The Ripple Effects of Japan's 'Tidal Shift'

Two big winners from Dave Lashmet... C. Scott Garliss on the Bank of Japan's big move... The ripple effects of Japan's 'tidal shift'... Why gold and silver are the big winners... Why it matters for U.S. stocks... [Stansberry Research Logo] Delivering World-Class Financial Research Since 1999 [Stansberry Digest] Two big winners from Dave Lashmet... C. Scott Garliss on the Bank of Japan's big move... The ripple effects of Japan's 'tidal shift'... Why gold and silver are the big winners... Why it matters for U.S. stocks... --------------------------------------------------------------- Editor's note: Today, we're bringing you a special guest essay from Stansberry NewsWire editor C. Scott Garliss. But before we get to it, I (Corey McLaughlin) have to note a pair of huge recent winners under the Stansberry Research banner. They both come courtesy of our friend and Stansberry Venture Technology editor Dave Lashmet... The first is on Maxar Technologies (MAXR), a space-radar company that Dave recommended back in February 2019 (and re-recommended earlier this month) for its commercial set of eyes in the sky. Recently, it was announced that Maxar is in line to be acquired in a $6.4 billion deal that would take the company private. Shares of Maxar soared more than 120% on Friday on the news and Dave recommended subscribers [sell their remaining stake in the company for a gain of 640%](. That's after booking a 102% return selling a half position back in December 2019 and 691% selling another half in January 2021. The second big winner is Dave's December 2020 recommendation, Madrigal Pharmaceuticals (MDGL), whose shares soared more than 260% on Monday on positive news about a pivotal drug trial. When Dave told subscribers to buy shares, he specifically cited the company's "triple-figure gain potential." Venture Technology subscribers are now [sitting on more than a 100% gain]( and Dave recommended selling half the position yesterday and keeping the other half invested for potential future upside. This is Dave's 31st double in Venture Technology, a remarkable accomplishment. Even better, Dave also shared this pick with subscribers to our flagship Stansberry's Investment Advisory newsletter. After issuing a sell recommendation yesterday, [the Investment Advisory position in Madrigal returned around 215%](. Kudos to Dave on these picks... And congratulations to subscribers who took his advice. It's proof that even in this volatile market, you can find big winners... Now, we're switching gears and moving on to today's essay from Scott, editor of our free news service Stansberry NewsWire and a 20-year Wall Street veteran. Today, he details why a recent move in a major foreign currency could cause a ripple effect in U.S. stocks, gold, and silver... --------------------------------------------------------------- The Bank of Japan just handed hedge funds another headache... As if the year-to-date 20% drop in the benchmark S&P 500 Index wasn't bad enough, Japan's central bank just threw professional fund managers a curveball... On Monday night, the Japanese central bank raised its 10-year sovereign bond yield cap from 0.25% to 0.5%. It wasn't supposed to tighten monetary policy until after Governor Haruhiko Kuroda (the equivalent of the Federal Reserve's Jerome Powell) steps down in April. The change marks a tidal shift in the Bank of Japan's ("BOJ") policies... If you've followed global markets for any length of time, you probably know Kuroda has been supporting easy-money monetary policies for years. The BOJ's benchmark lending rate has been near zero since the late 1990s. Kuroda has led the BOJ since 2013. Despite calls from government officials to raise rates, he has refused. But the problem for Japan is those policies are destroying its currency, the yen. Inflation is also a concern, as a key number the BOJ follows recently rose above 2% for the first time since 2015. Now, if Japan were still the manufacturing powerhouse it was in the last century, a weak yen would mean lots of exports. But China has supplanted Japan as a manufacturing and exporting behemoth in Asia. And Japan, as a tiny island nation, imports almost everything. The destruction of the yen's value will only hurt Japan's aging population as the cost of everything goes up. So even a hint of strength in the yen is significant, as I (C. Scott Garliss) will explain today... Here's why I really care about this... It's all about the U.S. dollar... As the yen rallies, it will weigh on the U.S. dollar, and that change should act as a tailwind for the S&P 500... The yen is an important part of the Intercontinental Exchange's U.S. Dollar Index ("DXY"), which is a basket of six foreign currencies weighted against the greenback. The index was originally developed by the Federal Reserve in 1973 to track the trade-weighted value of a free-floating U.S. dollar. The breakdown of the index is 57.6% euro, 13.6% Japanese yen, 11.9% British pound, 9.1% Canadian dollar, 4.2% Swedish krona, and 3.6% Swiss franc. In other words, any move up or down in any of those currencies will lead directly to a swing up or down in the dollar. That's why the BOJ's unexpected tightening is causing the yen to rally and weigh on the dollar. Take a look at this chart of the yen relative to the U.S. dollar. It's showing that it has taken fewer yen to buy a dollar as of the past few months... Notice how the yen-to-dollar exchange is breaking down through the different technical moving averages as it rallies. Those moving averages have been difficult levels for the yen to break through when it has tried to rally in the past. Now, it looks like the dam has burst and momentum is accelerating lower. The change is typically a signal to momentum-oriented investors to pile on by buying the yen. The important context... It's important to put this yen strengthening in perspective relative to every other currency and central bank interest-rate policy. Here's a chart of current interest rates for the Fed, BOJ, Bank of England ("BOE"), European Central Bank ("ECB"), and Reserve Bank of Australia ("RBA")... Every interest-rate decision these central banks made has had a direct impact on 10-year sovereign bonds. They're used as global benchmarks for borrowing costs in every central-bank territory. In other words, Japan, with a 10-year yield cap of 0.25%, had far and away the cheapest borrowing costs of any global central bank in one of the most liquid currencies available. Having worked for 20 years on Wall Street at big trading firms, I can tell you the BOJ's decision will have some very consequential fallout in the investing world... If you're a hedge-fund manager looking to increase leverage to boost returns, you're always looking for cheap ways to borrow. If a fund manager knew the BOJ was dead-set on cheap borrowing costs and the country's governor said he saw no reason to change those plans while every other central bank is raising, what do you think the fund manager would do? He would borrow that currency. In other words, he would short the yen to buy any and every other asset because his cost of funds is super low. Take a look at the following chart from the Commodity Futures Trading Commission's Commitment of Traders report. It shows us the current Japanese yen net noncommercial futures positions... Noncommercial traders are better known as speculators. They're not using the contract as a hedge against a related business activity. These are one-way bets for or against an asset. And as we can see in the chart above, those speculators have been short more yen than they were during the COVID-19 pandemic. But now, while the cost to borrow is still cheap, futures positions have gone up since Monday. Shorting the yen is eating into traders' profits... After all, borrowing costs just doubled. But it's not just that... As we said earlier, Japan's central bank has changed direction. Fund managers weren't expecting anything to happen before April at the earliest. But now they have to worry about even more tightening when spring rolls around and a new governor steps into the role. Heck, Kuroda could make even more changes before then just to take pressure off of his replacement. So, if a fund manager is short the yen, what do they do? They have no choice but to mitigate risk. They need to unwind some of their yen short to either book gains or stem losses. At the same time, they have to sell whatever long position they have on the other side of the trade – for example, stocks or the dollar. In the near term, this could create another headwind for the S&P 500 as the scenario plays out. But, as I'll explain, this move is also a win for U.S. stocks... However, gold and silver should be the real winners... The yen is the second-largest weighting in the U.S. dollar basket at 13.6%. Not only will fund managers be unwinding shorts in the yen, they'll also be going long. After all, if the BOJ just tightened monetary policy before Kuroda left, what's going to happen when he's gone? It's going to tighten even more. That means the yen's rally is just getting going. This is happening as the Federal Reserve is slowing the rate at which it's raising interest rates with the end of the cycle in sight. To put it another way, the dollar is headed even lower. Meanwhile, every other central bank is still playing catch-up to the Fed. In fact, the ECB was even more aggressive in its rhetoric about raising rates at the monetary policy meeting last week than it has been all year. As the dollar weakens, gold and silver will see a tailwind. After all, it takes more dollars to buy an ounce of each of these "hard assets" when the currency exchanged for them is less valuable. Take a look at the following chart of gold versus the dollar... And the same one for silver... You can see the relationship I mentioned above... When the dollar rallies, gold and silver tend to drop in value. And when the dollar crumbles, gold and silver move higher. Here's what it means for U.S. equities... As I mentioned, the same momentum higher in the yen will weigh on the dollar... The dollar has already been under pressure due to a shift in Fed policy. The Fed is slowing the pace of its rate increases and signaling it could be getting closer to peak interest rates at 5.25%. Meanwhile, the ECB and BOE are talking up interest-rate hikes. If you've followed the Digest this year, you know we've been tracking the relative strength of the U.S. dollar. We talked about the dollar strength from 2021 through the first half of the year and how the currency was uncorrelated with stocks, meaning it moved opposite them. Then we told you the U.S. Dollar Index was taking an "[elevator ride down]( in November. And the downtrend has continued. Look at the following chart of the dollar compared with its 50-, 100-, and 200-day moving averages... We can see the dollar has broken through major levels of support. As this happens, momentum sellers will pile on, forcing the greenback even lower. In the last decade, we've seen this type of breakdown in the dollar – where it falls sharply and moves below its 200-day moving average – happen twice... once in May 2017 and again in May 2020. Many people may take this information to suggest more trouble is ahead for stocks. But that's not the case at all. In each instance, sharp drops in dollar value – relative to other currencies – have portended above-average returns for the S&P 500... A strengthening dollar hurts the margins of U.S.-based companies that sell goods abroad... If it costs more for foreign customers to buy those products, companies are either going to have to cut prices or deal with reduced sales. Sustained dollar weakness should allow S&P 500 members to capture some upside in the form of earnings and sales. So, while BOJ monetary policy may not seem like it matters on the surface, it has very real outcomes for investing. And while the past isn't always a perfect predictor of the future, in the stock market, cycles tend to repeat themselves. Based on what we're seeing, the BOJ's policy shift should underpin a steady rally in precious metals and the S&P 500 over the long run. How History Helps Us Today By breaking down historical numbers and trends, we can get a good idea of what's ahead. That's what Stansberry Research senior analyst Matt McCall does in this interview with Scott... [Click here]( to watch this episode of Making Money With Matt McCall right now. And to catch all of the podcasts and videos from the Stansberry Research team, be sure to [visit our Stansberry Investor platform]( anytime. --------------------------------------------------------------- Recommended Links: ['Move Your Money by January 1!']( Wall Street legend Marc Chaikin has found nine of the 10 best-performing stocks every year for the past seven years. And for the first time ever, he's revealing exactly where to move your money before 2023. [Click here for Marc Chaikin's 2023 road map](. --------------------------------------------------------------- ['This Is What I Told the Pentagon Last Week']( While everyone's worried about inflation, cryptocurrencies, and a looming recession, professor and forensic accountant Joel Litman just delivered an even more surprising warning when he met with top military brass at the Pentagon a few days ago. [Here's what Joel thinks you should really worry about today](. --------------------------------------------------------------- New 52-week highs (as of 12/20/22): None. In today's mailbag, feedback on [yesterday's Digest]( where we suggested thinking about how to have a great year ahead... and thoughts on a piece of mail from yesterday, too... As always, e-mail us at feedback@stansberryresearch.com. "The biggest takeaway I can come up with [on how to have a great year in 2023] is to put in bids at 10% lower than recommended prices by anyone giving investment advice, maybe a bigger discount if it is a more volatile equity. Inevitably you are going to miss out on some stocks that just run away from you. But if volatility is what everyone is saying will continue next year this gives you a good cushion and better chance for profitable trades. If you're worried about the good ones getting away buy 1/2 of your position and put a GTC [good 'til canceled] order on the other half at the discounted price. "I tried this for my son on a gold stock and sure enough in two weeks the trade triggered at a 10% lower price. "Thanks for sharing all your ideas. I love reading as much as I have time for and listening to Dan's Investment Hour podcast. Yes, Dan I'll be in touch with the gold guru Rick Rule for the analysis of the equity!" – Paid-up subscriber Jim L. "Great analogy [by B.W. in yesterday's mail]! Couldn't help but laugh, remembering the Three Stooges from my childhood years. But we are in trouble as a nation, for there are way too many Moes in leadership positions and disaster tends to follow ineptness!" – Paid-up subscriber Larry N. Regards, C. Scott Garliss with Corey McLaughlin Baltimore, Maryland December 21, 2022 --------------------------------------------------------------- Stansberry Research Top 10 Open Recommendations Top 10 highest-returning open positions across all Stansberry Research portfolios Stock Buy Date Return Publication Analyst MSFT Microsoft 11/11/10 866.9% Retirement Millionaire Doc ADP Automatic Data 10/09/08 864.5% Extreme Value Ferris MSFT Microsoft 02/10/12 743.8% Stansberry's Investment Advisory Porter HSY Hershey 12/07/07 559.6% Stansberry's Investment Advisory Porter ETH/USD Ethereum 02/21/20 451.6% Stansberry Innovations Report Wade BRK.B Berkshire Hathaway 04/01/09 435.5% Retirement Millionaire Doc AFG American Financial 10/12/12 432.7% Stansberry's Investment Advisory Porter WRB W.R. Berkley 03/16/12 411.9% Stansberry's Investment Advisory Porter ALS-T Altius Minerals 02/16/09 322.9% Extreme Value Ferris FSMEX Fidelity Sel Med 09/03/08 295.7% Retirement Millionaire Doc Please note: Securities appearing in the Top 10 are not necessarily recommended buys at current prices. The list reflects the best-performing positions currently in the model portfolio of any Stansberry Research publication. The buy date reflects when the editor recommended the investment in the listed publication, and the return shows its performance since that date. To learn if a security is still a recommended buy today, you must be a subscriber to that publication and refer to the most recent portfolio. --------------------------------------------------------------- Top 10 Totals 4 Stansberry's Investment Advisory Porter 3 Retirement Millionaire Doc 2 Extreme Value Ferris 1 Stansberry Innovations Report Wade --------------------------------------------------------------- Top 5 Crypto Capital Open Recommendations Top 5 highest-returning open positions in the Crypto Capital model portfolio Stock Buy Date Return Publication Analyst ETH/USD Ethereum 12/07/18 1,094.0% Crypto Capital Wade ONE-USD Harmony 12/16/19 1,065.7% Crypto Capital Wade POLY/USD Polymath 05/19/20 1,044.0% Crypto Capital Wade MATIC/USD Polygon 02/25/21 837.2% Crypto Capital Wade TONE/USD TE-FOOD 12/17/19 378.5% Crypto Capital Wade Please note: Securities appearing in the Top 5 are not necessarily recommended buys at current prices. The list reflects the best-performing positions currently in the Crypto Capital model portfolio. The buy date reflects when the recommendation was made, and the return shows its performance since that date. To learn if it's still a recommended buy today, you must be a subscriber and refer to the most recent portfolio. --------------------------------------------------------------- Stansberry Research Hall of Fame Top 10 all-time, highest-returning closed positions across all Stansberry portfolios Investment Symbol Duration Gain Publication Analyst Nvidia^* NVDA 5.96 years 1,466% Venture Tech. Lashmet Band Protocol crypto 0.32 years 1,169% Crypto Capital Wade Terra crypto 0.41 years 1,164% Crypto Capital Wade Inovio Pharma.^ INO 1.01 years 1,139% Venture Tech. Lashmet Seabridge Gold^ SA 4.20 years 995% Sjug Conf. Sjuggerud Frontier crypto 0.08 years 978% Crypto Capital Wade Binance Coin crypto 1.78 years 963% Crypto Capital Wade Nvidia^* NVDA 4.12 years 777% Venture Tech. Lashmet Intellia Therapeutics NTLA 1.95 years 775% Amer. Moonshots Root Rite Aid 8.5% bond 4.97 years 773% True Income Williams ^ These gains occurred with a partial position in the respective stocks. * The two partial positions in Nvidia were part of a single recommendation. Editor Dave Lashmet closed the first leg of the position in November 2016 for a gain of about 108%. Then, he closed the second leg in July 2020 for a 777% return. And finally, in May 2022, he booked a 1,466% return on the final leg. Subscribers who followed his advice on Nvidia could've recorded a total weighted average gain of more than 600%. You have received this e-mail as part of your subscription to Stansberry Digest. If you no longer want to receive e-mails from Stansberry Digest [click here](. Published by Stansberry Research. You’re receiving this e-mail at {EMAIL}. Stansberry Research welcomes comments or suggestions at feedback@stansberryresearch.com. This address is for feedback only. 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