This week starts out somewhat ugly. AI-hype-driven rally is losing hot air.
By Wolf Richter for WOLF STREET.
The Japanese Nikkei 225 stock index plunged 12.4% on Monday, after having plunged 5.7% on Friday, and 2.5% on Thursday, bringing the three-day drop since the Bank of Japan meeting on July 31 to 19.6%. On July 31, the BOJ announced the end of free money, a wakeup call for the free-money-addicted foreign investors.
Since the peak on July 10, over those three weeks, the index has crashed 25.5%, to 31,078 (from 42,224 on July 10).
But wait… Japanese stocks had surged so much earlier this year and late last year that this three-week 25.5% drawdown only wiped out that surge since the end of October. Escalator up, elevator down. Froth is getting worked off in a short time.
But wait some more… Over the past 12 years, the Nikkei 225 has exploded by 382%, driven by massive QE by the Bank of Japan, which included large-scale purchases of equity ETFs; record share-buybacks by Japanese companies over the past couple of years; Warren Buffett’s hype about Japanese stocks in 2020 (he moves the needle with a few words) after he’d piled into the market; and massive foreign buying all along, given the lure of forever QE, and especially after Buffett’s buy-now signal.
All this has now vanished to support these dizzying price gains. Buffett is selling down his US stock holdings, including over half this Apple shares in Q2. We’re not sure what he did with his Japanese holdings, but knowing what we know about Buffett, he’s unlikely to have gotten caught up in the sell-off, and may have contributed to the selloff by getting out in recent weeks ahead of the others.
Nevertheless, this kind of plunge, amid a whiff of panic, is usually followed by a bounce, on the WOLF STREET dictum: “Nothing goes to heck in a straight line”:
The biggest losers in the Nikkei 225 Index were banks, insurers, financial firms, the largest trading company, manufacturers, and a shipping company — which shows how deep and wide the sell-off was today. These are all big old companies:
| Chiba Bank Ltd. | -23.7% |
| Kawasaki Kisen Kaisha Ltd. | -22.0% |
| Ebara Corp. | -20.3% |
| Mitsui & Co. Ltd. | -19.9% |
| Tokio Marine Holdings Inc. | -19.8% |
| Isetan Mitsukoshi Holdings Ltd. | -19.7% |
| Mizuho Financial Group Inc. | -19.7% |
| Japan Post Holdings Co. Ltd. | -19.5% |
| Resona Holdings Inc. | -19.5% |
| Nitto Denko Corp. | -19.2% |
Korea’s KOSPI index plunged 8.8% on Monday and 12.1% over the past two trading days. Since its all-time high in June 2021, the index has dropped 26%.
Among the biggest listed stocks, the semiconductor makers got crushed, for example, Samsung -10.3% and SK Hynix -9.9%. These stocks had experienced huge increases during the AI-hype rally that is now losing its hot air. For example, SK Hynix, despite the 35% plunge since July 10, is still double of where it had been at the end of 2022.
Taiwan’s TAIEX plunged 8.4% on Monday, driven by the huge semiconductor makers. Taiwan Semiconductor Manufacturing Co. (TSMC), the world’s largest semiconductor maker, plunged 9.7% in Korean trading on Monday. But in US trading today on the NYSE, the shares are recovering.
The other major Asian markets were just a little ruffled by all this drama in Japan, Korea, and Taiwan.
India’s BSE SENSEX Index fell 2.7% on Monday, and is down only 3.7% from its all-time high on Thursday.
Hong Kong’s Hang Seng dropped 1.5%. It’s down 50% from its all-time high in 2018 and back where it had first been in 1999.
China’s Shanghai Composite Index fell 1.5% on Monday and is down 53% from its all-time high in October 2007 and is back where it had first been in March 2007.
In Europe, stocks were comparatively well-behaved. The major indices dropped in the 2% range at the moment: UK’s FTSE -2.0%, the German DAX -1.8%, and the French CAC 40 -1.4%. The Italian and Spanish indices down in the 2.3% range.
At the end of every December, we do an annual long-term review of the major stock markets in the world, with long-term charts going back decades, and there are a bunch of them, including the SSE and the Hang Seng, and indices in Europe, that are down substantially from their highs many years ago, some over a decade ago, and others over two decades ago. They all had huge bubbles that imploded. This does not include countries whose currencies collapsed, such as Turkey, Venezuela, Pakistan, etc., whose local-currency indices soared exponentially because they’re measured in a collapsing currency.
Whiff of panic fades in the US. After the overnight plunge in the futures market, and in early trading, the S&P 500 (-2.2% at the moment) and the Nasdaq Composite (-2.6% at the moment) have come up from the lows where they’d started out. We’ve seen worse since July 10, when this mess started.
The CBOE Volatility Index (“fear index”) had spiked to 65 early in the morning, deep into panic territory, from the 16-range last week, but has now fallen back to 31, as fear is settling down into a slow smolder.
The 10-year Treasury yield, after plunging as low as 3.67% early today amid all this panic, bounced back and is now trading about flat with Friday’s close, at about 3.80%.
Among the biggies at the moment:
- Nvidia -5.9%
- Tesla -3.3%
- Alphabet -2.6%
- Amazon -4.7%
- Microsoft -2.4%
- Meta -2.5%
- Apple -4.3%, after the disclosure over the weekend that Berkshire had dumped over half of its remaining stake in Q2.
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Hi Wolf, just a quick note there is a typo for the Nasdaq down % in the last paragraph
LOL, thanks, that kind of crash would have gotten our attention.
OMG…MSM is telling us the sky is falling….emergency rate cut now..how dare the market blow off some steam by 10% down when the last 6 months it has gone up double, triple that….that’s just unacceptable..
Bitcoin now $54K? Unacceptable…Mama Woodshed and HODL Saynor told me it will hit $100K by year end…how dare this has dip down below $60K…
Pow Pow better not cave like a cheap lawn chair because the market is once again throwing a fit..stay the freaking course cause last time I checked a major component of CPI like renting is still sky high…
Yeah, those article headlines this morning were irritating to read. People demanding a 75 basis point cut this week because the stock market is free falling. Macro economic policy shouldn’t be based solely on what that gambling den is doing.
Fed needs to stick to their guns and look at the totality of the data instead of one facet of the economy as a whole. Maybe the data coming out between now and September will dictate an interest rate cut, and maybe a bigger one than people initially thought, but it’s not like some money managers losing their shirts is on the same level “emergency” that COVID was to enact some kind of immediate intervention.
Great article, almost a who done it guide to the finality of the carry trade. The gravy train for speculation throughout the system that adjusts in a predictable manner.
The yen is like a train wreck in the equilibrium enforced world of currencies.
However, I will say that I think the turmoil in the capital asset bubbles are relatively subdued. Especially when I remember that just a year ago those very same assets were selling for 3300 or so SandP and today it closed at 5100 or so.
Bubbles require an above average, constant supply of inflatent.
You mean inflatulence?
I saw a Fed member on CNBC this morning talking about being proactive and staying ahead of the data. Ridiculous. They are already out there trying to calm markets when just a few months of gains have been erased.
Next, I imagine Wall Street will be teeing up a discussion of ending QT, citing the Boogieman – liquidity concerns.
Probably Goolsbee, an uber dove, wall street shill.
For savers, it is Ghouls-bee…
Not a word about 20 years of DC expropriating savers with an essentially relentless ZIRP campaign (nice for DC – being – by far – the most enormous debtor the planet has ever known) but let AI-paint-huffing imbeciles get nicked for 3 months worth of losses…and the world is at an end (it is – but because of the 20 year ZIRP opium dream).
The fact that Ghouls-bee is an Establishment mook tells you everything you need to know about post-2000 Weimar America.
Goolsbee can fix it. He said so. So we await the 1% shock & awe cut with a hint at QE-Infinity. We must have our new All Time Highs or everything could crack up. And no tax cuts for plebes! It’s bad policy according to the Wall Street Journal editorial.
Maybe if one refuses too recognize the evidence. The FOMC just renewed the 5.25 plus a quarter, until they buckle and at least reinstitute a QE lite. Emotion is the pathway to random errors.
I think that Goolsbee spoke his mind, in a straight forward manner and said nothing that would disturb the capital asset markets which have become addicted to loose monetary policy for the sustenance of their price.
I watched CNBC this morning for the first time in years.
Lots of talk about “emergency” rate cuts, but no mention of inflation.
Stock market promoters on CNBC cannot stand it when stocks prices fall. They will drag out whatever BS they can. These people have been calling for rate cuts for two years, even as stock prices were surging.
LOL….OMG the sky is falling…you see these headlines all over MSM “Wall Street raises pressure on Fed to take more aggressive rate action” from whining to threatening soon enough..
If stock market tanks, so are the chances of Kamala’s. Simple as that.
Zoroto,
Most Americans don’t have enough stocks, or have any stocks, for that to make any difference. Most Americans don’t even watch CNBC. It’s just another line of BS.
Wolf/Zoroto,
I was telling my wife that exact same thing last night, and added that a lot of regular people want stockholders (I.e., perceived “rich people”) to suffer.
But I secretly still find it concerning that the proletariat will believe the economy is failing. I’ve already heard Central-PA types talking about the current recession that we’ve been in since months ago.
I’m not so sure I would be flippant about the probability that either of America’s political parties who are busy negotiating the conditions of life of the median American family, won’t insist on “emergency” rate cuts” to alleviate the pain of stock market losses.
I think their the FOMC’s intention is too extinguish inflation as the first priority. As the world turns, so does the current thinking.
Fake internet coins only $50,000 apiece, we are truly living in the end times.
Right. Over $50k for some numbers on a scrap of paper. “Oops, spilled my coffee on it, lost all my money.” Dumbest thing ever.
We need an emergency 75 basis point rate hike just to bring back some honesty. It’s time to bury the grifters.
Bury the grifters? Say it ain’t so! After all, doesn’t it say on the US dollar, “In Grift We Trust”?
Nobody’s actually selling BTC from what I can tell, just algos shorting futures (I almost said shorting paper but BTC isn’t real anywhere lol).
A lot of this move looks like it’s just trying to get retail to panic.
Crypto is a funny one to read. To move/buy/sell a lot of alcoins, another transaction or set of transactions may be required.
Some are part of an ecosystem, others not paired with USD and only BTC or ETH.
The market cap can be analyzed in total and in terms of “bitcoin dominance.” Looking at the different metrics is the only way I know of to understand what’s happening.
There’s also the “on chain analysis.” This is insight into the actual money flows.
I don’t own a single share of common stock. Frankly I don’t give a rat’s a$s about this stock market crash. It was long overdue a long time ago. It is necessary and welcomed in order to clean out all the excesses that were created by these moron politicians, spending like drunken sailors, and the Fed under that jacka$ss Bernanke who forced interest rates to zero bound for 10 years following the GFC, and Powel who took too long to move them up to free market levels when inflation and spending were completely out of control. The chicken are finally coming home to roost.
We have too keep the focus on the most important ingredient, the every day people. A family level wage is the catalyst of America’s innovation. And a worthy goal.
The increase in productivity over the past 20 years has not been mirrored in an increase of labor wages. With they’re feet held to the fire of a Communist Chinese Party, work force.
The American people should make more money than they currently are.
There’s a ton of wealth effect that needs to be wiped on. Here’s hoping it’s just getting started. Woohoo!
This is actually good… lets see if the current administration stays the course, by not interfering, and holding the Fed to its actions. If Trump was in the office, I think he would have pressured the Fed into a rate cut by now.
Howdy Folks. Bet you 50 cents the Dow goes right back up tomorrow or by the end of today ???
I’ll take the bet, but then again I am betting on the same position as you. In fact, I would bet by market close today, we will be down no more than 500 pts, improvement from over 1k points when market opened.
Howdy Phoenix. YEP, the Dow has gone up and down by hundreds for quite some time. It wants to control the FED too? We shall see who wins…..
Howdy Phoenix. and anyone else that wants to bet me and should I lose. There is a shipping and handling charge on that 50 cent bet…..
I’m buying.
Ahh, catching falling knives has become a way of life these past 15 years of QE.
The downside is so much more probable than the upside. Selling is a logical response. Buying is foolhardy.
Buy when people are fearful.
Now that the market is backup, I’m thinking about selling.
You can bet more than that by buyng the DIA.
Buffet ‘dumped’ AAPL shares, according to the headlines. That’s laughable. He’s the most calculated investor in history. Selling half his holdings of a company he loves, that he has massive gains in, in order to stockpile cash is not ‘dumping.’ Dumping tends to mean selling a loser when you run out of patience with it. But the sheeple are all talking about him ‘getting out’ in a ‘panic.’
Yes of course. I would say that Warren was taking advantage of that age old wisdom about being the first one at the hole is the one that catches the trout.
Especially given the overpriced status of AAPL which Buffet’s continuous bid increased the stock price.
The drop in AAPL as a result of Buffet’s sale is not sufficient too suspect that the stock was dumped in a panic.
“When people do not understand what is happening, or why it is happening, and have no idea about what to do about it, and are not told, panic must follow.”
—Adam Ferguson, When Money Dies
The big question, of course, is the timing…
Looks like a great buying opportunity. Don’t miss your chance to get in at the bottom.
My first use of dry powder will take another 15-20% down. All my dry powder would be gone at around 70% down. All I’ve done so far is mildly smirk.
Dry powder itself isn’t a bad investment now that it yields 5.25% risk-free.
Oh, the horror of the market only being up 11% so far this year. Who will save us?
/s
Nice card… that’s Bone.
(Envy fills the room)
Now let’s see Jay Powell’s card.
Stocks are dropping!
Clearly, there is a need for liquidity. If big banks fail, we all fail. The little guys will be the ones getting hurt. The Fed needs to do what it takes. No excuses!
We also need tax cuts for businesses, so they can create high paying jobs and create economic growth. Lets put American business to work!
If we don’t, they’ll leave.
sarc.
The Fed has to cut at least 200bps this week otherwise all stocks will be worthless and we’ll regress to a barter economy, obviously!!!
There will be tanks in the street bro, tanks!
There are already tanks in the streets. They’re called Cybertrucks. We saw them with our own eyes.
You’ve got a weird obsession with muskrat. You do know he’s a government cut out, right?
Well done!
An accurate rendition of the philosophy underlying the age of professional politicians whose future is directly adverse to doing the people’s business.
Especially considering they all come from pampered money.
Just for fun, decided to watch the infamous “Buyin’ The Dip (GAMESTOP) ft. Meet Kevin & Charles Payne” on YT, great mix and so fitting for today…you know there are plenty of BTFD buyers are out there given how many likes that video got just today….
Fed’s in zugzwang. Sell the Sept FOMC like it owes you money.
Opened two positions this morning, both post earnings
QTM (Quantity Theory of Money) requires 6% per annum M2 growth to produce a 2% nominal inflation rate. 4% per annum M2 growth required to produce a 0% nominal inflation rate. Present M2 growth is under 1%. Deflationary iceberg dead ahead? Or just stagflationary slush?
Deflation is what is required in the wake of monetary excess which created inflation. Deflation is what the world is about to experience which wasn’t a problem prior to the FOMC announcement.
Suddenly, the overpriced assets appear to actually significantly over priced,
“Nevertheless, this kind of plunge, amid a whiff of panic, is usually followed by a bounce, on the WOLF STREET dictum: “Nothing goes to heck in a straight line”:”
In system theory parlance, it is known as an under-damped system — one deviates from the nominal value (whatever it is) both in positive and negative direction. Not a simple exponential decay (or rise) mentality with most folks.
On a different note, “FED Goolsbee indicated that the Fed is prepared to act as it focuses on promoting maximum employment, price stability and financial stability.”
So, stocks giving up their a sliver of huge gains are impediment to price and financial stability but exponential rise (in assets) are NOT. Great financial engineering, indeed.
Goolsbee is the super-dove on the FOMC. He would have liked cuts months ago.
“promoting maximum employment, price stability and financial stability”
Wait…now the FED thinks they have three mandates!!! That new one is a doozy!
Financial stability is a (potential?) product of price stability: I know my $10 can buy a few gallons of gas today, and most days, almost anywhere in the good ol’ US of A. (Except at the end of the road, the marina etc; it’s only 2)
The saddest part about Goolsbee’s comment is that he might actually BELIEVE it?!?
He certainly didn’t state the economy IS falling apart (and no emergency meeting or cuts: Nothing has changed in a week).
BUT he is sounding like someone who believes a small committee has a significant level of control over a $100 trillion+ global economy!!!
Same hubris that got us here, definitely not getting us out of a fire when it DOES ignite!
Beneath the headlines the last couple of days is that INTC has gotten completely destroyed. I’d love to buy some down here but I wonder whether it’s a value trap. In any event I feel there’s no hurry, will probably drift down into the teens…
@MoreCreativeMatt
Time to buy is when the Generals (like AAPL and NVDA) or is it the draft dodgers get shot and mortally wounded and not the poor enlisted mass!
Yeah, you have a point, what INTC does is not up to INTC for now. Which is telling enough considering what it used to be. I’ve owned another chip stock for years, ADI, which doesn’t have much to do with AI but has been getting massacred with the rest just because chip stonks = bad.
Maybe even a hat size price? No more dividend too!
I have in my head what AMD did, trading below the Mendoza line (not split adjusted, actual price at the time).
Intel isn’t going out of business. Whether it does what AMD did, or what say CSCO has done since the dotcom bubble, which is to say act like Pfizer or Verizon but without a dividend, I’m not sure. I guess if you bought CSCO in 2002 and held you did OK, but that was a LONG way down.
I have a friend that works at Intel and based on the “enhanced” retirement package (It’s really not that great tbh, but it does pay for medical for 24 months after the retirement date) along with some other life factors, he’s considering being one of the 15000 they pare off.
He’s also worked there for 30 years and has developed stress related health problems due to their performance metrics, so I think a change would be good for him. His family is based in Phoenix, so it would probably be easy enough for him to get a job at TSMC with that new fab coming online. He also only needs to work for a few more years to start collecting social security at the minimum age, so it may make sense for him to do so.
It’s not like they’re shutting down everything there, because my friend’s role is to assist in getting a new fab running in Malaysia. To the best of my knowledge they haven’t called that off yet.
Intel thought they won a decade ago and are going to be paying the price for a long time. Chip design and foundries are the most cut throat industries we have. They let Lisa Su get ahead of them on CPUs and ignored the GPU space too long. They have a road back but it requires long term planning.
Julian
I do not want to miss my chance to get in at the bottom
When is this
The bottom for the Dow is around 2,500.
You must be related to Joe Granville.
If they emergency cut after last weeks meeting we will go down farther and faster. The drug addicts begging for cuts are sick
For those of you old enough to remember…the market and mainstream pundits remains me of that scene from Menace II society, cheeseburger crack head scene…replace crack with rate cuts and QT…Pow Pow needs to do what the dealer did in that scene to the one asking…
A gut-check for Powell (or as they tell me boxing or prison slang would have it, a chin-check). This will tell us what he is made of. The chorus of the spoiled ninnies for rate cuts is deafening. To extrapolate a moment (as Daniel Kahneman jokingly had it, following “the law of small numbers”) into a trend and into panic, is a grave error for an individual investor, and especially, for a central bank. Let’s not fall back into the Greenspan put disease. This is supposed to be pour emergence from that, and its consequences we are still suffering. Powell, hold the line! Let greedy market participants sort themselves out, with a cold rebuff to stiffen their spines.
phleep, a Daniel Kahneman reference, nice. I just finished one of his books. This is why I like reading Wolf Street.
Now try asking a hundred random people on the street who Daniel Kahneman is……………crickets.
kile,
Hopefully this will make us some bread. But meanwhile it makes life mentally rich at the very least! (I’m ruefully thinking of the quote, I can’t find a source for: “If you’re so smart, why aren’t you rich?” but also the famous rejoinder, “If you’re so rich, why aren’t you smart?”)
Kahneman died on March 27, 2024, three weeks after his 90th birthday. Daniel Kahneman was an Israeli-American psychologist best-know n for his work on the psychology of judgment and decision-making theory. To account for the theory’s reckless presumption, Kahneman and Tversky proposed prospect theory, and its extension, loss aversion. According to prospect theory and loss aversion, losing something causes a greater negative affect than gaining that same thing does positive affect. Basically he was an ignoramus who just yip yapped about nothing.
The PPT has been very busy lately.
Additionally, both Fidelity and Schwab (just the two largest US brokers, nothin to see her) were glitchy this morning beginning at 0700, and the completely offline via website and mobile apps from shortly after the cash open until 1030-1100.
Nothing to see here as well.
The manipulation is reminiscent of the Robinhood/GME fiasco. Only this time it was worse. You could not buy or sell. Minor brokers such as SoFi were not affected, or, refused to play. (SoFi to their ever lasting credit, also refused to halt trading in GME).
The manipulation was so evident last Thursday and Friday, and today it was totally obvious and out of control.
Two points. First, could it be more obvious that there was intervention occuring which prevented the selling from turning into an actual crash?
Change my mind.
Second, it should be a good lesson for every retail investor that if you think you can ‘get out’ when the selling overwhelms the FEDS illegal buying, you may want to reconsider.
Brokerage issues come with every big market sell-off. I remember when I tried to call my broker in 1987 during the crash to buy some stocks, and I could never get through. Since the early 1990s, on dialup, LOL, there were numerous times when online access to my account failed because of high volume. None of these systems are designed to allow everyone to log in at the same time.
If WOLF STREET gets too much traffic all of a sudden, it will crash too.
I have Schwab, migrated over from Ameritrade, migrated over from Waterhouse even. Couldn’t get in for an hour and a half. I never had a problem logging into TDA during the worst of covid or any other move of this size, but Schwab wants to lock up on… a THREE PERCENT MOVE!? Which we typically have several of a year? Pathetic. 1987 I understand, and if we have another —26% day I’ll cut Schwab some slack. But there’s no excuse to freeze up on a —3% day in two thousand freaking twenty four.
Schwab doesnt seem to like it’s customers that much from my experience. No surprise considering the founder.
Schwab is fantastic. I moved all my Vanguard money to Schwab b/c they do not do politics. No political donations. V/G did not answer phones during NORMAL working hours to honor George Floyd then gave 5M to social justice groups (ie. race agitators). I had fine access to Schwab ThinkorSwim and Schwab.com all day long, both open at once entire trading day. Thanks.
TDAmeritrade was so much better in every way. Schwab sucks on so many levels.
Anyone knows good reliable online broker?
I have no stories of horrible financial advisors, because I don’t have one. But I would stay away from Taco time if I were you.
Matt:
No such thing as a “26% down day.”
They regulated it out of the notsofree/ “markets.”
Circuit breaker they call it. The SEC’s mandate.
I had no issue logging into my Schwab acct by quarter of 11 EST. Ditto for Merril Edge.
Better a slow drop like 2000-2002 than a panic pop. Of course the calls came out premarket for an “emergency 0.75% cut” followed by more cuts through year end. Back to ZIRP already guys?
IF Powell can stand up to this day trader hysteria I’ll respect him quite a bit more. As others have said the markets are still UP in 2024. If they do actually drop 30-40% I can’t imagine the howling and tears these people will generate.
Top Canadian and American financial sites are telling me that interest rates must revert to 0%, because of it doesn’t happen wouldn’t somebody think of the billionaire hedge funds?
These things bound to happen when they manipulate stock market like Casino. NASDAQ doubled in the last 5 years by money printing without any fundamentals and we had the worst pandemic in our life time. NASDAQ should be trading around 7500 not 18800. It was trading at 6500 when pandemic happened. Greed kills.
Exactly. Look at the chart of IXIC? It was not even 10000 until after the pandemic. Neither the fundamentals nor the Mag 7 company PE ratio supports the current stock price.
As of today, Nvidia still as a PE ratio of 60. It is still overvalued.
“Greed kills.” Yes, and marketing, along with the something-for-nothing disease, have too much infected these markets and this whole political economy. Sometimes uncomfortable lessons are good.
What about the Yen carry trade? I was reading that it was as big as $4T but I have no idea if this is true or if anyone can make more than a guess.
There are a lot of narratives that aren’t making sense in this selloff and “the total demise of yen carry” (ZeroHedge says it’s $20T, but then that’s ZH for ya) is one of them.
Japan raised by 15 bps and the Fed has done nothing, so the spread is… still around 500 bps? That doesn’t equate to the entire collapse of yen carry to me. Yen carry’s been a thing since the early 90s and this is the third or fourth time we’ve had a panic over it, but if the US sneezes, Japan gets HIV. It’s not gonna become a USD carry next week or something. But then I don’t decide these things.
I thought the carry trade was just exploiting yen weakness against the dollar. And the yen has strengthened against the $ by about 11% in a month. I’m sure it’s because the US is about to embark on a cutting cycle while Japan is hiking.
But I don’t really know much more than that. But things are definitely running against that trade at the moment.
It’s because rate & forex traders ASSUME the Fed is about to embark on a cutting cycle.
You know what they say about assuming.
Yeah, been reading the same, that’s all over social media right now. It makes sense to me, BOJ gave out cheap cash for a very long time and it went chasing yield, then they raise, USDJPY goes down, I’d think that starts killing positions. If its true though and YEN bouncing back is causing this then I’d think “emergency cuts” by the FED would bring the opposite effect to US stock market than what people want lol
How big is the yen carry trade?
That data shows that hedge funds and other speculative investors were holding more than 180,000 contracts betting on a weaker yen on a net basis, worth more than $14 billion, at the start of July, according to CFTC data. By last week, those positions had been cut to around $6 billion.
Listen you mugs, if Jeremy Siegel of the Wharton School of Business says we need an emergency cut, by golly, Jerome better get to cuttin’.
You are thinking “Jeremy Siegel of the Wharton School of Business” is some Genius, then joke is on you.
Listen to last 3 years of his interviews. He has been consistently wrong.
He is asking FED to cut rates from August 2022. He said he can see forward looking indicators. From August 2022, he says inflation fight is won.
I dont know what he smokes everyday.
the problem is that not there is an idiot out there spreading bs. the problem is that the media puts idiots like him on the front page.
Apparently the fine art of identifying sarcasm without a clear label has been lost.
Not on all😆
Any comment that begins with ‘listen you mugs’ is definitionally sarcasm.
This Fxxing guy Siegel…he is about as much of a shill for WS as Lawrence Yun is for the RE industry…and both are call economists too…
Don’t forget yardeni. Basically the whole tribe needs to keep the ponzi rolling.
Watch the comedy on CNBC and WSJ.. You will know how liquidity junkies can make arguments for rate cuts.
Nick Timiraos (So called FED Whisperer) asking for 50 BP cuts and sooner.
Today morning, Jeremy Siegel says we need to have 75 BP Emergency rate cut now and another 75BP in Sept meeting.
This Siegel had told CNBC in March 2023 that in May 2023 onward there will negative Payroll numbers. They never came…
Just small increase in Unemployment number and they want Emergency rate cut.
FED has been saying they expect softness in Labor market. Unless there is significant material impact, FED wont act. Even though Powell said they haven’t made any decision for Sept meeting, All MSM wrote “Powell “Clearly” indicated Rate cut coming in Sep meeting”.
Question is now “Will FED guts to stay the course?” or they will all
If you have time, I would like to see you address the effect of the Japan carry trade, and reverse carry trades on the Treasury markets in both the US and Japan and vice versa. It seems like current conditions with Japan raising and the US lowering, are forcing many Japanese investors to liquidate their positions which would have the result of making the auctions stickier.
Markets: Our AI Ponzi story ended early. Uncle J, can you lend us a few more Ts for free until we find another ponzi hype, so that the asset prices double again?
If this market action continues in this form for another week, I see computers completely taking over the trading activity. You will not be able to reach your broker to make a trade even if you wanted to. This administration may even close the NYSE for a week or so and blame it on speculators and computer algorithms. Japan closed their exchanges for one day and we could be next.
Market’s got a case of the Mondays.
Does Japan’s quantitative tightening have any effect on the U.S economy/markets ?
Does quantitative tightening in Japan effect liquidity in the U.S?
No, no, and no.
LOL Think again….
You really don’t think Japanese liquidity chases after Treasuries? USD is a much stronger currency *and* USTs yield much more than JGBs.
Look at how much yields *dropped* today. Flight to safety = demand for Treasuries.
It’s called the Yen carry trade. Big investors open accounts in Japan with Yen and then borrow at Japanese rates so that they can then invest in any asset worldwide. The objective of course is to produce a positive spread between the cost of money in Japan and the return on the borrowed funds. Typically, hedge funds that go for this kind of thing will buy govt bonds using leverage to further enhance their returns. The problems start when the Yen’s value to other currencies experience large moves relative to the Yen. This impacts the trade when the investor attempts to repatriate its funds. The other issue is the spread from borrowing in Yen and investing in whatever. If Japanese rates go up, the potential returns decrease in the other side of the trade decreases. I don’t know the actual stats, but hundreds of billions are tied up in the Yen carry trade. Potentially, worse yet, is the possibility for a reversal of the carry trade that could cause an implosion of an account with significant credit spread swaps (derivatives). Once the derivative genie is out of the bottle, good luck in trying to put it back in the bottle.
1:04 PM 8/5/2024
Dow 38,703.27 -1,033.99 -2.60%
S&P 500 5,186.33 -160.23 -3.00%
Nasdaq 16,200.08 -576.08 -3.43%
VIX 38.67 15.28 65.33%
Gold 2,453.10 -16.70 -0.68%
Oil 73.75 0.23 0.31%
I wonder how much the BOJ has to do with all of this? Have they upset the carry trade with their recent moves, and if so how much more damage before things find equilibrium?
What the BOJ did was a financial regime change — of a regime that the entire global financial world had relied on for cheap/nearly-free funding — going from NIRP and massive QE, including buying equities, to positive and rising rates plus QT
This downturn in the market likely/hopefully will slightly weaken some of the crazy “pay whatever” spending by the top 20% of incomes, hopefully allowing inflation to ease a tad. That said, we won’t see anything about it in government reports for a while, since data is lagged. I expect this month’s CPI report to be “higher than expected”, especially in core services.
We hear those crying wolf for rate cuts, but don’t they really want to binge on QE again? I fail to see how rate cut would benefit stocks in a short term.
“I fail to see how rate cut would benefit stocks in a short term.”
I think it’s more psychological. Market participants don’t want to accept that the Fed Put is a thing of the past. A rate cut to them is a symbolic gesture on the part of the Fed that keeps the hopium alive.
For me, Buffet’s recent moves to cash were a big tell, but like him I still think fundamentals matter…