WEBVTT 1 00:00:06.120 --> 00:00:09.780 - Your firm is a believer in investing in Japan. 2 00:00:09.780 --> 00:00:11.790 Yes. Can you tell me about that? 3 00:00:11.790 --> 00:00:14.100 - And we're the number two player in Japan ETFs in the 4 00:00:14.100 --> 00:00:18.390 United States behind, you know who, so we're right there 5 00:00:18.390 --> 00:00:21.690 with Goliath in Japan, assets and ETFs here. 6 00:00:21.690 --> 00:00:24.300 You know, if, if you're thinking about Japanese equities 7 00:00:24.300 --> 00:00:25.530 and the rationale for them, 8 00:00:25.530 --> 00:00:27.690 nothing has changed in the last month or so. 9 00:00:27.690 --> 00:00:30.090 The corporate governance reform continues a pace. 10 00:00:30.090 --> 00:00:32.310 In fact, they just recently announced in the last day 11 00:00:32.310 --> 00:00:34.740 or two that they're going to really encourage the, 12 00:00:34.740 --> 00:00:36.600 the remaining companies that are still trading 13 00:00:36.600 --> 00:00:38.520 for less than book 14 00:00:38.520 --> 00:00:40.920 to basically disclose why they haven't gotten up 15 00:00:40.920 --> 00:00:42.420 above book just yet. 16 00:00:42.420 --> 00:00:45.060 I think that there was a lot of risk taken outta the system 17 00:00:45.060 --> 00:00:47.880 with the reversal of the yin carry trade a few weeks ago. 18 00:00:47.880 --> 00:00:51.090 By many estimates, maybe 50 to 50% to two thirds 19 00:00:51.090 --> 00:00:53.670 of the yin carry trades that were on got washed outs. 20 00:00:53.670 --> 00:00:57.060 There's a weekend washout that occurred from that. 21 00:00:57.060 --> 00:00:59.610 And again, going back to the fact 22 00:00:59.610 --> 00:01:03.120 that human beings don't want to have egg on their face. 23 00:01:03.120 --> 00:01:05.010 The street still believes that the Bank 24 00:01:05.010 --> 00:01:07.380 of Japan will probably give us one more hike 25 00:01:07.380 --> 00:01:08.550 inside this year. 26 00:01:08.550 --> 00:01:10.260 And I'll tell you, I wouldn't wanna be running the 27 00:01:10.260 --> 00:01:11.640 Bank of Japan and do that. 28 00:01:11.640 --> 00:01:14.070 It's easier for me to just not hike at all, 29 00:01:14.070 --> 00:01:16.590 rather than have something blow up in October 30 00:01:16.590 --> 00:01:19.080 and have them say, aren't you stupid? 31 00:01:19.080 --> 00:01:22.050 Didn't you see what happened in August when you hiked rates? 32 00:01:22.050 --> 00:01:24.060 So the surprise that you see outta the Bank 33 00:01:24.060 --> 00:01:26.340 of Japan is surprise no hikes. 34 00:01:26.340 --> 00:01:28.650 And that puts the end carry trade back on ever 35 00:01:28.650 --> 00:01:32.520 so slightly risk assets in a bull situation from that. 36 00:01:32.520 --> 00:01:34.890 - So you think they're gonna look at that situation 37 00:01:34.890 --> 00:01:36.660 that happened a couple weeks ago 38 00:01:36.660 --> 00:01:39.270 and just be like, you know what, we're not gonna, 39 00:01:39.270 --> 00:01:42.810 we're gonna let this carry trade thing continue for the sake 40 00:01:42.810 --> 00:01:45.600 of stability. Is that right? 41 00:01:46.590 --> 00:01:48.570 - Yeah, and well also, you already had, 42 00:01:48.570 --> 00:01:52.620 because the yen was at 1 62 suddenly strength into 1 42. 43 00:01:52.620 --> 00:01:57.390 It settled about 1 47, 1 48 as as we're talking right now. 44 00:01:57.390 --> 00:01:59.790 That was the tightening of policy. 45 00:01:59.790 --> 00:02:02.190 The whole point of hiking rates was, hmm, you know, 46 00:02:02.190 --> 00:02:03.690 maybe we can get this outta the one sixties 47 00:02:03.690 --> 00:02:04.800 and into the one fifties 48 00:02:04.800 --> 00:02:06.810 and then suddenly, whoops, 49 00:02:06.810 --> 00:02:08.460 we sent this thing into the low one forties. 50 00:02:08.460 --> 00:02:09.810 So that is the tightening. 51 00:02:09.810 --> 00:02:12.570 That would be the thing that would mitigate the inflationary 52 00:02:12.570 --> 00:02:14.190 pressures is that we're no longer at 53 00:02:14.190 --> 00:02:17.100 so super yen weakness there. 54 00:02:17.100 --> 00:02:21.030 And again, also, I mean this is a country where I think, 55 00:02:21.030 --> 00:02:23.430 I think inflation is becoming 56 00:02:24.660 --> 00:02:26.160 a normalized concept. 57 00:02:26.160 --> 00:02:29.010 I think people are comfortable with two percentage points 58 00:02:29.010 --> 00:02:31.680 of inflation or thereabouts wage negotiations. 59 00:02:31.680 --> 00:02:32.910 Were in the fives. 60 00:02:32.910 --> 00:02:34.110 So you could actually get a little bit 61 00:02:34.110 --> 00:02:36.300 of a consumer story in that country so long 62 00:02:36.300 --> 00:02:38.220 as the BOJ doesn't upset the apple cart. 63 00:02:38.220 --> 00:02:39.570 And I think that there was a level 64 00:02:39.570 --> 00:02:41.580 of embarrassment over there in August. 65 00:02:41.580 --> 00:02:44.190 So human beings be being what they are. 66 00:02:44.190 --> 00:02:46.800 My wager is, I don't think they're gonna hike anytime soon. 67 00:02:46.800 --> 00:02:48.300 - If they did hike this, 68 00:02:48.300 --> 00:02:53.190 the carry trade fallout might not be over. 69 00:02:53.190 --> 00:02:55.290 - That would be the theory. So let's say we walked outta 70 00:02:55.290 --> 00:02:57.000 this room and it was, 71 00:02:57.000 --> 00:02:58.770 and there was a surprise middle of the night. 72 00:02:58.770 --> 00:03:01.150 'cause it's daytime here. Oh yeah. Surprise. 73 00:03:01.150 --> 00:03:03.760 Middle of the night hike for reasons on unbeknownst, 74 00:03:03.760 --> 00:03:04.810 we have no idea why. 75 00:03:04.810 --> 00:03:06.010 But that would occur. Yeah, 76 00:03:06.010 --> 00:03:08.410 the yen would strengthen off that reaction. 77 00:03:08.410 --> 00:03:11.230 And then if you think about what was your borrowing in yen 78 00:03:11.230 --> 00:03:13.150 to, what were you buying? 79 00:03:13.150 --> 00:03:15.100 Maybe you were buying Bitcoin, maybe you were 80 00:03:15.100 --> 00:03:16.780 buying AI plays. 81 00:03:16.780 --> 00:03:19.000 It's kind of the opposite side of that trade. 82 00:03:19.000 --> 00:03:21.340 These were the things that were most upset in the August 83 00:03:21.340 --> 00:03:23.530 action, the early August action 84 00:03:23.530 --> 00:03:25.750 and Japanese equities themselves. 85 00:03:25.750 --> 00:03:28.060 Those were basically the things that were on, 86 00:03:28.060 --> 00:03:31.030 and those would seemingly unwind under, under that kind 87 00:03:31.030 --> 00:03:34.270 of adverse shock, that sudden thing that would surprise us. 88 00:03:34.270 --> 00:03:38.500 And you would, you would wake up and would see, you know, s 89 00:03:38.500 --> 00:03:40.270 and p 500 tech would seemingly be 90 00:03:40.270 --> 00:03:41.980 underperforming on that news. 91 00:03:42.850 --> 00:03:45.940 There would be headlines along the lines of, oh man, 92 00:03:45.940 --> 00:03:49.180 the carry trade is, is back on as a risk factor. 93 00:03:49.180 --> 00:03:50.620 Are we going to tank the markets? 94 00:03:50.620 --> 00:03:53.200 These would be the types of risks that would be, 95 00:03:53.200 --> 00:03:54.880 the market would be confronting. 96 00:03:54.880 --> 00:03:59.830 But again, who's putting on a ncar trade here other 97 00:03:59.830 --> 00:04:02.650 than someone who was able to withstand 98 00:04:02.650 --> 00:04:04.240 that shock and get through that. 99 00:04:04.240 --> 00:04:05.620 So I think it was one of those things 100 00:04:05.620 --> 00:04:08.800 where it's a known quantity. 101 00:04:08.800 --> 00:04:10.450 The ncar trade can reverse. 102 00:04:10.450 --> 00:04:12.790 Now September and October rolls around. 103 00:04:12.790 --> 00:04:14.890 If you're putting it on, it's because you double checked 104 00:04:14.890 --> 00:04:17.050 and triple checked your risk parameters. 105 00:04:17.050 --> 00:04:19.030 Called over management to also look at it 106 00:04:19.030 --> 00:04:21.430 and got every quant in the shop to look at it a third time. 107 00:04:21.430 --> 00:04:23.715 So I, I think we're probably okay. 108 00:04:23.715 --> 00:04:25.300 And you can see it from the action in the tape. 109 00:04:25.300 --> 00:04:26.920 We're we're rallying again. Thanks 110 00:04:26.920 --> 00:04:27.920 - A lot, Jeff. 111 00:04:27.920 --> 00:04:29.710 - Much appreciated. - And thanks for watching. 112 00:04:29.710 --> 00:04:31.750 Check out more@qz.com.