Good morning:
I do trade a lot from trend analysis, but I think when it comes to REAL moves, you have to examine the fundamentals carefully. By which I mean the treasury yield.
US02Y, US10Y, and US30Y are the major curves that I look at daily and there was a significant climb yesterday. As the Bank of Japan announced it would control the USDJPY forex, it also stated the monetary policy would remain unchanged - ultra-loose and negative interest rate. Although you might be thinking "How does that have to do with the US market?" One thing we have to know is the amount of treasury the Japanese government holds.
Up to today, Japan holds roughly 1.2 trillion U.S. treasury, just behind China. If they would like to suppress USDJPY below its "145" benchmark, it needs to sell its dollar and buy more Japanese Yen. How would they do that? Of course by selling treasury! And that means - a heavier sell-off for the US treasury is kicking in, which would drive the treasury yields even higher, to an extent that Fed has to follow.
But that's not the end of the story: the BoJ still maintains ultra-loose monetary policy, which fundamentally would trigger more and more capital outflow from Japan to the United States, not only for a "safe haven", but also a higher treasury payoff. Thus, I perceive this action to be a "death spiral", which I mean the government would sell more treasury to control USDJPY, but the Japanese would sell more of its yen as it's worth more than the intrinsic value, which forces the Japanese government to sell more treasury, an endless loop.
Thus, I do think treasury yields could go significantly higher, due to BoJ's irration decisions, and at this place I am not even mentioning Bank of China - which might control the USDCNH forex as well, and China has roughly 1 trillion dollar worth of US treasury as well. Would the yield after a possible trillion dollar sell-off, with the Fed selling it too? My bet is this would end up causing a heavy recession, and Nasdaq, in the short term, might survive roughly 10,000 points. But in the long run - which I mean by the end of this year, or January, I would not be surprised to see a HEAVY drop similar to the one happened in 2008 or Dot Com. Of course the MEGA-caps would not fall that much back in 2000, but the smaller tech companies - especially those held by Cathie Wood(no offense) - would probably get 1/10ed, again, or maybe even bankrupt.
I do trade a lot from trend analysis, but I think when it comes to REAL moves, you have to examine the fundamentals carefully. By which I mean the treasury yield.
US02Y, US10Y, and US30Y are the major curves that I look at daily and there was a significant climb yesterday. As the Bank of Japan announced it would control the USDJPY forex, it also stated the monetary policy would remain unchanged - ultra-loose and negative interest rate. Although you might be thinking "How does that have to do with the US market?" One thing we have to know is the amount of treasury the Japanese government holds.
Up to today, Japan holds roughly 1.2 trillion U.S. treasury, just behind China. If they would like to suppress USDJPY below its "145" benchmark, it needs to sell its dollar and buy more Japanese Yen. How would they do that? Of course by selling treasury! And that means - a heavier sell-off for the US treasury is kicking in, which would drive the treasury yields even higher, to an extent that Fed has to follow.
But that's not the end of the story: the BoJ still maintains ultra-loose monetary policy, which fundamentally would trigger more and more capital outflow from Japan to the United States, not only for a "safe haven", but also a higher treasury payoff. Thus, I perceive this action to be a "death spiral", which I mean the government would sell more treasury to control USDJPY, but the Japanese would sell more of its yen as it's worth more than the intrinsic value, which forces the Japanese government to sell more treasury, an endless loop.
Thus, I do think treasury yields could go significantly higher, due to BoJ's irration decisions, and at this place I am not even mentioning Bank of China - which might control the USDCNH forex as well, and China has roughly 1 trillion dollar worth of US treasury as well. Would the yield after a possible trillion dollar sell-off, with the Fed selling it too? My bet is this would end up causing a heavy recession, and Nasdaq, in the short term, might survive roughly 10,000 points. But in the long run - which I mean by the end of this year, or January, I would not be surprised to see a HEAVY drop similar to the one happened in 2008 or Dot Com. Of course the MEGA-caps would not fall that much back in 2000, but the smaller tech companies - especially those held by Cathie Wood(no offense) - would probably get 1/10ed, again, or maybe even bankrupt.
Star Platinum - The World!