Once upon a time, before George Soros was a liberal activist, he was a great trader. That’s where he made money to fund his cause.
As a trader, Soros may be most famous for beating the Bank of England.
In 1992, the UK was trying to tie its currency to the European Interest Rate Mechanism, the predecessor of the Euro. BOE needed to support sterling prices to be part of the ERM.
Soros believed there were too many economic differences between Britain and Europe for the plan to work. His analysis showed that the price the BOE needed to defend was too high. He didn’t think England had enough money to do it.
Confident in his analysis, he began betting against the pound in the summer of 1992. As the pound rose, Soros increased the size of his bet. He was about $10 billion worth of pounds short when the Bank of England threw in the towel and allowed the pound to fall.
Soros traded well because he believed the market was stronger than the central bank. Today traders may come to the opposite conclusion.
Since 2009, central banks like the Federal Reserve have been the single biggest factor behind incredible stock prices.
Both the Fed and the European Central Bank (ECB) have pushed interest rates to levels that seemed impossible in 2007. No one expected interest rates to go negative. Still, the ECB achieved its goal. (The Fed stopped at zero.)
Such low interest rates effectively required investors to buy stocks, as bond yields rarely beat inflation.
But now both of these banks are trying to undo their heavy-handed policies without causing bankruptcy. They may thrive even if these changes lead to years of bear markets in their respective stock markets.
But the Bank of Japan (BOJ) is in a league of its own…
And because of its behavior since 2008, it now threatens the entire global economy.
break the bank of japan
In 2023, the Bank of Japan will push the real interest rate on 10-year government bonds below 1%, and after five years it will be in negative territory.
To do this, the Bank of Japan, like all central banks, bought its own government bonds.
Aiming for ultra-low yields on 10-year bonds is costly. In the first month of this year, the Bank of Japan bought his $265 billion in government bonds. This equates to about 6% of Japan’s annual GDP. And that was just a month after purchase.
The current Bank of Japan Governor Haruhiko Kuroda, the driving force behind this policy, will resign in April.
according to wall street journal, Kazuo Ueda succeeded him. He should attend his April 27-28 and his June 15-16 meetings.
Mr. Ueda holds a Ph.D. in Economics from MIT. He was a classmate of former Fed Chairman Ben Bernanke. He and Bernanke shared the same advisor, Dr. Stanley Fisher.
Written by Ueda Nikkei A July 2022 newspaper reported that the Bank of Japan’s policy of targeting negative 10-year yields was problematic. He said speculators could target banks. And he advised Japan on its exit strategy from ultra-accommodative monetary policy.
That means that he will abandon that policy when he becomes governor.
But it’s not easy. The Japanese government bond yield curve shows that interest rates rise sharply above his decade.
If Ueda tightens policy quickly, interest rates will skyrocket. That would result in big losses for bond portfolios. Insurance companies and pension funds will face a crisis. This happened in the UK during Liz Truss’ short-lived prime ministership in his September. The UK is currently in a deep recession.
If Ueda moves slowly, speculators will attack Japan’s financial markets. We will also buy the yen as it will benefit from rising interest rates.
This is potentially bad news for exports, which make up about 18% of the Japanese economy. This is almost double his 10% of economic activity accounted for by US exports.
A slowdown in exports could threaten Japan’s growth, a risk the Bank of Japan cannot accept. No matter what Ueda does, he faces a crisis. Japan’s policy has created a perfect storm in global financial markets. Luck is made and lost as circumstances change.
Soros is probably too busy being a liberal activist to trade this now. But it’s not.
US stocks are the safest trades for US investors. To be clear, I don’t mean buy them.
That is, short them out.
Japan is headed for a global recession
A policy shift in Japan would trigger a global liquidity crisis. Hedge funds facing losses in Japan will be forced to sell other assets to cover margin calls. At times like that, I often sell US Treasuries and stocks. This will push up interest rates and cause an economic slowdown.
The US market is the largest and most liquid in the world, so shorting US stocks is the most easily accessible and potentially the most lucrative way to trade this situation.
Japan could trigger a global recession later this year. The best traders focus on short-term opportunities to navigate what has the potential to be the most exciting market of our lifetime.
One such trader is my friend Adam O’Dell. Like me, he is well aware of the systemic risks facing global markets today. And he’s not sitting idly by.hello find a way to profit Let everything shake.
To be clear, Adam is not necessarily advising his subscribers to go bankrupt with the Bank of Japan.
The deal he has in mind is much simpler. And it doesn’t actually even involve a short circuit.
His trading method involves limited, measured risk and a potential reward far higher than any short-term trade.
If he is right, by joining multiples of your money before the end of the year.
Check out the details of Adam’s deal — which he first revealed earlier this week — Here.
nice to meet you,
Michael Carr Editor, one trade