Tuesday’s CPI data appears to have exceeded some expectations on Wall Street and stock futures are selling off. The result: an overshoot could dash hopes of a rate cut in May and reduce the S&P 500’s SPX waltz to 5,000. The day is young.
Light: Arm’s frenetic stock rally continues as AI chase overwhelms valuation.
What could cause this market to eventually collapse? Our call of the day by former hedge fund manager Russell Clark points to Japan, an island nation whose central bank is one of the last holdouts to loose monetary policy.
Of note, Clark bailed out his perma bear RC Global Fund in 2021 after mistakenly betting against stocks for the better part of a decade. But he has a whole theory about why Japan is so important.
In his secondary article, Clark argues that the real trigger for the bear market will come when the Bank of Japan ends quantitative easing. For starters, he argues that we are in a “pro-work world” where a few things should happen: higher wages, lower levels of unemployment, and higher-than-expected interest rates. In line with his expectations, real assets began to rise in late 2023, as the Fed began to take a dovish stance and the yield curve began to steepen.
From that moment on, not everything went smoothly. He thought higher short-term rates would take money out of speculative assets, but then the money flowed into cryptocurrencies like Tether and the Nasdaq fully recovered from its 2022 rout.
“I have toyed with the idea that semiconductors are the new oil and have therefore become a strategic resource. That explains the Nasdaq and Nikkei surge to some extent, but it doesn’t explain tether or bitcoin very well,” she said.
But let’s get back to Japan and its not-so-popular explanation for why financial/speculative assets continue to trade so well.
“The Fed had high interest rates throughout the 1990s, and the dot-com bubble still developed. But during that period, the Bank of Japan finally raised interest rates only in 1999 and then the bubble burst,” he said.
He notes that when Japan began to tighten rates in late 2006, “everything began to relax,” adding that the BOJ’s brief attempts [to] the rate increase in 1996 could be blamed on the Asian financial crisis.
According to Clark, markets appear to have moved more with Japan’s bank balance sheet than with that of the Fed. The BOJ “invented” quantitative easing in the early 2000s, and the subprime mortgage crisis began not long after it removed that liquidity from the market in 2006, he notes.
“For truly old investors, Japan’s loose monetary policy also explains the economic bubble of the 1980s. According to my book, the BOJ balance sheet and the S&P 500 have a decent correlation,” she said, offering the following chart:
Capital Flows and Asset Markets, Russell Clark.
Clark says this also helps explain why higher bond yields haven’t really hurt assets. “As JGB 10 yields rose, the BOJ committed to unlimited purchases to keep it below 1%,” he notes.
The two big takeaways here? “The BOJ is the only central bank that matters… and we have to take a bearish attitude towards the United States when the BOJ raises interest rates. Given the movements in bond markets and food inflation, it’s a matter of time,” Clark said that, in light of his plans for a new fund, “a bear market would be extremely helpful to me.” He is watching the BOJ closely.
The markets
US Stock Futures ES00,
NQ00,
prolonged declines as consumer prices rose 0.3% in January and core prices rose 0.4%. The 2-year bond yield BX:TMUBMUSD02Y rose 14 basis points.
|
Performance of key assets |
Last |
5 Q |
1 m |
Current year |
1 years |
|
S&P500 |
5,021.84 |
1.60% |
4.98% |
5.28% |
21.38% |
|
Nasdaq composite |
15,942.55 |
2.21% |
6.48% |
6.20% |
34.06% |
|
Ten-year treasure |
4.181 |
7.83 |
11.45 |
30.03 |
42.81 |
|
Gold |
2,038.10 |
-0.17% |
-0.75% |
-1.63% |
9.33% |
|
Oil |
77.14 |
5.96% |
6.02% |
8.15% |
-2.55% |
|
Data: MarketWatch. Change in Treasury bond yields expressed in basis points |
|||||
The buzz
Biogen BIIB,
shares are falling due to disappointing results and the slow rollout of its Alzheimer’s treatment. An error also hit Krispy Kreme DNUT,
My Coca Cola,
is experiencing an increase in revenue. Hasbro HA shares,
is collapsing in terms of earnings, while Shopify SHOP,
it is declining even after the results.
JetBlue JBLU,
is rising sharply after billionaire activist investor Carl Icahn disclosed a nearly 10% stake and said his company is discussing possible board representation.
Tripadvisor stock TRAVEL,
is up 10% after the travel services platform said it was considering a possible sale.
First, Russia put the Estonian prime minister on its “most wanted” list. Meanwhile, the US Senate approved aid to Ukraine, Israel and Taiwan.
The best of the web
Because chocolate lovers will pay more this Valentine’s Day than they have in years
A startup wants to harvest lithium from America’s largest salt lake.
Online gambling transactions reached nearly 15,000 per second during the Super Bowl.
The graph
Deutsche Bank delved into the power of the Magnificent Seven and why they will continue to be important to investors. One reason? Almost 40% of the world’s population still does not have access to the Internet, as the bank’s graph shows:
The best tickers
These were the most searched tickers on MarketWatch at 6 am
|
Ticker |
Security name |
|
TSLA, |
Tesla |
|
NVDA, |
Nvidia |
|
ARM, |
Arm holds |
|
PLTR, |
Palantir Technologies |
|
NIO, |
No |
|
AMC, |
AMC Entertainment |
|
AAPL, |
Apple |
|
AMZN, |
Amazon.com |
|
MARA, |
Digital marathon |
|
TSM, |
NIO |
Random readings
Everyone wants this weird “It bag”.
Dumped on a message? Get your free dumplings.
Messi the dog steals the limelight at the Oscars.
Love and millions of flowers stop in Miami.
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