The yen is tanking … the worst bond market in 40+ years … “learn how to trade” … join Eric Fry today to hear about his “Trade of the Decade”
Last year, we began a running series in the Digest called “What the Bleep is Going On?”
Our CEO, Brian Hunt, summed it up nicely:
If you’ve followed the financial markets – even casually – over the past year, you’ve seen a parade of weird events. Events that don’t make much sense when analyzed inside most financial models.
Events that make you wonder What. The. Bleep is going on…
To put it simple, we are living in a World That Is Nuts.
As just a few illustrations, we’ve seen the cryptocurrency sector explode, then implode (then do it again) … commodities prices skyrocket… inflation zoom higher to levels not seen in 40 years… the real estate market become white-hot, where an offer price that matches the asking price is laughed off… and the U.S. government print currency and spend at levels that are utterly astonishing, amongst a slew of other crazy events.
Yesterday, Brian sent an internal email here at InvestorPlace pointing toward two new “What the Bleep” stories.
The first comes from Japan.
In short, its currency, the yen, is tanking. See for yourself.
The yen has dropped 15% over the last year. This is a massive move for the currency.
To give you a better sense for how irregular this is, below we look at the yen over the past five years. As you can see, the implosion here in 2022 is a stark break from its usual trading channel.
Much of this 2022 weakness has come in response to the Fed’s recent big talk on inflation and interest-rate hikes. We’re in a highly connected world where moves from our central bank can have a significant impact on other countries.
But years of ultra-loose monetary policy from the Japanese government are also at work here. And that loose policy is continuing.
Earlier this week, the Bank of Japan reiterated its commitment to ultra-dovish monetary policy with a new round of bond purchases. Plus, the Japanese government has decided to provide handouts of 100,000 yen (about $774) to low-income households.
In short, it appears Japan is pursuing the same policies we saw from our own government that have been a massive contributor to today’s runaway inflation.
***So, why is Japan going down this route?
To be fair, the country has suffered decades of minimal price appreciation, so its central bank wants some inflation.
But inflation is like fire – very difficult to control once it really sets in. And those who get burned are the savers who have their wealth stored in fiat currency.
On that note, here’s what the price of gold looks like to a Japanese investor here in 2022.
Up 20% – a major move.
Here’s Brian on the significance of what’s been happening with the yen:
Most people don’t care about currency moves, but these markets are huge and extremely important. This is the value of money. And the value of money underpins society. It’s the glue that holds an economy together.
The yen is a hugely important currency. And it’s plummeting in value.
Brian goes on to point toward the mindset from our global politicians that’s enabling this type of currency debasement:
Long held values like financial responsibility have been thrown out the window.
Now, there is virtually no limit to how much money governments will spend, borrow, and print to pay for all kinds of harebrained programs. They are in a “no way out” situation.
Their gargantuan unfunded liabilities and impossible debts can only be repaid by debased, devalued money.
All roads lead to the devaluation of all paper currencies.
We’ve crossed the point of no return. No politician that campaigns on fiscal responsibility has a prayer of getting elected.
What the Bleep.
***Meanwhile, the bond market is sending us its own “What the Bleep” signal
Jim Bianco is a widely respected market researcher who runs a macro analysis group that caters to institutional investors.
Institutional investors put hundreds of billions of dollars into the bond market. Given this, Bianco keeps up to date on all things bonds. And what’s happening in today’s bond market is carnage, plain and simple.
Bianco provides a chart showing the total return of the two-year Treasury note for every year dating back to 1981.
The year with the best returns was 1981. And the worst year? Last year.
So, how is the two-year performing so far in 2022? In short, it’s a never-seen-before trainwreck that’s making last year’s (bad) returns look good.
I’m unable to show the chart due to copyright permissions, but here’s Bianco’s commentary:
2022 (blue) is seeing unprecedented losses. But note 2021 (red). It was the only full yr back to 1981 that finished the yr at a loss.
It has never been this painful to own short-maturity Treasuries. And the Fed has only hiked once and the market expects 9 more this year!!
What the Bleep.
***Now, you might be thinking to yourself “so what? I’m a stock investor. I don’t own bonds”
That might be true, but such a response misses the interconnectedness of today’s financial markets.
First, the two-year Treasury isn’t the only bond taking it on the chin. The 10-year and 30-year Treasury yields are up, respectively, 93% and 58% so far in 2022.
Remember, yields move opposite of prices. So, these soaring yields reflect carnage in the underlying value of the bond itself.
Corporate bonds are suffering too. The Vanguard Intermediate-Term Corporate Bond ETF is down 10% on the year. The Vanguard long-term corporate bond ETF, VCLT, is down 17%.
Now, do you have a 401(k)? Do you have a chunk of your 401(k) money tied up in a target date fund?
If so, you’re probably getting creamed because many of these target date funds have exposure to government and corporate bonds.
As of 2020, the average target date fund had 46% in bonds compared to just 42% in stocks. The average stock/bond mix for 2025 target date funds is 47% to 39%.
But let’s say you don’t own any of these target date funds. That doesn’t mean you’re completely insulated.
Let’s return to Bianco and the two-year Treasury to learn why:
Who buys the 2-yr? Answer: many using (lots of) leverage such as a bank, broker, hedge fund (carry trade). They have to be suffering unspeakable losses.
How long until these unspeakable losses become speakable? Will we soon be talking about financial stability concerns?
Here’s more color on the losses from Bloomberg. Note that this article is a month old, meaning the losses are even bigger today:
The Bloomberg Global Aggregate Index, a benchmark for government and corporate debt total returns, has fallen 11% from a high in January 2021.
That’s the biggest decline from a peak in data stretching back to 1990, surpassing a 10.8% drawdown during the financial crisis in 2008.
It equates to a drop in the index market value of about $2.6 trillion, worse than about $2 trillion in 2008…
That’s a blow to money managers accustomed to years of consistent gains, backstopped by loose monetary policy.
Related to these What the Bleep stories, Brian made a comment I find both interesting and important:
Welcome to the Age of Chaos. Learn how to trade.
If you’re like me, you grew up in the investing cult of “buy and hold.” And to be clear, that’s still a wise strategy for many sectors and trends today.
But it’s not necessarily the best strategy for the entire market. And depending on where you are today relative to retirement, blindly following buy and hold could be a horrible idea.
Instead, learn how to trade.
Specifically, that means look big picture… connect the dots between geopolitical event “X” and economic result “Y” … understand the zig and zag relationship between different asset classes… learn how to spot manic highs and lows… and take advantage of What the Bleep irregularities while you can.
Learn how to trade.
***On this note, join Eric Fry today to hear about what he’s calling “The Trade of the Decade”
Eric – our macro specialist – has an astonishing long-term track record. He’s found an astounding 41 different investment recommendations that have gained more than 1,000%. Most investors are lucky to find one or two.
And today, he’s locked onto an opportunity he believes could be the trade of the decade.
Given this, he’s put together a time-sensitive presentation that’s going live this afternoon at 4 PM ET. Eric has moved so quickly on this that I don’t have all the details.
What I do know is that it involves the hottest sector of 2022 – oil.
All signs are pointing toward a “new normal” of oil at $100+ a barrel. But we could see spikes up to $150, possibly even $200.
On this note, the latest news in the last 24 hours is that Germany is planning to end Russian oil imports by the end of the year. This is a colossal tailwind behind crude prices.
It means that even with recent climbs, top oil-related investments still aren’t priced for our new normal. This is setting up an enormous opportunity to profit – it’s the trade of the decade.
Join Eric today at 4 PM ET to get all the details. Click here to be a part of it.
Have a good evening,
Jeff Remsburg
