So last night the CPI data came out – lower than expectation.
Not even that low, but the Sept rate cut probability rose from 70% to 90%. 10-year rates dropped 2% in a matter of hours.
USD.JPY dropped 2% and the market dropped 2% as well. JP market dropped 1.5% as of 9:15 this morning.
The triple-punch scenario
US rate drops ….
- then USDJPY drops. -25% of portfolio is in yen shorts
- shouldn’t be directly related but US equities drop
- when US equities drop, usually drag down JP equities as well
With a 2% US 10-year rate drop, USDJPY dropped 2%, and the market fell 2%. JP market opens soon but if it also drops 2%, then my entire portfolio can go down as much as 1% – a HKD20k drop in a single day.
I did get a HKD40k gain in June and already HKD50k gain in first 10 days of July, so the -20k would just be returning a portion of that.
But it’s still scary and it’s only 2% drop. If it’s a 5-10% triple punch that could mean a 5% hit on the entire portfolio and -HKD100k situation.
The long-term bond rate movement
Luckily per my last post, I decided to put some position into long-term bonds ahead of time.
It’s currently a 5.5 year to expiration bond and it went up 1%. With a HKD100k position I got $1k back.
Not a lot but better than nothing.
It’s an instrument that
The Gold price movement
As predicted, with such a huge rate drop, gold moves up by 1.3% – with a HKD150k position that’s a $2k recovery.
Along with LT bonds that’s a total of 3k recovery of the 15k … better than nothing but I think I want to hike it up a bit.
I’m bullish on gold in both short-term and mid-term anyways so I’ll probably move this up to 10% as well.
The mindset
Although LT bonds and gold can offset the punch a bit, it can still hurt when it comes.
But as Howard Marks says, you need to take risks that rewards you. No risk means no reward.
So I am happy putting 30-50% portfolio in both US and JP equity, 30 being risk-off and 50 being risk-on.
Right now it’s at 40% and with a small adjustment I’m taking a HK$15-20k hit. If the 5-10% adjustment comes then I’ll give back what I made this month and maybe some from last month.
But if the bull market continues I can be positioned to make quite a bit. It’s a good risk to take and I’ll need to keep reminding myself of that during downturns.