The line about long-duration equity multiples carrying unacknowledged duration risk is the part that connects directly to what we track. A stock trading at 80 or 100 times earnings is really a bet on discounting decades of future cash flow at a low rate, so it behaves less like a stock and more like a long-duration bond. If Japan genuinely stops being the reflexive, price-insensitive buyer of foreign duration, the discount rate embedded in every one of those high-multiple growth names moves against them regardless of what the underlying business does. Most investors are watching earnings risk on these names. Very few are pricing in the rate mechanism sitting underneath the multiple itself.
Japan has spent decades being the example of ultra-low rates and easy money. If that era is truly ending, the implications go far beyond Japan. Global bond markets, currency flows, and even borrowing costs elsewhere could all feel the ripple effects. Definitely a story worth watching closely.
Trump’s relentless push to make the US economy a third world economy will move the meme currency, the US dollar, to a more realistic valuation and truly destitute the US. We will not only be at the poor side of the table, we won’t have a seat at the table.
Good write up. Agreed that this is a structural change that will move fast once more flows go towards Japan. I have come to the same conclusion in my write up of the yen carry unwind.
I find a constraint in government deficit and debt situation. Can the BOJ afford to let rates rise a lot? How will that impact the ability of the Japanese government to service the debt? They do not have a primary surplus, and anyway, with debt 240% of GDP or so, the surplus would have to be huge. How could this play out in your view?
The line about long-duration equity multiples carrying unacknowledged duration risk is the part that connects directly to what we track. A stock trading at 80 or 100 times earnings is really a bet on discounting decades of future cash flow at a low rate, so it behaves less like a stock and more like a long-duration bond. If Japan genuinely stops being the reflexive, price-insensitive buyer of foreign duration, the discount rate embedded in every one of those high-multiple growth names moves against them regardless of what the underlying business does. Most investors are watching earnings risk on these names. Very few are pricing in the rate mechanism sitting underneath the multiple itself.
Japan has spent decades being the example of ultra-low rates and easy money. If that era is truly ending, the implications go far beyond Japan. Global bond markets, currency flows, and even borrowing costs elsewhere could all feel the ripple effects. Definitely a story worth watching closely.
Perhaps the moral of the story is, “America, get your fiscal house in order and live within your means.”
Better hope the EU doesn’t follow suite, which seems pretty likely in their need to be insulated from America’s continuing insanity.
Trump’s relentless push to make the US economy a third world economy will move the meme currency, the US dollar, to a more realistic valuation and truly destitute the US. We will not only be at the poor side of the table, we won’t have a seat at the table.
You are 100% wrong.
There is might be an Islamic Republic of Japan after all
Great writeup. Japan is essentially saying "Omae wa mou shindeiru" to TLT and SPX. https://tenor.com/view/omae-wa-mou-shindeiru-gif-18621093
Good write up. Agreed that this is a structural change that will move fast once more flows go towards Japan. I have come to the same conclusion in my write up of the yen carry unwind.
Thank you! We both agree.
You believe that US risk asset prices are set by Japanese rates.
I find a constraint in government deficit and debt situation. Can the BOJ afford to let rates rise a lot? How will that impact the ability of the Japanese government to service the debt? They do not have a primary surplus, and anyway, with debt 240% of GDP or so, the surplus would have to be huge. How could this play out in your view?
“The Islamic Republic of Japan” comment by trump added gasoline to the fire.
Rising oil price ,might fuel further inflation. Leading to further interest rate rise to dampen the inflation.
No one is buying our debt, we’ve bad mouthed our Allies, tariffed them into other markets.
If this is an experienced businessman, we’d be in better shape, right?
If this were a competent person, who could understand that it may not be wise to raise tariffs on our creditors, we would be better
Excellent. Well done.
Thank you!!
Sell America for cheap, better a little than nothing before it is not worth anything!
¥533 trillion equals $3.3 trillion