Overnight Market Panic

Japanese Carry Trade Explodes and Sahm Rule Recession Triggers.

Return always wants its risk payment.

Two major events are happening at the same time right now. The Japanese carry trade is blowing up pouring fear into ALL ASSET CLASSES and the Sahm rule, designed to signal the start of a recession, has officially been triggered in the US.

Collapse in Japan will roll into all assets. Limit Down.

Japanese government's balance sheet is, simply put, one giant carry trade.

Why hasn’t this carry trade collapsed in the face of the massive global fixed income sell-off in recent years? BoJ keeps government funding costs at zero or negative, despite rising inflation. This has led to a massive yen depreciation, boosting the value of Japan's foreign assets. The government benefited from both FX and fixed income legs of the carry trade, while falling real rates have also favored asset owners, particularly wealthy older households.

The BOJ can either sit back and watch the economy collapse or reverse last week's rate hike and aggressively ease up to save the Nikkei. Either way, Japan's game is over…

“% above 200ma” indicator for S&P 500 has been a one for medium and long term trends. Support is closer to 5150.

On July 2020 we wrote our thoughts on a Long AMD: Short Intel trade

Since then:

AMD +145%

Intel -61%

Intel just announced they are suspending their dividend. Stay away.

Buffett sold 390 million shares here. Timing is Everything.

Sahm Indicator

There was never a rally in small caps.

Exxon revealed the second-best Q2 earnings in company history thanks to the recent closing of the $63 billion Pioneer acquisition.

ARM: Wait till $80-85.

Alibaba continues to outperform in this turmoil.

Thank you for reading —GMG