Dear Reader,
You might think U.S. banks matter most this week, given it's earnings season. But the most explosive flashpoint for the next week is right here on this map:
Now, I'll put the odds you're familiar with the Fukoku Mutual Life Company at, oh, around 0%. The Japanese life insurance company operates out of Tokyo and is among the most important buyers of U.S. bonds in the world: Japanese financial institutions.
Only something massive is unfolding in Japan right now. And anyone not paying attention could be clobbered by a potentially severe problem brewing just down the road from Fokoku.
Let me show you what's coming next week.
How Japan Fits Into U.S. Bond Problems
Japanese companies like Fukoku have been among the largest buyers of U.S. bonds over the last decade. That's because Japan's central bank has spent the last decade keeping its interest rates outrageously low and easing markets.
Japanese traders engaged in a long-term carry trade which allowed buyers to make money on the spread between the U.S. 10-year bonds (and other national bonds) and the Japanese 30-year bonds. Of course, the rising U.S. dollar (thanks to increasing interest rates) has made this trade less attractive.
Bloomberg notes that the U.S. 10-year bond might pay 3.6%. However, the new hedging cost is leading to a negative returns, -5%. So, for the first time in a decade, institutions are looking at their own domestic debt as a source of investment.
In addition, the Bank of Japan is under new management, incoming Governor Kazuo Ueda. Next week, the central bank will host its first meeting since Ueda took the reins.
The Bank of Japan has said it will not change course on monetary policy - at least not immediately.
Now, I have a very hard time believing this.
Back in December, most people didn't notice that the Bank of Japan had decided to ease its "yield curve control." This would double its long-term borrowing costs, and it showed the world that the Bank of Japan might eventually stop dumping money from the sky.
More importantly, the Bank of Japan might accelerate its own tightening process by selling bonds back into the market. This process won't happen overnight. It may take years or even a decade to get this train moving.
But the Flashpoint stems from the actions of insurance names like Fukoku.
They're selling global bonds now. They're not going to wait for the central banks to take action. They're pivoting. And that's a significant event.
Fukoku Mutual Life Insurance has about $2.9 trillion in assets, and it is a major buyer of global bonds.
Before the Bank of Japan meeting, Fukoku plans to unload roughly $65 billion in currency-hedged foreign debt holdings. This might signal a new era in the global income space - and a pivot back to Japanese 30-year bonds paying stronger yields than their alternatives.
This is the type of event that could trigger a massive liquidity crunch, the very thing that fuels negative momentum events. To make money off this, you need to follow my momentum indicators for the precise moment to begin shorting this market.
Every day, I talk about major Flashpoints like this one, position traders ahead of time, and provide actionable ideas around these trends.
I want you to be able to get the chance to follow along.
Check out how to start RIGHT HERE. Or you can call Gabe and his team at 877-212-9163, and he'll get you situated with the best pricing available.
Today's Momentum Reading
WORLD'S BIGGEST INDICATORS
Broad Market: Green
S&P 500: Green
Recap: The World's Biggest Indicator (Momentum) is Green... Another day, another rug pull. But we're still well above the line - momentum is positive. That said, we're pushing forward to trade a reversion today when this market sells off. (take advantage of the next big trend with Garrett's Hyperturn list)
Flashpoints I'm Watching
- China Boom: We just received further confirmation on the impact of magical money printing. At the end of 2022, China pumped a significant amount of liquidity through its central bank. Now, months later, the nation's first-quarter GDP reading came in at 4.5%. That figure easily topped expectations. China's economy experienced a massive boost from e-commerce and the end to its "Zero Covid" policies.
- Inflation Nation: Need evidence that America is desperate for "supply side" policies? Consider the news that U.S. Silica Holdings Inc. (SCLA) - a producer of the silica needed for glass, paints, and industrial applications - plans to increase its prices by 20% in the year ahead. This company is critical in the production of fracking sand, a critical input in the drilling of oil and gas in shale formations as well. If you think inflation is going away, you're going to be very surprised in a few years. This is a reminder that investing in commodity companies is essential to your portfolio.
- Commercial Real Estate Problems: In San Francisco, roughly 29.4% of all commercial properties are vacant, according to Coldwell Banker. This trend continues to worsen across the nation. Bloomberg reports Brookfield Asset Management funds have now defaulted on $161.4 million in mortgages on a dozen properties in the Washington, D.C. area. Overall, office properties have declined by more than 25% this year, according to Green Street. Commercial real estate (CRE) exposure will continue to rattle the regional banking space throughout the year.
Hot Long Shot
We'll talk reversions during the show. Hopefully it happens live.
What You Missed
Uncle Sam has signed away $13 billion in financing to support America's #1 threat, solidifying one insider's claim that this US company could be April's #1 investment deal.
And I was pleased to find out from Shah that the founders of this company have agreed to reserve a piece of their shares for investors who act BEFORE Thursday, April 20th.
Today, shares are going for just $4 and some change.
But nearly $3 trillion in capital will soon be mobilized for energy-supply infrastructure in the coming years.
That means the US government will be bringing hordes of companies with a solution to market faster.
That's why it's critical you use the coming hours wisely.
This deal closes on Thursday.
No exceptions will be made.
Stay Liquid,
Garrett
The post It's Not the Federal Reserve That's the Problem appeared first on Midday Momentum.
About the Author
Garrett Baldwin is a globally recognized research economist, financial writer, consultant, and political risk analyst with decades of trading experience and degrees in economics, cybersecurity, and business from Johns Hopkins, Purdue, Indiana University, and Northwestern.