Kei Okamura’s Post

While I posted about a high probability of an oversold bounce following the 3% decline of the S&P on 8/5, I believe it is prudent to get more conservative following the recent rally that has erased all of those losses. Two yrs ago, Russia waited to invade Ukraine till after the winter Olympics in China were over. I believe Iran could also be waiting to attack Israel till everyone returns home from the Olympics in France. Given the weaker than expected guidance from many of the AI driven Magnificent 7 names and the incremental weakening in consumer demand seen when Q2 results were reported, rising geopolitical tension might be a catalyst for a retest of the 8/5 lows this summer. I am also not convinced the unwind of the Japanese yen carry trade that has been employed for more than a decade has been fully unwound in just a few weeks with no financial casualties. For example, Long-Term Capital Management failed when Russia devalued the ruble and defaulted on their debt in 1998. From a longer-term perspective, I still do not believe we get a recession: 1) There are still over 10% more job openings than people unemployed. 2) Unemployment is still low at 4.3%. 3) The Fed is expected to cut multiple times this year. As a result, I would become more bullish upon a retest of the 8/5 lows on the S&P.

The global markets are experiencing a significant downturn, driven by a confluence of factors. The latest US jobs report indicated a slowdown in hiring, coupled with the Federal Reserve maintaining high interest rates, signaling a potential economic deceleration. Investors, reacting to these signals, are initiating a broad sell-off. Japan is particularly hard-hit due to its recent "Japan is back" rally, primarily driven by foreign investors. When the sell-off began, these investors were quick to offload Japanese stocks, underscoring the vulnerabilities of a globally interconnected economy. Europe is not immune either, grappling with its own set of challenges. Ongoing geopolitical tensions, such as the conflicts between Russia and Ukraine and the strained relations between China and Taiwan, are adding to the market instability. This situation starkly illustrates how in today's interconnected world, economic troubles in distant regions can swiftly impact markets globally. Source: https://lnkd.in/d7AfVdPb

How did major stock markets perform last week? Market returns were mixed over the last week as prices of goods and services stopped falling in China for the first time in half a year. Whilst Japan narrowly avoided a technical recession, the UK economy shows signs of a recovery from its recession experienced in the second half of 2023. Listen to our 2 minute round up here: https://lnkd.in/eS7gDKxZ #globaleconomy #investing #wealthmanagement

With economic data continuing to weaken, the selloff in AI related names following poor result and the unwind of the yen carry trade, this morning August 5th, the Vix (volatility index) was at an incredibly high 66 following a 12% selloff in the Japan stock market. The Vix has only been higher during the Global Financial Crisis and Covid. The Vix along with some other technical metrics I follow became oversold which to me indicates the odds are high we saw the short-term lows for the equity markets at the lows on Monday. However, the one potential event I worry about leading to new lows is whether this unwind of the yen carry trade leads to some large highly levered financial firm failing much like Lehman or LTCM. This is not my base case given the sharp rally in bonds has reliquefied the long-term treasuries in the banking system (the exact opposite of when Silicon Valley Bank failed last year), loosened credit conditions and helped put a floor under the interest rate sensitive beleaguered commercial real estate market. From a longer term perspective vs the next 24 hours, I do not believe we get a recession which the market seems to be discounting. There are still over 10% more job openings than people unemployed, low unemployment at 4.3% and a Fed that was already expected to cut multiple times this year.

Last Monday morning, investors woke up to a global stock market selloff triggered by dramatic market moves in Japan. In this video, we look back at the market panic that unfolded that morning. We also examine the latest market trends, analyze the positive economic and inflation data that have fueled the subsequent recovery, and discuss our strategy moving forward. #stockmarket #inflation #yen

Our latest market outlook highlights Japan’s current economic landscape. While we may face increasing market volatility due to speculation about the Bank of Japan’s future monetary policies, the underlying economic indicators remain strong. • Despite short-term market fluctuations, long-term prospects for Japan’s stock market look promising with expected growth in corporate earnings and GDP • The market faces challenges like potential rapid policy shifts by the Bank of Japan and political uncertainties, yet the outlook for medium to long-term growth is optimistic Dive deeper into our latest market outlook to gauge how Japan’s economy might perform through these fluctuations. https://lnkd.in/epEC5mTh #SMDAM #AssetManagement #JapanEquity

In a frenzy, there are lots of theories around. Last few days, financial markets were wild. US disappointing jobs report, Japan raising their interest rate - upending the so-called JPY carry trade (borrow cheap in Yen, invest elsewhere), leading to margin calls and an unwinding of trades. Some interesting talks coming out: - The "Fed Put" - Fed's emergency rate cut - Rate cut by 50% Creating a picture that things are "dire". Are things really "dire"? Maybe not. At least not yet. - Market wild swings do happen. - Leveraged players get margin calls, or go bust - But not yet at a large scale. Rest of the industries are ok-ish. Are we really expecting the Fed Put? Too early to say. PS: Put here refers to a put options contract, which traditionally protects investors against downside risk.

Big moves in Japan. 🗾 With the broad index down 12% today, investors start paying attention. The Yen strength move is accelerating and carry traders are feeling the heat. 🔥 BLoomberg's John Authers has a nice piece on the details in his (free) newsletter today: ⏩ Tokyo markets have opened the week with great drama — and it’s best to think of it as chaos theory at work. A butterfly flapping its wings in Wall Street (with some help from Warren Buffett, the Federal Reserve, and innumerable retail investors) has created a Tokyo typhoon (or morphed into a giant, markets-destroying Mothra, if you’re a fan of Japanese monster classics). ⏪ Volatilty spiked up. Lots of rotation in the market. Let's see how the next 24 hours develop. Only a quick and strong August thunderstorm or something bigger? We are positioned to weather it either way. Source chart VIX and VXN: FactSet ---- *** No investment advice. Personal opinion only. Do your own research *** ---- Not warning enough? I give you a proper disclaimer: Past performance is not indicative of future returns. As a result of currency fluctuations, the return for investors with different reference currencies may rise or fall. And finally, forecasts are not a reliable indicator of future developments. Now you know it all.

Why the Markets Are Melting Down- “In the past few years, the central banks of the U.S. and almost every other industrialized economy raised interest rates to burn off inflation. But in Japan, where economic growth has been feeble for years, the central bank declined to raise rates for fear that it might lead to a deep recession. This kept the yen relatively cheap in a world of rising rates, which helped Japanese multinational corporations sell exports in countries with stronger currencies. As a result, Japan’s stock market exploded upward over the past two years. Japan’s low rates had another side effect: They created the perfect conditions for a popular trade that may have quietly driven the surge in stocks around the world, including in the United States. It worked something like this: Macro investors could borrow Japanese yen—which, again, pay no interest—then convert it to other currencies that paid a higher interest, and invest in higher-yielding assets, like tech stocks. This “carry trade” looked invincible, as Japan seemed determined to keep its rates low. But in July, the Bank of Japan raised rates for the first time in years.”

In our latest Quarterly Market Update, Peter Watson delves into the recent fluctuations and learning opportunities presented by the markets. From unexpected declines in August to a remarkable rebound, we explore the factors driving these changes, including the impact of U.S. employment numbers and Japan's economic challenges. Watch here: https://lnkd.in/gY9Z7Mw6