Not Your Cup of Tea

[Not Your Cup of Tea @texas_visigoth]

@RudyHavenstein Is this the real her, or the plastic blow-up version?

[Lee Roach @leevalueroach]

Every asset you own was partly financed in Tokyo. That funding is being withdrawn.

For thirty years Japan lent the world money for free. Zero rates. Yield curve control. A currency engineered to sink.

So capital did the obvious thing: borrow yen at nothing, sell it, buy Treasuries, Nasdaq, emerging market debt, Mexican pesos, credit, anything with a yield, add leverage, repeat until the trade became invisible. Until it was simply the water global markets swam in.

Nobody knows how large it got. Estimates run from a few hundred billion to past 10 trillion depending on what you count, which is another way of saying nobody can size the unwind until it is already running.

August 2024 was the rehearsal. The Bank of Japan raised rates fifteen basis points. The Nikkei fell 12% in a day, its worst since 1987, and the VIX printed in the 60s.

Fifteen basis points.

The policy rate is now 1%, the highest since 1995. The yen still hit a 40 year low. Tokyo has burned roughly 133 billion dollars defending it in four months, 59 billion of that in a single night last week.

On Friday the US Treasury sold euros out of its own reserve account to buy yen through the New York Fed. The last time Washington intervened for the yen was 2011, after the Fukushima earthquake.

There is no earthquake.

Underneath the currency, the collateral is repricing. Japanese gross debt sits near 256% of GDP. The 10 year JGB hit a 30 year high. The 30 year broke 4% for the first time since that bond was created in 1999. The 40 year touched 4.24%.

Which quietly flips the arithmetic for the largest pool of patient capital on earth.

A Japanese insurer buying a US 10 year at 4.7% pays away roughly 250 basis points to hedge the currency and nets about 2.2%. The domestic JGB pays 2.8% with no currency risk attached.

Japan holds 1.19 trillion dollars of Treasuries as the largest foreign owner and sold nearly 30 billion in the first quarter alone. The most reliable marginal bidder in the world has started going home, and it is going home for arithmetic reasons, which means it is not coming back when volatility calms down.

Everyone will watch the equity selloff. The equity selloff is survivable.

The bond market is where this actually breaks. Forced deleveraging and Japanese repatriation hit Treasuries simultaneously, into a market where the 30 year already sits at its highest since 2007 and the Fed just held with three members dissenting in favor of a hike.

Stocks fall, bonds fall with them, and the hedge everyone has owned since 1982 stops functioning in the same week they need it.

At which point the Fed has no good option left. Oil is driving inflation, so it cannot cut. But a disorderly Treasury market is a systemic event, so if the long end goes it has to step in and buy.

That is printing money to hold down the price of government debt while inflation runs above target, and it has a name that nobody at the podium will use.

Here is the part almost nobody models correctly. The crash is a distraction. The crash is loud, brief, and recoverable.

What follows is a decade of nominal returns that never quite keep up, of a currency that buys slightly less every year, of a central bank that keeps rates below inflation because the alternative is a fiscal crisis.

Nobody photographs that. There are no bread lines. There is a person who bought Treasuries because that was the responsible thing to do, held them for fifteen years, and ended up with two thirds of what they thought they had.

That transfer is the actual policy. It moves wealth from whoever saved to whoever borrowed, and the largest borrower in the room writes the rules and appoints the referee.

Japan built this trap over thirty years and is now walking into it in public.

US publicly held debt is at 99% of GDP, the highest since 1946, with net interest headed from roughly 1 trillion to 2.1 trillion by 2036 while the primary deficit actually shrinks. The entire deterioration is interest compounding on itself

[TreasuryBonds.com @TreasuryBonds1]

🚨 The U.S. Treasury is preparing to intervene in the Japanese yen.

This is an extraordinary move that could become one of the most consequential currency-market events in decades-

Yet 99% of investors have no idea why it’s happening and how it will impact U.S. markets.

Here’s what you need to know: 🧵

[Not Your Cup of Tea @texas_visigoth]

@dr_ericberg Cocoa is high in oxalates- hard on the kidneys?

[Not Your Cup of Tea @texas_visigoth]

@grok @LynAldenContact @crazyfarmbook To pay for stuff like roads and schools -that’s funny . . .

[Live Monitor @amlivemon]

ProPublica published a report long ago on leaked IRS tax data revealed how little America’s wealthiest families pay in taxes compared to the average citizen, underscoring the reality of two separate political economies in the U.S., one for the rich and one for everyone else. Since the late 1970s, policymakers have tilted regulations, tax codes, and market structures in favor of the wealthy, promising that lower taxes, monopolistic consolidation, and freer financial markets would spur innovation and prosperity for all. Instead, the so-called “social contract” has fueled wealth hoarding, rising inequality, and diminished opportunity for working and middle-class Americans. Pope Francis denounced this contract as naïve and unjust, sparking backlash from elites but resonating with economists like Joseph Ritchie, who recognized that “trickle-down” economics was fundamentally unstable. The U.S. economy to an aircraft with “negative stability,” temporarily aloft but doomed to crash as inequality widens and instability deepens. While some policymakers briefly considered addressing wealth hoarding, the 2017 tax cuts only intensified the problem, handing disproportionate benefits to the wealthiest while worsening deficits and undermining long-term growth.

The consequences of decades of wealth hoarding have been stark. Research shows that economic mobility has collapsed for half of Americans born after 1980, with opportunity increasingly concentrated in wealthier enclaves. RAND Corporation analysts estimate that $50 trillion in potential middle-class income has been siphoned upward since the mid-1970s due to skewed policies. Tax changes, deregulation, and globalization initially boosted growth, but they ultimately hollowed out competition, fueled monopolies, and created an overcapitalized yet underproductive economy. The 2017 tax cuts exacerbated inequality, sending hundreds of billions overseas and redistributing wealth to dynastic fortunes while adding to public debt. The pandemic further widened the gap, billionaire wealth surged by $5 trillion even as working families lost jobs, businesses, and security. Although new billionaires are celebrated for philanthropy and “stakeholder capitalism,” the underlying dynamics, asset inflation, weak productivity growth, stagnant investment, and ballooning private debt, show an economy increasingly reliant on financial engineering rather than real innovation. Productivity has slowed dramatically since the 1970s, as concentrated financial institutions chase speculative profits instead of broad-based investment. Meanwhile, ordinary families shoulder higher debt burdens while the wealthiest accumulate assets, deepening instability. Wealth hoarding by policy design has undermined productivity, worsened inequality, and placed the economy on a dangerous trajectory, one that benefits a narrow elite while threatening long-term prosperity and stability for the nation as a whole.

[Not Your Cup of Tea @texas_visigoth]

#donaldjudd #juddfoundation #marfa