They went from -0.1% to 0.1% to 0.25% now. It may not seem like much, but the latter is a 2.5x increase, the former, well...
In any case it appears to have caused an unwinding of the yen based carry trade, i.e. borrowing in JPY and using it to purchase foreign stocks/bonds/etc. The unwinding leads to a stock sell off, and a lot of yen buying to settle those loans
On its own I don't think that the rate increases make the carry trade unprofitable. My guess is the large investors can see the potential of the spiral so have started to sell as early as possible before the yen appreciates too much, but in doing so have triggered it. Good for those that already got out, not so much for the rest.
I don't think so, because it was already predicted to be likely that the US Fed would lower rates by the time Japan raised theirs. The jobs report from the US sealed it.
Right, the article doesn't make sense. The Yen jumped on the rate hike (meant to combat inflation.) Both the hike and the increase in the Yen is going to result in an unwinding of the carry-trade. This then puts further upward pressure on the Yen as investors buy Yen to pay back those debts.
Correct, everything right has to do with Bank of Japan moving to strengthen ¥ as it has lost over 40% of its value over the last 3 years. Many people using it as an interest free loan to trade are having to quickly unwind positions. This of course creates a temporarily unstable market that’s highly volatile as it finds equilibrium.
I expect the FED to announce a 25 basis point cut this week.
I've stopped assuming that the stock market has any real meaning. Last week a Danish newspaper reported on how amazing the market was doing, breaking records and all that jazz. Then this morning: "Carnage", "Global collapse".
If the economy can change that much over the weekend, then the traders, stockbrokers, Wall Street, whoever, is doing a pretty poor job at pricing companies.
Two years ago: Oh no, the housing market is collapsing, interest rates will force people to sell their homes. Nine months later, after a slight slowdown in sales and everything is back doing better than before... Back to being massively overvalued.
It depends how you look at it. As someone very wise once said - “In the short run, the market is a voting machine but in the long run, it is a weighing machine.”
Short term movements are mostly bullshit and the press tend to amplify it, obviously. Like this morning - "carnage" etc. What ? NVidia is trading at 96 as of now. Market cap of 2.5 TRILLION $, for a company that made a profit of 29 Billion $ in some exceptional circumstances. Previous best year was ~10 Billion $.
After this morning 'collapse' Nasdaq is still ~10% up YTD. UP, not down !
In the long term the markets mostly make sense actually. But somehow, we are more interested by the short term drama.
I think you misread the situation. People with money who can spend their time following the markets and the real news but also can pay other people to do this, found out earlier than the average person will, about the collapse. So they planned on selling at the highest price possible. To do this, they buy an article on a "newspaper", or maybe they own the newspapers, to tell the average person either to buy, or at least to not sell, because look "the markets are great!"
There is a psychological effect, when you hear the same thing multiple times and even from different sources. People tend to believe it. The problem is that the many different newspapers are controlled by the same individual. Also when you meet your friends and talk about it, they will tell you the same story. And you tend to believe it, because they are your friends. But your friends probably have the same life like you do, so they read the same newspapers. So they shouldn't count as "another opinion".
Not insider trading, but market manipulation certainly. Though as everyone doing it is mostly big enough only those doing it on things like reddit have any chance at all to get charged.
Insider trading would require some material knowledge specific to inside company. Taking a position and then getting others to take same position is not that.
If those markets include outsized volatile stocks, such as tech stocks, then yes the market will be volatile.
Even with better than forcast revenue last quarter, Google dropped.
With only around 7 stocks making up around 20% (or perhaps higher) of the S&P500, and all of those being fairly volatile tech stocks, that market has the very likely chance to be booming one week and not the next.
Hedge your bets, choose different markets, spread the exposure.
> I've stopped assuming that the stock market has any real meaning
Perhaps, or perhaps the media coverage is what lacks any real meaning. With 401k's and index funds, a substantial portion of the US and other countries populations are invested in the market passively, without having any real understanding of it. Hearing about the ups and downs will always be popular ways to sell attention, and the average person isn't well equipped to become meaningfully educated in market movements; until (/ if) the passive investing bubble pops, that will always be the case. I think even well intentioned, news media's coverage of the market will always be superficial with a hint of gloom and doom, because that's how we're all wired to greater and less degrees.
Of course it will. But it’s impossible to know if it’s 3 weeks, 3 months, or 3 years. Hence why options are tricky - you need to be right about direction and time.
Market usually trends upward if looking on the scale of years, decades. investors can work off that. The people who barely get by paycheck to paycheck are devastated.
> If the economy can change that much over the weekend, then the traders, stockbrokers, Wall Street, whoever, is doing a pretty poor job at pricing companies.
The opposite is true, if they didn't move much within a short period of time then the market would likely not be very efficient. The inefficient part is all the rest, labour markets taking time to adjust, governments changing policies, central banks injecting / removing liquidity. Things change fast in the real world all the time - markets are just usually the first to reflect it.
> markets are just usually the first to reflect it.
Maybe, but they have a history of overreacting to pretty much everything. Prices drop 10%+ in a day, without actually waiting to see if policy changes will be implemented. Frequently the market drops pretty massively, only to recover within a few weeks.
I have a romanticised view of the stock market, where people invest long term, in companies they believe in. The real stock market will punish a company if it makes a decent profit, if that profit is less than someone guessed 12 months in advance.
Maybe the stock market needs to move away from HFT and focus things 2 - 5 years into the future. Imagine if you could only sell stocks at the end of each quarter. Short term think hasn't exactly left us in a good place.
> If the economy can change that much over the weekend, then the traders, stockbrokers, Wall Street, whoever, is doing a pretty poor job at pricing companies.
One country invading another country can happen over a weekend. A bunch of terrorists / freedom fighters may do some action over a weekend. A bunch of investors (independent of each other) may decide to do a bunch of profit-taking and rebalancing over a weekend.
New information and perceptions of old information can occur over a weekend (or a day, or an hour).
> The financial markets are absolute bullshit.
Market prices are thought to reflect the currently available information of companies and commodities, but—to paraphrase William Gibson—information is not evenly distributed.
Hedge funds have been known to use satellites to get an information edge:
As new information becomes known, or 'old' information becomes more widely known, investors re-assess what they think things are worth.
If it becomes (more) known that inflation has gone up/down, or unemployment has gone up/down, that has implications on what the economy is doing and will do in the future, what people ("consumers") will do, and how they will spend (if unemployment is rising, people may save more and spend less, lower revenues/profits, etc).
Reality changes due to people's decisions, that impacts companies (and commodities), and that impacts how much a company may be 'worth' going forward.
Stock market PLUNGED!!!! I don't even listen to media coverage of the economy or stock market anymore. Most of them failed that subject before they started and the small sliver that do know what they are talking about at all could have a vested interest in moving needles.
NASDAQ will be absolutely massacred in the morning
As someone without a home, I am uncomfortable with how happy I am about this news
I’ve felt like since they perhaps prematurely mass printed cash early in the pandemic, there’s been an absurd amount of capital that’s been incorrectly allocated
Most misallocated capital from my perspective was funnelled into the rent->landlord->real-estate value pipeline (especially for supply-choked Australia and Canada)
I do also think some stocks have been grossly overvalued, for example, NVIDIA’s stock price; CUDA is objectively not worth $2 TRILLION
Perhaps in the future 2020-2025+ will be taught in economics for the ills of speculation. Money should not be too uncoupled from utility. Things like credit are important to keep capital flowing, but there needs to be much more scrutiny into assets inflating beyond what utility they can possibly provide long term
It’s almost like every market, all at once, has been caught in a bubble
Our much needed recession is here. I hope every inflated market is corrected accurately this time around
In some ways, the good times beget the bad, and the bad times beget the good
> Perhaps in the future 2020-2025+ will be taught in economics for the ills of speculation.
Everyone says the same thing on every crisis. And even though people do study those crisis later, we don't seem to be learning very much about how to avoid them in the future.
If we keep bailing 99% of the culprits the new people in charge have no incentives to change. Some people are benefiting from these, it's designed to be that way
The real mistake is thinking that these are bad things that should be avoided. Anyone who has been to a casino knows that is patently false. It is just another round at the table.
The younger generation in much of the world is looking at the most unaffordable housing market in generations. Anything that lowers the price of home ownership could possibly help them buy.
Unfortunately, as many from 2008 will tell you, a crash leading to more affordable housing and living for you only works if it crashes for everyone else but you manage to stay afloat (aka keep your job, and be relatively sure you won’t lose it at any moment). Otherwise you crash with the housing.
Somebody commented that they put their life savings in NVDA couple of months ago on some discussion here about AI. Their thesis was AI was going to replace us all so might as well own the top AI company.
I knew we were close to top when I saw that. But I do think this is creating buying opportunity for some other non bubble stocks that never recovered like NVDA did.
The market will be fine, Wall Street got caught taking a ton of zero interest loans from Japan to buy US stocks and now they're having to pay up. The vested interest in keeping the line going up will outlive us all.
The mass printed cash has a home since day 1. The bank doesn't actually create money by printing, but by giving loans, in this case to major corporations and however was to benefit from this injection of cash.
The fine print no one tells you about is that these first beneficiaries basically gets a lot of money before it hits the wider economy, so they get money pre-inflation. When it trickles down to the masses like us, inflation and price rises have already hit. However perfect pricing information might be encoded in the stock prices, their effect is not instantaneous.
This is one mechanism by which companies and rich people get even richer during high inflation and volatile economy. That is, unless you buy into the insane Keynesian concept of inflation being a lack of spending.
They meant that the bad news will affect them in a bad way, yet they are happy, probably due to other, positive, effects of the bad news, on the world/markets.
I am genuinely worried me and my cohort’s lifespan 1996-20XX will be a period with an economy that continues to be as dysfunctional as it has been
Especially worried it will never be addressed, or will take painful (see: revolutionary) measures to address the challenges
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Where I live (Australia), we’ve had a decade of a conservative government. We finally voted in the more progressive party and instead of addressing the economic issues we’re facing, they’re strategically playing a small target platform (ie not introducing any substantial measures).
I personally don’t see the Australian or Canadian economies being equitable until ~2035-2040, where the cohort at birthrate peak (boomers) begin dying en masse.
Australia is a place of genuine demographic economic inequality for those born here, and still fairly economically adversarial to skilled migrants, let alone those who actually need an escape to a better place
There will. It is absolutely necessary to occasionally have some form of recession to rebalance capital towards productive ends. Not allowing this to happen since 2008 has caused its own problems.
It is like the Mexican restaurant near me that has never come back to the business it was doing before covid.
The business is completely dead and just hanging on. People would view the business going under as negative but right now it is a complete waste of resources and the owner's life.
I suspect there is a staggering amount of business in this exact situation but we don't seem to believe in creative destruction as a society anymore.
Floating all these zombie businesses is just tinder for a larger fire that is harder to put out than it should be. No real shock the spark would be a yen carry blow up. I have seen this episode before.
if you think from the perspective of people who can't really build any wealth and are just slaving away with nothing to show for it - you can understand why they see it that way. Lets be honest, 80% of building wealth is just what time period and what country and what socioeconomic class you were born to
That's a pretty bad take and you're setting yourself up for disappointment if you think a market crash will lower home prices. Home prices are high because of too little construction and we're now going to get even less.
Housing crises are generally a function of policy and markets, not, er, land. Like, the US is pretty sparsely populated and has one. Ireland has a particularly nasty one; again, low population density.
In the Irish case it’s largely down to an attitude after the financial crisis that Ireland would go back to its old pattern of bleeding out the working-age population through emigration, and therefore there was no need to keep the construction industry on life support in the way that other countries did. When this did not come to pass there was a problem; building shut down completely from 2008 to 2014, and while it’s now back on stream, there’s such a huge deficit from the period of no activity that it’s hard to overcome in the short term. Ireland currently has about seven times more housing starts per year per capita than the UK, and it’s still not good enough.
This is a case where a recession, coupled with bad policy, made a housing crisis far, far worse.
"My" recession is still being gaslighted by the US government as not happening. Japan has officially been in/out of a recession for over a year, so they at least got over the denial phase. Probably won't make many calls in the US until 2024 is over.
>I hope every inflated market is corrected accurately this time around
House always wins. So I'm not holding my breath. Doubt even a recession would kill off all the AI speculation. Maybe a depression would, but the economies is very different from the 30's depression.
It's unfortunate as Japan just has picked up NISA [1] (kind of IRA) and some excitement around that has been growing. They needed more time to get comfortable with investment vs. let their savings sleep in the bank accounts.
I hope they don't take this lesson as "investment is scary, stay away" but stick to their investment.
Days like today usually look pretty bad but in my experience they tend to start really low and then reverse throughout the day.
I’m quite short right now, short TSLA, NVDA, and QQQ so it will be a good day but I will likely close half of my positions or more and then wait for another opportunity to short again. I don’t think it’s over but I do think it bounces after around 10:30am EST
Overall I’m looking for NASDAQ to drop 50% or more over the next year.
The nVidia Cisco parallel I think is reasonable but AI is also the current version of the 90s/2000 Internet growth engine. So it will be huge.. the trough of despair may not be avoidable however, but as sure as digitalization, AI will take over.. AI is definitely winner take all except for the open source part of it which levels the playing field somewhat.
I believe we have reached 85-90% of what AI/LLMs will achieve with current technologies, and further progress with be asymptotic. I don’t believe more parameters were make them
better and companies will spend billions training and realize this.
I also think there will be a huge war in terms of AI-consumable content and many content creators will sue AI companies that use their content without licensing it. It’s going to become extremely expensive for new AIs to get trained in my opinion, and businesses still won’t be able to make money from them.
As always and as ever, the blame for overpriced assets goes to... investors themselves. Who else? Investors of all stripes, driven by greed and FOMO, are the ones who have been bidding prices up, either by not cashing out or by buying in at ever higher prices, sometimes with leverage.
At every instant, every investor has the choice to cash out or avoid overpaying when prices get out of hand. But few investors ever want to do that when prices are rising. Individuals like Warren Buffett -- who has been avoiding overpriced assets and accumulating low-yielding cash for years -- are few and far in-between.
Please don't blame government treasuries or central banks for the behavior of investors. They brought this unto themselves. If investors want someone to blame, they should look in the mirror. As Isaac Newton said after he lost huge chunk of his wealth in the collapse of the South Sea Bubble[a]:
"I can calculate the motions of heavenly bodies, but not the madness of people."[b]
Yes, in fact I am in Sapporo right now, SapporoChris. I was earlier in Okinawa when the rates were still 160 yen to the dollar, but the current conversion is not bad either.
The consensus seems to be that the gain is caused by the Bank of Japan raising rates on July 31, hinting at more raises. Yen has had historically low near-zero rates, so this raise strengthened their dollar.
On top of that, many traders were involved in a "Yen Carry Trade". Meaning they were borrowing Yen (because of the near-zero rates which beat out the 5% USD rates) and were using it to trade equities, crypto, whatever.
When the Yen started gaining against the dollar, these traders were actually losing money (since they were short Yen due to their Yen-denominated debt). This caused an unwind, meaning the traders wanted to close their positions (sell their equities, crypto, whatever) and buy back Yen to repay their debt, which pushed the Yen up further.
That, plus the trade was highly leveraged, so when yen rates went up the traders were asked to provide more margin. To meet the extra margin required they needed to unwind at least some of their position.
It’s not entirely wrong even though there has been a 12% change the last month or so. The Yen is still historically cheap VS USD. Last time I was there you got like 110¥ for 1$. It’s around 140¥ today. But yeah, going there a few months ago would have been better.
It is time for some war eh? Last time when something similar happened there was asian crisis followed by Gulf WAr, and then dotcom bubble burst following 9/11 and Iraq War.
Now we have something similar with asian crisis (including Chinese economy this time) and AI bubble.
this war is irrelevant. it is a low intensity conflict with no real path for further escalation (unless nukes are involved). resource potential of both countries is at a limit. so it won't fit.
Another one - Iran vs Israel but they don't have a direct border so it is also a no...
Apparently the Pizza index was very high on Friday-Sat. This tries to imply that we are close to war when a lot of pizza is ordered on a weekend and bars are empty in the DC area.
We need more money for the various ongoing wars and higher energy prices until the system collapses completely. At least in Europe/Japan, who now buy overpriced U.S. LNG.
"The U.S. has become the biggest exporter of LNG to Europe, as EU countries have raced to replace Russian fuel following Moscow's invasion of Ukraine in 2022. Over 60% of U.S. LNG exports went to Europe in the last two years."
Biden paused new approvals, ostensibly because climate, non-ostensibly to keep prices high and Europe obedient. The obedience goes as far as stationing new nuclear missiles in Germany.
Let's hope that after 10 years of war Ukraine finally wins and the couple of Lithium rich square kilometers in the Donbas go to Blackrock.
