|
|
|
I didn't sleep last night. |
That was my own decision because I was too busy watching and trading Japan, which is something I do when things are getting gnarly. |
And as I said when I made my two-line prediction for 2026: my prediction for the markets is it's gonna get weird before it gets worse. |
This is a preview of what the worst side looks like. |
Because everybody everywhere is becoming an expert on Greenland, and the real problem's over there in Japan. And we've been screaming about it for the better part of a year. |
Here's your morning headline circus: |
Markets are reacting to escalating tariff threats tied to Greenland rhetoric. Trump's gonna speak at Davos tomorrow. Europe sent 34 troops to guard Greenland last week—which is 1.25 times the size of Alaska. |
So they sent enough people for a respectable beer pong tournament. |
But here's the real headline buried underneath all that noise: |
Japan's long-end bonds are going ballistic right now. |
We added 40 basis points—39 in two days—on the 30-year bond. JGB 40-year bonds are over 4%. That's the highest since they were established in 2007. |
Japan anchors the global carry trade. It's been the cheap source of funding for years. It has been the source of the plumbing for the financial sector and all of this leverage. |
We have a massive pile of capital from abroad—other nations chasing returns here. That helps boost leverage in our system and valuations in our system. |
And major crises tend to originate when that money goes home. |
Rising yields are tightening dollar funding globally. |
Remember, the dollar is the instrument of trade internationally. When there's uncertainty and when interest rates rise, it's harder to get dollars. |
This is happening in Europe right now. It's happening in other nations right now. |
The thing that really matters in the world today is what's known as FX pressure. |
You know those little things in the airport that allow you to swap dollars for euros? That's basically it. Sometimes the dollar is 1.05 on the euro, sometimes it's 1.10 on the euro. |
But if you're a bank in Japan and your balance sheet is measured in yen, customer deposits are in yen, but the assets you want to own—like treasuries and Apple bonds—they're priced in dollars. |
That money has to go somewhere. It goes to the FX swap market. |
When everybody wants dollars right now, I need you to pay me more for the right to my dollars. That extra premium is known as cross currency basis. |
And when that basis starts to rise, it indicates stress and demand for the US dollar. That's a leading indicator of stress that shows up very quickly. |
We saw this exact pattern in August 2024. |
It showed up with major unwinds in leverage. We saw it during the euro weekend back during dollar funding stress in 2011. |
The BIS talks about this. The Fed talks about this. We don't hear about it on CNBC because, to be very honest with you, it's not something that's even borderline interesting to learn. |
You kind of have to fall into it drunk on a bet. |
But once you understand it and see how it actually operates, you recognize where crises originate. |
A lot of crises originate within FX funding. |
That's why we talked about repo. That's why the Fed was transparent about repo. |
And here's what I'm watching right now: |
The FNGD has been telling us this, and people have been asking, "Garrett, why is the FNGD above its 20 and its 50 moving averages?" |
And I say, I don't know. |
But turns out that our old friend Japan is back and it's been there the whole time. |
This is leverage coming off. |
Bonds are selling off alongside equities. That's important because remember correlations—everything goes to one, everything falls at the same time. |
So here's what you need to do right now: |
Keep an eye on the FNGD. When stress has remained in the market, it shows up there first. |
Don't sell vol. Bad things happen when you're short volatility during these periods. |
Watch the UVXY. We're above the 20 on the VIX—that's enough concern for me. |
Cash is your friend right now. |
If this signal goes negative, do not be selling premium to the downside. Negative momentum leads to indiscriminate selling and you could be assigned something that you don't want. |
If you have existing put spreads that you've sold, lift them. Take the gains. |
Watch for policy coordination. This is where it gets a little gnarly and this is where policy coordination is likely going to occur. We'll see what happens. We'll see what they throw at the wall. |
Nothing else matters today. |
It's Greenland and Japan—two islands deciding what's the most fascinating country in the world. |
One's a tiny little fella in the Pacific, and one is like a bunch of sad, depressed fishermen looking for a leader. |
But only one of them can blow up the global financial system. |
And it's not the one with 34 troops playing beer pong. |
Stay Positive, |
Garrett Baldwin |
|
Japan bonds are exploding while everyone talks Greenland. Your play? |
|
|
|
|
|
|
0 Response to "Why Everyone's Talking About Greenland When They Should Be Watching Japan"
Post a Comment