WHEN INVESTING BECOMES A LIFESTYLE YOU WEAR IT!

NEW MERCH ALERT - WEALTHY RED - Limited Quantities - Grab Yours Today! CLICK HERE

JAPAN’S REVENGE FOR HIROSHIMA…

What a turn of events…as if the Moody’s downgrade were not enough, the bond market is signaling warning signs. 

On Tuesday, the 21st, the 20-year treasury auction saw weak demand, signaling buyers wanting higher yield to scoop up longer duration bonds, and secondly, the potential absence of foreign buyers. 

If the latter is true, Japan’s weak auction on Monday, May 20th, could be a sign as to why the U.S. auction was light. As reported by Axel Rudolph, Japan experienced its weakest 20-year treasury auction since 1987 and the weakest bid to cover ration since 2012.

Yields spiked on the 20, 30 and 40-year treasury. The implications are far reaching. One, it was stated that Japanese investors may repatriate funds and invest in Japanese bonds as well as rising yields on Japanese bonds could push forward the unwind of the carry trade. 

The carry trade is when you borrow at a lower currency rat In this case—Japan at .5%, then you invest in U.S treasuries at 5% and profit from the spread (4.5%). The only issue is it is not as straight forward as it sounds.

Often hedge funds and institutions put on leverage to the tune of 10 to 20 to 1 or more, and if we are talking Forex, as high as 300 to 1. They purchase in the futures market on a forward basis securing 100k contracts with a 5% cash requirement. 

Typically, this trade makes sense since Japan is traditionally stable and predictable.

After all, rates were negative for eight years from 2016 to 2024 as well as going through a period of deflation. But as of late, inflation has gone past their 2% target while in the middle of a bond tapering, which means they are in a tightening phase trying to take the excess cash out of the system. 

If they reverse course, going back to an easing cycle, this could present them with more inflation.

Rising yields present a problem for foreign investors that took part in the carry trade because a 5% move could wipe out billions of dollars forcing U.S. brokerages and investment houses to sell U.S. treasuries to cover their margin calls. 

Which could have been a glimpse of what we witnessed on Tuesday.

This has spooked the U.S. bond market and has dampened expectations for future auctions of long-term treasuries and with rising yields, the expectation is that we see a falling stock market as earnings fall victim to the higher cost of money. Could this be Japan’s revenge for Hiroshima?

To make matters worse, China has started selling their treasuries in the first quarter. 

In the first quarter, China has gone from 784 billion in U.S. bonds to 759 billion, which creates fear two-fold. One, foreign investors have flipped from net buyers to net sellers and, secondly, what if foreign investors stop buying U.S. bonds?

Remember, we are a debtor nation and need countries to own our debt to finance America and in return we have created a very stable economy backed by a strong dollar, so their money is held in safe appreciating hands. 

But what if something happens to change this dynamic and foreign investors no longer feel safe? What if we continue to see weak demand or appetite for U.S. bonds? 

This means yields will shoot up along with the cost of money. 

This will impact Wall Street as well as Main Street, potentially putting pressure on companies, forcing them into hard choices that involve laying off workers, leading to a recession or worse stagflation. 

This could be a nothing burger, but it’s definitely worth keeping an eye on the situation. Now add the potentially big, beautiful tax cut plan which could add more debt to the national debt if passed. 

 It has made it through the house. Now it’s up to the Senate. This should be interesting.

 WHEN INVESTING BECOMES A LIFESTYLE YOU WEAR IT!

NEW MERCH ALERT - BILL GATES BLACK - Limited Quantities - Grab Yours Today! CLICK HERE

WELCOME TO A WORLD OF WORKING CLASS MILLIONAIRES…

If you were to look up the word, millionaire, it would tell you that a millionaire is described as a person that has accumulated at least one million dollars in currency. A millionaire’s dollars are often seen as a symbol of financial security, but is it really?

Financial security takes on a different meaning depending on the wants and desires of the person holding the said one million dollars. 

A single million dollars, although placing you above 93.4% of the people in the United States—there is a difference between being a millionaire and having a million dollars of liquidity. 

6.6% of the United States is considered a millionaire based off of their assets, such as home, retirement accounts, and assets, but only 1.8% of Americans are liquid for an actual million. 

Most millionaires in the United States are what I call working class millionaires. And while 93.6% of the working class are ignorant of what it actually means to be a millionaire, they share one thing in common. 

They both must continue working because the distinction of being a millionaire carries more fallacy than reality. Most people have an unrealistic expectation of what a millionaire is. Most think of millionaires as a very rich and luxurious breed.

When in reality, most millionaires think and live the exact opposite. When you factor in inflation, a million dollars doesn’t have the same teeth as it once did 100 years ago. 

In fact, today a million dollars has lost 96% of its value since 1940. To be a proper millionaire equivalent to 1940, I would argue you would have to be worth at least 22 million dollars if you factor in inflation. 

Simply having a million or two means you still have to work for a living, especially when you factor in the cost of raising children and taking care of a family.  Some even float the idea that you aren’t a millionaire unless you make a million dollars per year.

I find fault in this description, even though it places you in the top .05% of the earners in the United States. It’s not what you make, it’s what you bring home—and after that, it’s what you have left over after the trappings of lifestyle consumes you.

Making what some consider an exorbitant amount money doesn’t exempt a person from living a paycheck-to-paycheck lifestyle. It’s not what you bring home, it’s what you do with what you bring home. 

What needs to be understood, is the goal or plan. Anyone can be a millionaire with the right choices and the proper execution, and this is without owning a business. This can be achieved with good old-fashioned modesty, discipline, and consistency. 

Why do you need a big house if it subtracts from your future net worth?

A home is not defined by the size of the house, it’s the feeling of comfort, family, love, and the sense you get from being at peace where you live. 

 After all, who are you living for?—your family or the neighbors? 

In my world, being a millionaire is more about the opportunity you have to enjoy the moments and the ability to leave opportunities behind for your family. 

There is nothing wrong with stepping out of what society says a millionaire is supposed to be and do and define your own existence. 

This will relieve the invisible pressure people place on themselves to compete in a race where they are the only opponent. Society makes you think you have to compete, but true happiness exists in completion not competition. 

The quicker you make this realization, the quicker you enjoy this last dance at life because you only get one so why be stiff and rigid, always concerned with what people think? How about you build the life you want instead of the cage they want you to build?

If done right, working class or not, there is a certain satisfaction you get from passing the gift of succession to the next generation. 

WHEN INVESTING BECOMES A LIFESTYLE YOU WEAR IT!

NEW MERCH ALERT - BUY THE DIP NAVY - Limited Quantities - Grab Yours Today! CLICK HERE

QUICK LINKS…

Trump Did What?…

Just When You Thought Your Table Was Clean…

Its Hard To Cut Rates When…

Thank you for reading, we appreciate your feedback—sharing is caring.

Kevin Davis Founder of Investment Dojo and Author of The C.R.E.A.M. Report