THE YEN CARRY TRADE

 As the market melted down our email in box filled up with the same question: "What do I do Rumpole?"

The answer is simple. You buy when people panic sell. In the last 100 years that strategy has worked every single time. Of course you must buy quality. Apple. Amazon. Nivida. Broadcom. Meta. But this strategy always works. 

Here's an interesting take on what contributed to the meltdown. 

The Yen Carry Trade. 

Since 2016 Japan has had a very low and stable interest rate. So savvy institutional investors borrowed the Yen at a low rate, converted the Yen to US dollars and then invested those dollars in a high yield investment. For example, an investor borrows ten million dollars' worth of Yen at 2%, converts to US dollars and buys a stock that is paying a 6% dividend. Their profit is 4% - which on ten million dollars is a sweet 400,000 a year. 

BUT recently the Bank of Japan started raising interest rates trying to stimulate inflation to grow the economy. Now that plan backfired for many reasons, causing more suffering in the long dormant Japanese economy. But the unintended effect was that it caused the potential loss  of tens of billions of dollars (if not more)  with the Yen Carry trade- which caused traders to unwind their trade the only way possible- SELLING the US stocks they had bought with borrowed Yen. Thus- the start of selling which then caused panic selling. 

So what do you do? You do what Rumpole did yesterday afternoon. Buy 500 shares of Amazon; two hundred shares of Apple; 500 shares of Nividia. You nibble at the bargains and increase your position. And if like Rumpole you generate cash selling covered calls, you then watch those call options expire with no one who paid you for the right to buy your Nividia stock at 135 by August 16 (when it was at 130) and its now 106. And of course you add to that position so come September you can sell more covered calls for cash. 

Life tip- if you can analyze and understand why people are panicking, you can profit beyond  your wildest dreams. It just takes intelligence, independence, and courage to stand alone (sorry DeSantis drones, you're out on those qualities). 

This is not investment advice. This is us explaining what we do. We are not qualified to give investment advice. We are qualified to cross examine lying witnesses and write about DeSantis drones and pick out good wines at restaurants. That's it.