So, the Bitcoin 4-year cycle is alive and well. Who’d have thought it? I asked ChatGPT how to say “I told you so” without being annoying, and it just laughed at me.
I did tell you so, though…
I wrote my last Bitcoin is dead post on June 6 2022. FTX hadn’t even happened by that point. If you are thinking of jumping in to buy the dip today, let that be a warning.
Everything you need to know is in that post.
The typical drawdown from the peak is 80%. That would take us to around $25,000. The people who spent 2025 saying the 4-year cycle is dead, and the bull market is just starting, were trying to pick a bottom at $72k yesterday. Now they’re staring at $62k. It’s only February, and the fear-and-greed index is at 9!
So, don’t expect a V-shaped recovery next month.
I don’t know if we see $25k, but I reckon we see low $40s. That’s a good spot to start accumulating. Of course, those kinds of prices could blow something up, and then we really would visit Goblin Town.
Those who know will hold their nose and load up. For most people, buying the deadest asset in the world will seem entirely too dumb. First, you get price-based capitulation. Then you get time-based capitulation. It will probably take a good chunk of 2027 before we start looking bullish again.
I don’t make the rules.
Japan’s crypto tax doesn’t change until next year. Not many people will be in profit by then! Adjusted for stock splits, my average Metaplanet entry price in 2024 was ¥55. I might get interested again in a few months.
Let’s keep this one short. There isn’t much more to say. If you felt like you missed Bitcoin, here’s another opportunity. Every single talking head will tell you you’re an idiot for buying it this year. You have to turn those voices into beautiful music. Or be brave. Or whatever it takes.
Accumulate responsibly. Never allow yourself to become a forced seller. Buy low and sell high.
See you on the other side.
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’m kind of bullish on stablecoins. And I’m not sure if I’m bullish enough.
It may seem odd to be excited about tokens with a fixed value, but hear me out: 24/7 tokenised stock trading is coming on all your favourite stock and crypto apps. We can argue about whether this is a good thing or not later, but it’s coming regardless. Larry Fink is all over it for starters.
If you have never transacted in stablecoins, it can be scary at first, particularly with large dollar amounts. One mistake in the address field and your coins are ejected into the ether, never to be recovered. It’s a good idea to send a small test transaction first. However, once you get used to it, you will never want to make an overseas bank transfer again. Scan a QR code or copy the deposit address, click, click, click, send, and within a few minutes, the money reaches its destination, anywhere in the world at any time of the day, for very little cost.
So, how is someone going to get money into their trading account on a Sunday afternoon to go 10x long Nvidia when the banks are closed?
Stablecoins.
I realise this is a pretty flimsy investment thesis, so I’m partly writing this post to discover if there is more to it than that. Let’s examine the evidence and see where it goes.
Exhibit A: The GENIUS Act
The US has made significant inroads in stablecoin regulation. The Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act) was signed into law last year to establish a federal regulatory framework for “payment stablecoins.” It’s designed to bring clarity and oversight to a market that had grown rapidly outside traditional financial regulation.
It excludes these tokens from being treated as securities or commodities
It requires stablecoin issuers to hold 1:1 reserves in liquid, low-risk assets (like cash or short-term U.S. Treasuries)
It prevents stablecoin issuers from paying interest or yield to holders simply for holding the coin
It becomes effective in early 2027
So a stablecoin is essentially a digital token that does not fluctuate in value. The issuer must back every stablecoin issued with real assets, such as cash or bonds.
Here’s where it gets interesting – stablecoin issuers are purchasing yield-generating assets like U.S. Treasuries. In unregulated jurisdictions, they can pass part of this yield on to the stablecoin holders. So, owners can earn interest on their stablecoin holdings.
The banks don’t like this at all because the yields on stablecoins are higher than banks are willing to pay their customers. They are worried that stablecoins will pull deposits away from them. The pushback on stablecoin yield is particularly strong from regional banks. The big banks aren’t so concerned because they are all busy creating their own stablecoins.
This post from Patrick @Stillm4n provides an excellent summary of the banking industry’s concerns and attempts to estimate the size of the “systemic risk” to the banks. It also comes with a memorable quote:
The graph below is from Patrick’s post. No wonder the banks are concerned about losing these fat margins…
Exhibit B: Tether
Tether is the world’s largest stablecoin issuer. Its USDT token has a market cap of around $186 billion. Its reserve composition has been in question for years – no crypto market cycle passes without a round of Tether FUD. (Fear, Uncertainty and Doubt)
In short, Tether’s assets probably outweigh its liabilities. However, Tether is not a listed company and therefore harder to scrutinise than its regulated competitor Circle (CRCL). So the Tether FUD is unlikely to die despite reported assets that include large holdings of U.S. Treasuries, gold, Bitcoin, secured loans, and other instruments. It also recently launched USAT, a U.S.-compliant stablecoin aiming to satisfy the GENIUS Act requirements.
Yields on Tether’s USDT generally range between 2% and 8.8% APY on most reputable platforms, though some specialised DEFI platforms are offering up to 15-22% APR for longer-term, locked-up deposits.
Exhibit C: Circle Internet Group(USDC)
Following its May 2025 IPO, Circle’s NYSE-listed stock (CRCL) now provides a publicly traded way to gain exposure to stablecoin growth via equity rather than direct crypto ownership, which may appeal to traditional investors.
After ripping post-IPO, the stock has pretty much been down only. The bad news is that many see it as a pure crypto stock, so with crypto in a bear market, it is liable to sell off further. The good news is that means there is an opportunity to accumulate it at low prices. I own some already, but was a bit too early initially. It looks more attractive now.
The bull/bear case is nicely laid out in this article:
Exhibit D: The stablecoin landscape in Japan
Surprisingly, Japan has made rapid progress in stablecoin regulation:
Stablecoins are regulated under the Payment Services Act (PSA) as “Electronic Payment Instruments”
Issuance is limited to licensed banks, trust companies, and certain money transfer agents, fostering safety and consumer protection
Recent PSA amendments allow stablecoin issuers to back tokens with up to 50% low-risk liquid assets (e.g., government bonds) rather than 100% demand deposits
Japan’s FSA is consulting on strict reserve bond standards, demanding high credit ratings and minimum issuance levels for eligible backing bonds
Large Japanese banks (MUFG, SMBC, Mizuho) are running stablecoin pilots regulated by the FSA
Circle’s USDC has been approved for use in Japan and is listed on exchanges like SBI VC Trade.
Along with the Megabanks, SBI Holdings, Monex Group and GMO Internet Group are all getting into stablecoins in one way or another. I own most of these already, so I guess I have some pretty good Japan exposure, although I bought these stocks for other reasons.
In summary:
U.S. stablecoin regulation (GENIUS Act) legitimises digital dollars, but bans yield to holders, reflecting bank concerns about competitive deposit flight
Tether remains dominant, but transparency and reserve composition controversies linger
Circle (USDC) offers a more conservative reserve model with strong regulatory alignment and an equity play via CRCL
Japan’s stablecoin framework is progressive and is expanding opportunities for institutional and retail engagement
So, all in all, I’m bullish on stablecoin infrastructure, but not to the point of betting the farm on it. I think this year offers a great opportunity to get some more CRCL exposure.
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.
We’re only halfway through January, and it already feels like we have lived through a year’s worth of crazy news. Maduro has been ousted, Iran is in turmoil, Mexico and Colombia are on alert, the Europeans are mobilising to protect Greenland, and the chair of the Federal Reserve released a video accusing Trump of bringing criminal charges against him because he refused to bend to his will and lower interest rates quickly enough.
And, despite all of this, many markets are near all-time highs. There really has never been a world leader capable of instigating so much chaos, whilst simultaneously making markets stand up and dance for him.
If you are not convinced by now that Trump is going to pump liquidity and juice the stock market as hard as he can this year, I don’t know what to say.
Likewise, Prime Minister Takaichi. With such a strong approval rating, calling a snap election seems like a calculated risk. The market reaction tells you everything you need to know about her economic policies. Yen down, stocks up. She is going for growth, and that means yen debasement and more inflation coming.
Metals are sounding the alarm on all of this. Bitcoin is also finally starting to respond. The debasement trade is far from dead.
Here are a few thoughts on where this could be going:
Stocks
Mag 7 appears to be cooling somewhat, allowing the S&P 493 to catch up a bit. I’m even hearing American commentators discuss emerging markets. This is probably healthy, although the AI trade is by no means over and data centre spending is not slowing down.
Taiwan Semiconductor reported Q4 earnings this week that beat analyst expectations. Trump just announced a trade deal with Taiwan that will boost investment in the US semiconductor industry, and the deal sees the “reciprocal” tariff rate on Taiwanese goods drop from 20% to 15%.
The biggest short-term threat to stocks is the U.S. Supreme Court’s expected ruling on the legality of the Trump tariffs. If the court rules against these duties, expect all kinds of confusion.
Longer term, it’s hard to be bearish with Trump preparing to install the next Fed chair to do his bidding and midterms looming.
I guess the thing that could derail the Japan bull market would be the LDP performing poorly in the upcoming election and Takaichi being forced out as a result. Conversely, expect another yen down/stocks up surge if she wins a clear mandate.
Metals
The metals trade may not be done, but it’s surely in the late innings. People are starting to ask about copper and palladium. A while back, I put some of my old savings plan into a gold mining fund, and when I checked yesterday, the thing has more than tripled. Half of that went right into bonds for the time being.
If you’ve been in metals, well done! I have no idea if it’s over, but it’s not a bad time to trim some exposure.
There was a report on the 10pm news two nights ago about precious metals: Gold and silver jewellery are selling well in Japan. Dentists are losing money on 銀歯 (silver fillings), which are actually made from a mix of silver, palladium and gold. One dentist interviewed said that some people are even trying to sell their fillings! People are walking around with a hedge against yen debasement in their mouths…
If you are thinking of getting into silver right now, that’s FOMO.
The metals people on X are starting to sound like the crypto bros in a bull market. There are definite signs of euphoria, which means the reversal will likely be brutal when it comes.
Bitcoin
I’m talking Bitcoin, not crypto, as I can only think of a handful of coins that might do well IF Bitcoin gets back over $100k.
There’s an ongoing debate about whether the four-year cycle is dead. I’m not convinced it is, but at the same time, the liquidity backdrop for Bitcoin looks ridiculously good.
Here’s my best effort at a cheat sheet:
If you own Bitcoin, I’m assuming you are long-term bullish. If not, what the hell are you doing in it? I remain bullish on long time frames.
If you believe the 4-year cycle is alive and well, and 2026 will see the usual brutal bear market, prepare some dry powder. The chance to accumulate cheaply is coming.
If you think we bottomed already, you want to accumulate as much as you can under $100k.
If you’re not sure, DCA is the way. Just buy a little at regular intervals and pay as little attention as possible to short-term price fluctuations.
I don’t see a lot of fiscal responsibility coming out of America and Japan in the near future. Long live the debasement trade!
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.
One down, one to go. With the FOMC resulting in a dovish cut, we now await the BOJ meeting next week. So, how are things shaping up for the end of the year and 2026?
The Fed delivered the expected 0.25% rate cut. It was accompanied by cautious commentary on next year, without really turning hawkish. Pretty much a goldilocks result for markets. Stocks rallied into the close, while Bitcoin pumped to $94k before quickly retracing. The Fed’s dot plot and 2026 outlook seem wildly irrelevant given where things are going after Powell’s term ends.
BREAKING: President Trump is asked if the new Fed Chair will be expected to "lower interest rates immediately."
Does anybody need that stated more clearly? The next Fed chair will be appointed by Trump and will do his bidding. Their primary function will be to cut interest rates. End of story.
Leaping into the future, it will be fascinating to see if a post-Trump Democrat administration will work to reinstate the Fed’s “independence”. I bet you they won’t…
Anyway, I digress. The US is moving toward financial repression in 2026. Inflation allowed to run hot, and interest rates forced lower = Negative real rates. Negative real rates are a stealth tax on savers. It’s how the government reduces the debt burden.
It’s not good. But it’s what is going to happen.
Americans who own assets will be fine. Those who don’t will struggle.
Lots of liquidity, equities up, hard assets up, and a weaker dollar.
So, Bitcoin to the moon, right?
Hmmm, given what I wrote above, we are looking at the perfect environment for Bitcoin. The macro gurus, who are relatively new to Bitcoin, are declaring the 4-year cycle dead and preparing for new all-time highs in 2026. Except that’s not what usually happens. October marked a picture-perfect 4-year cycle top. It doesn’t get any clearer. The bottom should be around Oct/Nov next year.
I’m long BTC and happy to be proven wrong, but I think there is pain to come. I think we will see $40-50k, and buying Bitcoin when stocks are pumping will seem like the dumbest thing a person could ever do with their money. Sentiment needs to be broken before we run again.
And yes, I will buy at those levels. Until then, there isn’t much point in thinking too hard about it.
As for stocks…
The midterm general election is in November. Sometimes the most obvious outcome is the correct one.
Is the BOJ going to spoil the party?
The BOJ is signalling a hike. It’s been reported in the Nikkei. It’s pretty much baked in and would be more of a surprise if it didn’t happen. I don’t think it’s going to shock markets. It might strengthen the yen a little, but it probably won’t be earth-shattering. See my post on the Yen Carry Trade from last week.
Japan, of course, is already at negative real rates. That should support the Japan equity bull market. It only sucks if you don’t own stocks…
I have the flu. That’s as much brain power as I have this morning. Time for a lie down.
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.
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.
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:
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.
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.
Our family just came back from a weekend break, which was my treat in celebration of our stellar investment returns. Note: don’t tell your significant other how well your portfolio is doing unless you are prepared to spread some of the winning around! We had barely been back home for 5 minutes when the doorbell rang and a new pair of boots was delivered. She bought those herself, so no complaints from me, but you can see how this goes.
Even the stock market is enjoying a little retail therapy.
In case you’re not familiar with the term, retail in this case means individual investors: regular people, you and me. One theory is that covid is behind this surge in retail-driven performance. Stuck at home with their stimmy checks, regular investors learned to buy the dip, and it’s been working for them ever since. Stocks, crypto, gold – whatever retail jumps on goes up. Institutional investors look on in bewilderment, stuck with their risk models flashing warnings as the market leaves them in the dust.
It may not be healthy, but these are the cards we’ve been dealt. And with the Fed expected to cut a couple more times this year while simultaneously ending its balance sheet runoff, it’s hard to find a compelling reason to ease off the gas. Trump has even been talking about handing out money from tariff proceeds to the public. Can you imagine?
It would be rude not to do this! I’m looking at late November, maybe 26th, 27th or 28th. I’m open to suggestions on the venue, but my basic rule is that it must be a cash bar, so we don’t have to worry about whether everyone turns up to cover costs or fiddle around sorting out the bill. What do you say? If you don’t live in Tokyo and have been thinking of taking a trip, well…
Send me a message, email, DM or whatever if you want to come along. Will mostly plan this on X, so keep an eye on this thread.
We’ve been talking about an end-of-year melt-up for a few weeks now. So far, so good. I noticed the Nikkei Asia already started talking down the likelihood of a BOJ rate hike later this week. You can pretty much take that to the bank, right?
Is the Bitcoin 4-year cycle over?
After the most vicious deleveraging event ever just a couple of weeks ago, the crypto market has recovered. Yes, retail bought the dip once more!
There has been a wave of speculation over whether the 4-year cycle is still intact. It’s fascinating, actually, as crypto-natives have been hyper-trained on this narrative. It’s probably the reason Bitcoin is not significantly higher right now. Long-term holders have been unloading, while retail ETF buyers continue to accumulate. Many of the new investors have no idea what the 4-year cycle is and just have a monthly allocation set up for their account.
Felix is awesome, and I love his Forward Guidance Podcast, but time will tell. 2013, 2017 and 2021 were all followed by a nasty bear market. Yes, Bitcoin wasn’t a macro asset like it is now. Yes, you can make a great case that liquidity is rising, and the boomer ETF buyers will keep buying. I really want to believe, you know! But let’s just say I’m ready for anything. Warren Buffett hates crypto, but his quote about finding out who’s been swimming naked when the tide goes out could have been written for the industry. All we need is one good leverage flush to start the dominoes falling, and we all get a chance to buy at $50k again. Don’t think it can’t happen.
At least it will give these guys something to chirp about.
These guys are great! They’ve done zero work, but they will gladly tell you how Bitcoin is too volatile to be investable.
Well, BTC has closed above $100,000 for 172 consecutive days now. If you wanted to sell, you have had plenty of time to do so. If 2026 is a bear market, make sure you ignore these nitwits on their victory lap and back up the truck.
Melt-up before the melt-down, though, right? I’m yet to see real euphoria in crypto this year. Remember the images of people lined up on the street to buy gold a week or so ago? That’s what we’re looking for. We’re not there yet.
It’s a busy week with the Fed meeting, BOJ and Trump on the loose in Asia. I don’t know when the next dip will come, but you can bet that retail will be ready to buy it!
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 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.
Bitcoin, which has a habit of leading big moves in stocks, made it down to $109k from a peak of $124k. That move appears to be done for now, and it’s consolidating at around $111k. Tech stocks wobbled slightly, but nothing major so far. Nvidia earnings are on deck tonight – that’s always a big event. No doubt the dominant chipmaker will kill it, but will it kill it enough? Expectations could hardly be higher.
I don’t see Nvidia earnings being bad enough to tip the market over. Maybe a couple of days of turbulence if they are not quite as spectacular as everyone hopes?
More importantly, Jerome Powell’s Jackson Hole speech was surprisingly dovish. Stocks rallied in the aftermath, and Bitcoin put in a massive green candle that was quickly retraced. Then yesterday, Trump moved to fire Lisa Cook. As crazy as that is, the market took it in its stride. Imagine if any other President had manoeuvred so brazenly to gain control over the central bank and bring rates down…
I ended my post last week hoping for a bit more euphoria before the chaos ensues. It’s looking like I might get my wish. Trump doesn’t want rates lower for nothing. He wants to pump the markets. Plus, his businesses own a ton of crypto.
Where are the Robin Hood gamblers going to get their funds from when their cost of living keeps rising? Cash handouts from Trump? You can’t write anything off these days…
And then, today:
Well, well, well…
A few other observations
Remember Metaplanet? The haters have been running victory laps the past few weeks after Japan’s leading Bitcoin treasury company saw shares tank from their ATH of ¥1,930. Now it trades at ¥862. It’s no big surprise, however, I think few people realise that the treasury company mania didn’t end – it just moved elsewhere. Copycats have been popping up left and right. Also, stablecoins are the new hot topic.
Check out the recent price action on some of these tickers: 8105, 3853, 7422 – a ball of hot money is chasing them relentlessly, and most of this money likely came out of Metaplanet. Bigger names, like SBI Holdings (8573 ), have been pumping, too. (possible rate hikes and crypto behind this one) Monex Group (8698) is up big today on reports that it is considering issuing a yen-pegged stablecoin.
I’m not saying people should be chasing these names, but the hot money didn’t just go away. And don’t discount some of it coming back to Metaplanet in the next few weeks/months. They own the most Bitcoin, and Eric Trump (who is on the board) is coming to Japan soon. He’ll be keen to pump up the crowd.
The Japanese Prime Minister addressed a crypto conference in Tokyo this week. File that under ‘things I never would have imagined’.
We may be in the final innings, but that’s usually when the really crazy stuff happens…
I’m not leaving!
Rate cuts? Rate hikes?
After Jackson Hole, the market is now thoroughly convinced that the Fed will cut in September. That outcome is being front-run already. There will be a revolt if Powell doesn’t follow through…
What will the BOJ do? No idea, but the consensus seems to be for a small, cautious hike.
In the bigger picture, Trump is going to pump liquidity one way or another. That’s great news for risk assets in the shorter term and pretty terrifying on a longer time frame. The US doesn’t really need lower rates. If anything, inflation is likely to accelerate into the end of the year.
The pump could be spectacular. The dump is gonna hurt.
Plan accordingly. Keep your core portfolio in balance and otherwise leave it alone. Maybe take a critical look at your riskier satellite holdings and how you are positioned for what may be to come. If we get the pump, you know what comes next.
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.
Chaos by Christmas? I do like a bit of alliteration, but this doesn’t sound good.
That nifty little turn of phrase came in a message from a friend. He’s been concerned about the way things look for a while, even as markets melted up following the Liberation Day debacle. The chaos message was timely, as I was already working on this post.
Exhibit A: Wall Street’s New Obsession? Japan’s Market Just Went Vertical – a short article about foreign investors returning to Japan in size. The Nikkei 225 is at real deal all-time highs. You see the latest price on the news each night. Is there perhaps a little euphoria creeping in?
Expectations are high. The Fed is supposedly going to ease in September. The BOJ seems to be due to hike. But will they? Federal Reserve Chair Jerome Powell is set to speak at Jackson Hole this week, but I doubt he will give much away. He has been under considerable pressure from the Trump administration to cut rates and has held firm so far. There are signs of cracks in the job market, but does JPow really have enough data to justify a cut? We’ll see, but I’m sceptical.
The same goes for the BOJ. Pressure is also coming on Governor Ueda from the US administration. Does the central bank feel certain enough about the inflation outlook and tariff outcome to take the plunge? One thing is certain: if the BOJ is going to hike, it will be leaked ahead of time. No one wants a surprise like this time last year. If you don’t hear anything in the days before, expect no action.
In the US, the S&P 500 is also pushing all-time highs, driven as ever by the Magnificent 7 tech stocks, which are driven in turn by the AI boom. Despite the furore over job numbers, the consumer seems to be doing ok on the face of things. However, the tariffs are yet to show up meaningfully in the data. Expect that to change soon.
Where are the Robin Hood gamblers going to get their funds from when their cost of living keeps rising? Cash handouts from Trump? You can’t write anything off these days…
It’s not just eggs that have gotten expensive:
The final innings for crypto?
Bitcoin topped $124k last week and has now ‘crashed’ to $113k. Ethereum went on quite a run and got the crypto bros fired up about the alt season they’ve been waiting for. If history is anything to go by, then the next couple of months should mark the top of this cycle. I have no idea where it goes in that short time, but you should probably block out the people calling for $200k by the end of the year. $120k was my best guess, and we have done that. Maybe there’s a little more left in the tank, but who knows? When it feels euphoric, that’s the signal. The fear and greed index shows fear, so I’m not feeling it yet…
What to do?
Expecting a bit of chaos and doing something about it are two different things. And maybe there is no need to do anything other than just mentally brace for a correction. After all, prolonged bear markets are illegal these days. (I jest, kind of. See: It’s going up forever, Laura)
Let’s do Japan first:
I have thoroughly enjoyed the interaction on X between investors in Japanese stocks over the last few years. What a glorious time to be invested in this market! Japan has clearly turned a corner, both in terms of putting the bubble-era all-time high behind us and making strides in corporate governance. But at ¥43,000 in August, things feel a little hot. I don’t think there’s reason to panic and dump your J-stonks, but with almost everything going up, it’s perhaps time to take a look at holdings that you might have got a little lucky with.
For me, that means going through my list and asking myself some basic questions: Why do I own this? Am I happy to hold it through a storm? My Japan account holdings now span two pages. I think I may have a few too many stocks. For some of them, I don’t really remember why I bought them in the first place. Would I buy them again now?
The majority of my holdings were bought for the dividends. That’s my way of keeping up with inflation and currency debasement in yen. I actually didn’t expect them to go up this much. I’m pretty comfortable keeping them and collecting my dividends through whatever may be on the horizon. NISA I won’t touch at all – that was all bought for a long-term hold.
I would like to get my holdings back to one page and a bit more dry powder in the cash account.
How about other markets?
You may own a bit of everything in your All Country fund, but performance has really been driven by tech stocks. Here are your top 10 holdings:
Is tech dominance going to ease? Bank of America thinks so. You may know from my previous posts that I believe that tech stocks and Bitcoin are the two assets that will reliably outperform currency debasement. Are they due for a correction? Maybe. Is the AI bubble going to burst? Probably, but what do we mean by ‘burst’? The AI genie is out of the bottle. It’s not going away. The world will continue to hunger for more computing power. I don’t feel like selling any of this stuff, but I would like to have some dry powder to buy more when there’s a panic.
Got it, but we sell all the crypto, right?
I have said before, you need to have a plan for crypto and execute as best as you can. It gets harder the higher the level of euphoria.
My two cents: I’m not sold on the idea of dumping actual Bitcoin in order to buy it back cheaper. It comes with its own risks: the treasury companies and BlackRock suitcoiners want as much as they can lay their hands on. I don’t want to sell to them and then struggle to get it back later. Plus, the tax reporting is a pain!
ETFs are not Bitcoin; they are Bitcoin exposure. They can go. The treasury companies are probably going to be the FTX/Luna of this cycle – beware. Alts are struggling to attract enough attention and money in the middle of a bull market – you don’t want them hanging around your neck next year when everyone is depressed. (see my February post, Exit liquidity)
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.
Smart Money Asia 