No, The US Is Not Bailing Out Japan -- And Your Weekly Macro Rundown

The past few weeks have been very interesting! And oh how recent events have been the best sort of fodder for click-baiting doomsayers.

A conversation I had the other day inspires me to revisit the recent interplay between US Treasury's Scott Bessent and the Japanese Ministry of Finance.

An acquaintance of mine had bought into the notion that the US is bailing out Japan... A notion that I'm certain he gathered via YouTube, Tick Tock, Twitter, Facebook even, or perhaps any combination of these and untold other such platforms.

Suffice to say that my attempt to disabuse him of what I presumed to be his social-media-induced-outrage was not nearly as exhaustive as what I'm about to write... For him I simply expressed that the treasury's intervention had zero to do with bailing out Japan, and everything to do with containing the long-end of the US treasury yield curve.

But, since you are particularly special to me, you get the following:

Ghosts of 2022

As I've stated aplenty herein in writing and in the videos of late, we remain constructive on equities, but with a relatively short window of confidence -- that being into late this year/early next... The ultimate headwind that we've assigned high odds of developing is precisely the one that is troubling markets as I type this morning.

In a nutshell, our view in January was that when we add up record tax refunds, a recession-level budget deficit (huge net govt spending), a new Fed chair who's appointment would come with some serious strings attached, and whatever else an administration heading toward a mid-term election can conjure up to make voters happy -- well, sure, that "should" be a recipe for higher equity prices in 2026.

On Fed Incentives, And Your Complete (and Important) Weekly Macro Rundown

According to macro analyst, liquidity expert and research provider Michael Howell in this week's Macrovoices podcast, the odds of the fed hiking interest rates relatively soon are exceedingly high... As you'll see in the following, I don't entirely sympathize.

He cites the predictive ability of 2-year treasury yields: 

"It's correct 85% of the time."

And on that I concur, as this is an indicator we have tracked very closely for years.

Here's our chart (orange line = 2yr yield, white line = fed funds rate)... Note how the current setup -- historically-speaking -- virtually assures a coming fed hike:

Some Caution on the Favorable Inflation Prints, Why We Like the Yen (again), And a Few Other Things

Lots to consider this week (underneath the headlines) in terms of data, the Fed, geopolitics, yada yada.

Thus, this weekend's macro analysis will be robust.

In the meantime, the following note will bring you up to speed.

Must-Read Macro Note

Our intro to this week's macro roundup consists simply of a handful of key/telling market highlights from my commentary over the past couple of weeks.

If you’d truly like to glimpse the forest through the trees, the macro note itself -- in terms of what’s happening below the surface and how we’re positioned for it -- is a must-read!  

This Fed is Different, AI's Inflation Impact, Gold Setup, etc (video)

Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust:

Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Divergence

Now, make no mistake, I'm not complaining! I can't not like the results so far this week... That said, the under-the-surface dynamics are not remotely confirming what the headlines portend.

For example: The top panel is the S&P 500... The upward trend line captures the past 4 trading days, including today... The second panel measures the number of advancing stocks in the index vs the decliners through yesterday:

That's what's called a negative or "bearish" divergence.

As for today, so far, breadth isn't terrible, with roughly 65%/35% up vs down stocks, but still not all boats rising with the tide.

As for the sectors, once again, under the headline surface there are losses being taken in 5 of the 11 major sectors as I type:

Nothing to get too excited about, just what I view as a late-cycle dynamic to respect.