August. Time for a well-deserved holiday. Or so we thought. The markets thought otherwise. The causes: “sudden” fears for a US recession, and the unwinding of the infamous USD/JPY-carry trade.
A few posts and pictures to give an overview.
“Fear is back…
CNN’s fear index going from Greed to Fear in a matter of days.” – 2 August 2024
“JUST IN: Over $2.9 trillion has been wiped out from major indices and stocks this morning due to growing fears of a global recession. This is the worst day for stocks since March 16, 2020, during the COVID-19 pandemic fears.” – Charles-Henry Monchau, 5 August 2024
“How can we explain what just happened to a 10-year-old? In fact, the financial world is making itself immortally ridiculous. The Japanese stock market fell 12% after the sudden interest rate hike exposed a huge hidden leverage.
For years, Japanese interest rates were at zero and everyone and their mother could borrow money for free in the land of the rising sun to put it to work elsewhere.
'Sensible' parties used it to buy higher-yielding bonds, but the temptation was of course great to finance shares and cryptos with this as well. That's going a bit faster, right? And then also earn a lot of money from an ever-decreasing yen. Only win!
Until the most certain side of the affair turned out to be no longer so certain. Ueda (not the one from Feyenoord) suddenly raised interest rates to get the yen out of the doldrums and that worked better than he had hoped. The dollar yen, which rose from 100 to 160 in a few years, suddenly plummeted from 160 to almost 140...
What remains is an explosion of premium on the stock market, resulting in a sell-off in Japan that is unprecedented but has largely recovered a day later.
Buffett, or rather Munger, already said it: Ladies, Liquor and Leverage, that's what will destroy the stock market boys. On to the next crisis!” – Nico Inberg, 7 August 2024
“Fast forward 3 weeks and find the differences. We’re all back to normal: Neutral, bordering on Greed. Again, all seems back to normal, and we ‘forgot’ the nasty start of August.” – 28 August 2024
As a summary, August 2024 captured in a fan-favorite picture.
Sources: CNN, Charles-Henry Monchau, Nico Inberg, Jacob King, Bloomberg, translation by LinkedIn
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