INVESTORS BEWARE – Fat Tail Daily
The US dollar and US bond yields flew higher in preparation for Trump. But have they gone too far now that deals are being made and the worst fears aren’t panning out? Murray shows you what will unfold if the US dollar and US bond yields start falling fast. One thing that could come out of left field is Japanese Yen carry trade unwinds. US tech stocks were hammered last time so investors should be prepared.
Last week I showed you how a rising gold/oil ratio was about to put a rocket under already bullish gold stocks.
And right on cue…
Gold prices jumped 2.3% and Brent Crude Oil slumped 2.8% over the week. My prediction is unfolding rapidly.
But the major point I made last week was that oil prices could collapse below US$70. We aren’t there yet, with Brent Crude hovering around US$74. But it’s close!
I think the most interesting development in markets this week is the moves in the US dollar, US bonds and USDJPY (Japanese Yen).
I have kept an open mind about the path of the US dollar and US bond yields while so much has been up in the air.
But Trump is starting to fire off salvos left, right and centre. Musk has his chainsaw tearing up the place and saving the government billions. Deals are being made…and the worst fears are looking overblown.
On Wednesday the US Treasury released a document outlining the planned issuance of bonds over the next quarter.
The market breathed a sigh of relief because it looks like the supply of bonds isn’t jumping massively and the maturity of supply is remaining near the short end.
What that means is that they won’t be issuing heaps of 10-year bonds, for example, which could have caused their interest rates to jump higher.
Bonds rallied impressively as a result (yields fell) and the charts are looking mighty interesting. Check out the video below to see what I mean.
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The US dollar has also come under some pretty stiff selling pressure. I think it’s important to consider the ramifications if the selling continues.
Further strength in the gold price and other commodities is one outcome. But there is another more sinister one.
No one has mentioned carry trades since markets recovered from the major sell off late last year. But the issue hasn’t magically gone away.
Japan raised interest rates last week as inflation bubbles away. Japanese 10-year bond yields have hit 1.3% (they were 0% in 2021).
The USDJPY has turned down sharply from a sell zone (watch the video to learn more) and further selling in the USDJPY could ignite the unwinding of carry trades as it did last time.
We saw significant selling pressure in the magnificent 7 stocks in August last year as investors sold out of their positions. Then they converted the US currency back into Japanese Yen to pay off their loans.
Perhaps that was just round one and we will see round two develop if the USDJPY swan dives again in future.
If you liked this week’s instalment of Closing Bell be sure to like the video on YouTube.
Regards,
 |
Murray Dawes,
Editor, Retirement Trader and Fat Tail Microcaps
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All advice is general advice and has not taken into account your personal circumstances.
Please seek independent financial advice regarding your own situation, or if in doubt about the suitability of an investment.
Murray Dawes is our resident expert trader and portfolio manager. He is a former Sydney Futures Exchange floor trader who went on to design custom trading systems and strategies for ultra-wealthy clients (including one of Australia’s richest families). Today, his mission is to help ordinary Aussie investors make profitable investments, while expertly managing risk.
He uses his proprietary system for his more conversative and longer-term-focused service Retirement Trader…and then applies the same system to the ultra-speculative end of the Australian market in Fat Tail Microcaps (this service is strictly limited and via invitation only).
