
Financial conditions in the US are easing considerably with a strong economy and inflation not fully defeated. What could go wrong? Many, myself included, think that the Fed is cutting too soon.
It’s one thing to disagree with the man’s strategy. However, don’t go asking him any stupid questions!
I’ll take that as a ‘no’.
On the subject of inflation, Powell also wasn’t afraid to say the quiet part out loud:
For those who think pre-pandemic price level is coming back Fed’s Powell notes “the price level doesn’t come back down…It takes some years of real wage gains for people to feel better.” Underscores disconnect from how public experiences inflation vs. economists view.
Take a moment on that one. Prices don’t come back down. Wages have to catch up. If you live and work in Japan, how are those wage hikes coming along? Data released on 7 November showed that Japan’s inflation-adjusted wages fell for the second month running in September. (you may remember that before that they fell every month for more than two years)
In case you missed it, I covered the four must-own assets for inflationary times in my previous post. All roads lead to inflation. Plan accordingly.
Stocks look likely to remain strong into year-end. If you are wondering what can go wrong after that, the bond market is the place to look. America just came out of the longest period of yield curve inversion in history. (short-term interest rates being higher than long-term rates) Without getting too deep into the weeds here, an inverted yield curve frequently precedes a recession. The consensus, however, seems to be that this time it’s different and the US economy is heading for a soft landing. Time will tell.
If you want to challenge yourself to understand the relationship between bond yields and the Fed, have a crack at this X thread. I’ve read it twice now and I think I still need another go…
How high is Bitcoin going?
Forgive me, I know I have been banging on about Bitcoin for a long time, even longer than the US election! My take is that the 4-year halving cycle is the best predictor of price movement – until it’s not. If that cycle breaks, I will change my view but as of now, it is playing out exactly as expected.
However, the Republican election sweep just added rocket fuel to the fire. In no particular order, here is the crypto bull case for the next 10-12 months and beyond:
The Democrats’ war on crypto is over
SEC head Gensler is on the way out – see ya buddy!
A significant number of incoming senators are pro-crypto/crypto-curious
Senator Cynthia Lummis has submitted a bill proposing a strategic bitcoin reserve. The proposal is for the US to buy 1 million BTC over the next 5 years. That’s 548 BTC a day. Currently, only 450 are mined every day.
Detroit, Michigan just became the largest American city to accept crypto as payment for taxes
Global easing cycle underway
Retail didn’t even get interested yet
Solana ETF possibly in the works
The parabolic phase of the bull cycle is upon us. I am not making any predictions as to how high it will go. Nobody knows. But the higher it goes, the harder it will fall at the end. That’s how the 4-year cycle runs. Here’s Mark Yusko with his take:
📺 The Bitcoin Bull Run Cycle Explained by Mark Yusko! 👀
Mark Yusko of Morgan Creek Capital Management breaks down what will happen next for Bitcoin as the bull market cycle continues into 2025.
— Tony Edward (Thinking Crypto Podcast) (@ThinkingCrypto1) November 6, 2024
If you own Bitcoin, you need to decide if your strategy is to hodl for the long term or sell during the bull run so you can increase your holdings in the inevitable bear market that follows. Option two sounds great, but it’s harder than you think. Expect more on that in a later post. In my humble opinion, any other flavour of crypto needs to be sold in the bull market. Those Metaplanet shares too. It will all get crushed when the music stops. But for now, enjoy the ride!
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.
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