My Name is BOND. New BOMB for Share Markets World Wide.
25th May 2025
My Name is BOND. New BOMB for Share Markets World Wide.
Dear Investors,
Namaste! War – small or big is the new narrative for the share market volatility. Anything happens to the market – War is the culprit. The average investors are so brainwashed with the MEDIA’S given NARRATIVES that they forget the realities of the market or the truth for the market movements. Tom Dick and Harry are relating to the market movements with the WAR. In life and in the market – things are not that easy to pinpoint.
There are tons of factors working at various levels and as investors we need to keep watch on all of them.
The RECENT developments: -
Moody’s downgrade the US Credit outlook from AAA to AA1. As per the figures – the US has debt of USD 36 trillion and it is 125% of the GDP. In 2024, the budget deficit was USD 1.8 trillion and this year the same is expected to cross USD 2 trillion. As a percentage of the GDP – the deficit was 6.4% in 2024.
How CASH CARRY ARBITRAGE affects the Share Markets?
Before I deal with the above – let me share an Indian example. About 3 years back – we were allowed to make multiple time applications in the IPO with the help of a loan. Say you have Rs.10 lakhs and you take a loan of Rs.4.90 Crs and you make an application for Rs.5 Crs. You pay the interest on Rs.4.9 crores for 15 days. In the good issues – people still used to make tons of money even after paying the interest of Rs.10 lakhs to Rs.15 lakhs for the 15 days.
Big money in the world follows the above rules only. The HEDGE FUNDS borrows from one nation where the interest rates are low and invest in the other nation where the interest rates are high. So far JAPAN has near ZERO rates and the USA has 3% rates for the 30 years bonds. So, by taking a loan from JAPAN and investing in the USA – one can make 2.5% minimum ( you must have heard about YEN CARRY TRADE in the MEDIA). When the amount is in BILLIONS or TRILLIONS the returns are super-duper high on the basic capitals.
Last week the Japanese PM said JAPAN is doing worse than that of GREECE. Japan’s DEBT to GDP ratio has gone up to 216%. Thanks to this the BOND rates have spiked to 3.18%. Now, those who took the loan at .5% have gone for a toss. They are at a huge loss.
With this perspective – let us go back to the USA.
US debt has gone up as told above. The ratings are down. It means the RISK of default is high. So, the 30 years bond rates have moved up to 5.10% per annum. In spite of FED reducing the rates – bond yields are not coming down!! Something unusual happened for the first time in the last 40 years.
In the last auction the TAIL i.e. gap between the market’s expected rates just before the auction and the actual rate the treasury ended up paying. The auction has a TAIL of 1.2bps, it was the worst in over a year.
This created the panic in the share market. S&P tanked 1.6% and Nasdaq 1.6% on Friday. This was not TRIGGERED by WAR / GDP or INFLATION DATA!! This is the BOND. The new TICKING BOMB for the markets.
How are the ripple effects?
When bond yield goes up – the borrowing costs also move up. With the high borrowing cost – interest rates on mortgages / credit card / car loans / housing loans / personal loans moves up one side. This will have cascading effects on the real economy. People will postpone their purchase of the NON-ESSENTIAL items. This will also affect the high borrowing of corporate profits as their interest cost will move up.
This will affect the valuation of the stocks. With the high interest rates, FUTURE VALUE OF STOCKS comes down. Say nearly risk FREE return is 5% in the USA BONDS – so the returns from the stocks must be higher. With the high interest rates most of the stocks will not look appealing. People will feel safer investing in the bond.
The shrewdest investor of the US – Mr. Buffet is sitting on USD 300.87 Bln bond investment at 4.89% interest!! Total bond market is USD 6.15 trillion. It means Buffett is controlling USD 1 for every USD 20 moving in the bond market!!
How are other markets doing?
The biggest holders of the US treasury – CHINA and JAPAN are selling US bonds and buying precious metals. They are not buying due to WAR!!
Look at gold and silver prices – they are moving up. Cryptos are moving up. Bitcoins made an all-time high.
What is the likely scenario?
With Moody’s downgrade the lenders will ask for more rates. Moreover, a huge amount of DEBT is maturing this year and over the next few years. The US will have to get them REFINANCED. With the above scenarios – the rates will move up more than going down. Now, you will understand why TRUMP wants the FED to reduce rates at a faster pace. But the FED chairman knows the ground realities and he is not budging.
With this BACKGROUND – let us see the TRUMP BEHAVIOUR:-
Trump also knows the reality of the US. He wants to correct the situation. But the problem is he wants to correct the same at the speed of thought.
He is doing more harm to the USA by his reckless measures than helping the USA.
What is the concluding FACT?
1. Rakesh got 90% of his wealth after the age 50. Warren Buffett got 99% of his wealth after the age 50.
2. In India, earlier normal middle class people used to buy the house after the age 50.
3. Today some brain washed young investors are made to believe that they can make billions by playing in CALLS and PUTS in WEEKLY EXPIRY.
4. Some others are brainwashed in another way. They are told – MUTUAL FUND SAHI HAI. SIP SAHI HEY. This is another poison.
REAL INVESTMENT is in DIRECT EQUITY and it is in BETWEEN – CALL AND PUT and MUTUAL FUNDS.
If you want to make tons of money and if you have patience for 3 years – approach me. You will bless me for life.
Wish you happy investing.
Follow me on Twitter @hiteshmparikh /
Learn a Lesson. Live with Passion & Invest with Reason.
Hitesh Parikh.
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