Alright so the US just announced at 50bps cut this week.

It wasn’t completely unexpected, but along with the narratives I’ve been hearing and my analysis, I have a decently big strategy shift I want to make now.

Getting rid of long term US bonds

So re-reading my post on buying LT US bonds, I see that the main logic WAS to hedge against the yen carry fluctuation in case US does big cuts in face of a recession.

That would essentially increase my liquidity and reduce my loss in such a scenario, and indeed it played out where I was down around HK$~30k and got back around $6k from the bonds.

Not nearly enough, but eh better than nothing.

In any case, I’ve decided to remove the entire carry position (more below), and it doesn’t quite make sense to hold bonds now.

Furthermore, from what I’ve heard, the global M2 supply has been flat or even down and the USD has been strong these past couple years, but that will probably change with the “easing” that they’ll be carrying out – recession or not.

So reducing my “USD” positions seem to make more sense and short-term note is the ultimate 99.99% risk-free liquidity so I’ll hold onto that regardless, but long term bonds, it’s just risky without the rewards now.

Getting rid of all yen-carry positions – for now

This one I had to think about it long and hard for a while.

Because in the long term I am still bullish on USDJPY and I think it would be a profitable position to hold.

However, holding this position reduces my liquidity – if the equity market goes down, USDJPY most likely will go down as well.

And if I had to hold risky positions, I could just hold less USD cash or notes and invest in the market to get the same effect.

So the conclusion I’ve come to is, I should use the yen-carry as an “emergency liquidity” instead.

If and when the market goes down by a significant enough amount, my US and JP stocks will fall and I’ll want to buy into weakness.

However buying into weakness requires liquidity and that’s where, beside using the USD cash and gold, I can also tap back into this “stored liquidity”.

As an added benefit, I’d also then be buying USDJPY into weakness and I can “pay back” this borrowed liquidity when the market recovers and most likely the USDJPY will recover as well.

Anyway this is quite complicated enough I’m still trying to wrap my head around clearly and set up a good strategy around it. In any case I’ll reduce it to zero now, and maybe after the market drops X% then I’ll buy X amount USDJPY up until a max % of portfolio.

Although this does have the same problem as before where a USDJPY purchase on margin is a negative expanding position – so need to manage that extremely carefully.

The amount in LT bonds just perfectly cancel out the USDJPY carry so there is that.

Reducing US short-term note holding

Or in other words, reduce USD cash holding.

With the M2 increasing, both USD and JPY are probably going into decline.

Or two side of the same coin, assets prices are going to go up.

Of course in that case, buying stocks would make the most sense. But stocks comes with the risk and liquidity issue.

So while I AM somewhat considering maybe slightly increasing the allowed percentage in US and JP stocks, I think it’ll make the most sense to rotate the USD mostly into gold first.

It might lag behind equity but at least it’ll be a good inflation hedge – not to mention the increased demand from central banks etc.

I’ll slightly increase the bitcoin holding as well since it’s an inflation hedge on steroid.

In the medium-long term I think it’ll be an inflationary world. Geopolitical tensions, government debts, green energy … all inflationary.

With that said, some 99.99% risk free liquidity is needed so I’ll still keep a decent amount here – maybe around 6 months of expenses.

I’ll write out the details in my monthly reports, so I’ll keep things in the general strategy here for now.

Increasing Gold + little bitcoin … + little US/JP stocks?

As mentioned the reduced USD position need to go somewhere.

Mostly it’ll be gold.

A little bit of bitcoin.

Probably make sense to increase just a tiny bit on equity as well.

And gold will mostly act as the reserve or the liquidity lever to rotate when equity goes to shit and I need to buy into weakness. Also as mentioned, the yen-carry will help here too.

Initial thought:

• USD notes -6%
• Gold +3%
• bitcoin +1%
• US equity +1%
• JP equity +1%