Why Japan’s $20 Trillion Yen Carry Trade Unwind Could End Bull Market | Jim Welsh

Why Japan’s $20 Trillion Yen Carry Trade Unwind Could End Bull Market | Jim Welsh

too many people are bullish and it’s time then to begin to look for cracks to appear both in terms of the economy but also uh technically in various markets when people are getting crushed and they need to raise money then they sell the stuff that hasn’t gone down yet and that typically is what happens when there’s a liquidity being expensive is not a reason to sell you need other reasons that are going to motivate people to cut back. Our next guest has been a macroeconomics writer for more than 40 years. He’s been analyzing the space for decades, and he’s correctly warned of of some of the major financial calamities in the past, including the 2008 financial crisis. He’s written about that and warned about that since 2007. Today, we’ll talk about what he thinks is going to happen to markets and our economy going forward. Jim Welsh is our guest. He’s the founder and author of Macro Tides. Welcome to the show, Jim. Good to see you. Great to be with you, David. looking very forward to our conversation today. What in 2007 prompted you to be cautious about what was up ahead? What were you looking at back then? And I want to get a sense of what you were doing at the time and draw parallels to today if possible. Yeah, the main thing was I saw liquidity begin to tighten significantly in August of 2007. As you might recall, TBO rates jumped from uh I think it was 2 and a4% to almost 4% over a week. And that suggested to me, David, that there was something going on, if you will, in the plumbing of the financial markets for T bills to react like that. Uh as we got further through towards the second half of 2007, to me, things were setting up for a noticeable decline in home prices. And the reason was very simply if you go from 1965 to 2001 home prices median home prices were always about 3:1 of median income. And that made sense because banks restricted lending to onethird of person’s income. But by 2006 and 7 that ratio was up to 4 1/2 to one in large part because banks pretty much abandoned lending standards. So to me the the the table was set for a decentsized decline in home prices. I thought a recession had begun in December of 2007 and then technically the advanced decline made a peak in two uh the summer I think June of 2007. The S&P made a higher high in October. There was a pretty good divergence with the advanced decline. So to me technically and fundamentally there were reasons to expect, you know, a fairly decentsized decline. And as we got to the summer of 2008, uh to me, liquidity problems were showing up all over the place. So there were a lot of signs and fortunately I was able to, you know, kind of observe them and then write about them. Right now, I think we’ve got the opposite issue. People are talking about increases in liquidity. So we can talk about that in just a bit. But uh you told me offline you didn’t see a recession in 20 and in 2022, which is 2 three years ago. Remember when the stock markets were falling alongside bonds, bond yields were rising when the Fed was raising rates back in 2022. Everything was falling, including gold, people were talking about a recession. In fact, we had two quarters of negative real GDP during that time. Uh, but it wasn’t a recession, you said. I mean, it wasn’t officially declared a recession. People were talking about it unofficially. You don’t think it you don’t think it happened? No. as I was writing in the spring of 2022 when that kind of reached a crescendo especially after we got the second GDP report uh well you know second quarter GDP report that was slightly negative and what I pointed out at the time David is if you looked at the numbers things like inventory adjustments and trade were playing havoc with the GDP report uh more importantly things like the UN uh job growth was very very strong throughout the first half of 2022 so My take was that the fears of a recession at that time were overblown. Um, and a lot of people got sucked in because quote unquote, the official definition of recession in the past had always been two consecutive quarters uh of negative GDP equals recession. And I just felt the underlying factors just didn’t support that conclusion. It was the most telegraphed recession that never really happened. Everyone was talking about it. And you were contrarian at the time technically speaking because you were calling for not a recession. Well, now no one’s talk. Very few people are talking about a recession now. The script is flipped. Is it time to start calling for a recession then? I I don’t think so. Uh and mainly, if you think about it, the federal government’s running a deficit of 6% of GDP. You know, the deficit the last couple years has been $1.8 trillion. In addition, the amount of money that’s being spent on artificial intelligence equals about one and a half% of GDP. And I don’t think that spending is going to go over, you know, go away overnight. That said, there is a huge bifurcation in our economy in the sense of the bottom 50% of people have been under the gun for probably four years as the cost of living ramped up. Their incomes haven’t kept up um pace with that. uh the top 10% of wage earners represent almost 50% of spending and they’re deriving their confidence from what’s happening in the financial markets namely the stock market uh and so forth. So you have this split screen if you will where the top segment of the uh economy is doing really well. They’re kind of carrying the water for the rest of the economy. That’s why I think if we see a protracted bare market, which is my expectation, David, sometime over the next window of time, we’re going to enter a secular bare market. As that unfolds, it’s going to weigh on spending because the top 10% is going to be hurt where hurts the most, and that’s in their monthly statement from their brokerage firm. Uh so uh you know right now I in the near term I don’t see the justification or things lining up um for a recession. At the same time there’s some real vulnerabilities under the surface. I’m interested to know why you think a recession is not really in the cards but a bare market is. So why do you think the markets and uh the economy will diverge? And then I’ll show some charts that you’ve prepared. We can go over the technicals as well. Yeah. Yeah. Yeah. Um well again it comes down to timing. Um I think we are going to see a recession. I mean and when that next recession happens the deficit is likely to explode. You know 3 trillion or more. I think uh Treasury yields potentially are going to move up. Um and so it just we’re talking about over the next 6 months. I think the probability of a recession starting in that window of time is unlikely. Um if I’m right that we go through and you know talking about a secular bare market you’ll think oh my god well there have been numerous secular bare markets uh throughout time obviously 2000 to 2009 was a secular bare market 66 to 82 29 to 54 or 42 at least you could call it um and so it’s like a pendulum David as you well know things swing in one direction valuations get very stretched positioning gets extreme I and households have more money in the stock market now than ever before and then things unravel, you know, and the pendulum swings back. So, I think some of the problems that we’re facing, uh, in terms of government debt, the the steps that will be needed to address that, um, income inequality, uh, you know, there’s just a lot of factors that I think don’t get addressed and solved in a matter of months. It’s going to take years, much like what took place from 1966 to 1982. But we’re economically I don’t think we’re there yet. To your point, the biggest declines in the market, average bare market is about 36% when we face a recession. So, you know, again, I think things are lining up for an extended period of difficulty in the markets. I just don’t know that we’re there quite yet. Gold is one of the best assets of this year, and you already know why people hold gold. Well, it’s because it’s real money. But what if your gold could do more than just sit in a vault? That’s where today’s sponsor, Monetary Metals, comes in. They offer a way for you to earn yield on your gold paid in physical gold. Through their leasing marketplace, you can earn up to 4% yield per year in gold. Instead of paying storage fees, your bullion can now work for you. And because that yield is paid in gold, not cash, your stack grows, no matter what the dollar does. Thousands of clients already earn monthly interest in gold and silver through monetary medals. So don’t just hold it, put it to work. Go to monetary-medals.com/lin link down below or scan the QR code here to learn more and get started. Okay, I’ll get to that in just a minute. So stay tuned for Jim’s outlook on the uh the stock market and uh why he thinks maybe there’s a bit of a talk going on. I know that that’s what you said in a recent video that you posted. Uh take a listen to what Donald Trump President Trump had to say at a recent summit. It’s called the McDonald’s Impact Summit 2025. Take a listen to what he’s had to say. Oh, we heard about that. I heard about that. wasn’t true in that particular case. But for tens of millions of our citizens, the road to the American dream starts beneath the golden arches. Beautiful golden arches. So to each and every one of you, thank you and congratulations on 70 years of American greatness. Congratulations. And you know, I just might add, this is also the golden age of America because we are doing better than we’ve ever done as a country. prices are coming down and all of that stuff and you know uh they talk about different terms for that but I will tell you that nobody uh has done what we’ve done in terms of pricing we took over a mess we had the highest think of it the highest inflation in the history of our country they say 48 years it was the history of our country and now we have normal inflation we’re going to get it a little bit lower frankly but we have normal we’ve normalized it we have it down to a low level but we’re going to get it a little bit lower one perfect Okay. Uh, how would you evaluate what he said? So far, we’re going to get inflation a little bit lower. It’s normal inflation. So far, more broadly speaking, we are living in the golden age of America. Well, there’s two types of inflation. There’s the annual rate of inflation, which is just merely the year-over-year number, and that hit 9% in 2022 and is down to about 3%. I’ll point out that um you know inflation at 2% the cost of living doubles every 36 years quadruples in 72 years you know based on the rule of 72 so inflation at 3% uh is not great the other type of inflation David which has been the more difficult one and the one that most Americans are dealing with and that is the cumulative increase in inflation. So, if your rent’s gone up 40%. Just because inflation’s dropped from 9 to 3%. Sorry, I’m still having trouble making ends meet. The cost of food, uh, energy has gone up, uh, fairly significantly. So, for the bottom 50%, that’s the world they’re living in. Um, I wouldn’t call GDP growth, you know, two two and a half% is the best we’ve ever seen. Um, the inflation, yeah, 9%. Well, I remember the 1970s that was 12%. And it lasted a lot longer than this recent bout did. So, you know, President Trump, you know, there’s pluses and minuses. Uh, you know, one of the minuses I think unfortunately he exaggerates a lot of things. Um, and you know, I think that does a disservice to sometimes the bigger picture because people, you know, focus on the exaggerations and then maybe some of the meat of the the discussion. What is the bigger picture for economic growth? Inflation is now uh firmly near 3%. U much higher than was at the beginning of the year on an annualized basis like you talked about. Uh the unemployment rate is ticking up and now the Fed has to balance both unemployment and inflation. With both ticking up, they have to make a very difficult decision as to whether or not they’re going to continue lowering rates. So what is the future of inflation, unemployment, and Fed policy? Well, in the near term, David, I think we’re going to continue to see up upside pressure on inflation. Historically, there’s been a really good relationship between the ISM services uh measure of prices paid and in the uh October report, it hit 70 and that has historically led CPI inflation by about 3 months. That 70 reading is the highest in three years. So, the inflationary pressures we’re seeing aren’t just goods, which for much of the last 15 years have been negative. Um, now they’re positive, not by much, by about 1%. But goods deflation used to offset service inflation. Services comprise about 80% of GDP. Goods are 13%. So, this service inflation that we’re seeing is more sticky and problematic. And that I think is why you see this huge bifurcation on the Fed between a group of uh members who are worried about inflation and then you have a second group worried about uh the labor market and I don’t think we’re we’ve seen anything that’s going to change the mindset of those two groups uh on the Fed. Can you comment on consumer spending and consumer strength? So, we have reports actually that uh uh both the the wealthy and uh the middle class are spending less. So, here’s a report that uh that claims that um there’s signs of distress within the consumer um retail segment. Take a look at this article here from Business Insider. Middle-ass shoppers are pulling back, sending alarms through the retail industry. Uh there are real signs of distress in the way. So, Home Depot uh just just became the latest major retailer to warn that the slowdown in consumer spending is spreading. the home improvement cut its fullear outlook on Tuesday reporting weakening sales growth for Q3. Um it says here an un an expected increase in demand in the third quarter did not materialize. We believe that consumer uncertainty and continued pressure in housing are disproportionately impacting home improvement demand. So that’s one side of the story. I’ve also read in another article somewhere else that uh uh the wealthy are spending more money on on box retailers like Walmart discount stores and uh less money on going out and luxury shopping. So let’s assume that data is correct. What do these trends mean? Well, again it goes to what I was saying earlier, David. You have a bifurcated economy and in a sense that bifurcation is working its way from the bottom up. So maybe a year or two ago, the bottom third of wage earners were really under the gun in terms of the cost of living. Now it’s starting to creep upward and we are seeing a migration of middle class or upper middle class people doing more shopping at Walmart, you know, because they’re trying to save and stretch a buck. So these are all signs of vulnerability. Um, so statistically we may not see a recession, but Moody’s recently put out a report and and based on what was going on in all individual 50 states, they said 22 states were already in a recession and I think 11 were treading water. So again, you have uh an overdependence on the top 10% of wage earners. I think home prices over the next handful of years are going to decline. We are and I wrote about this earlier this year and we’re already starting to see that in some markets. If I’m right about the equity market having trouble and you know go through a a meaningful extended period where it’s weak um the top 10% are going to really pull back. So that discretionary income spending that is now you know supporting economic growth that will whittle down. one point in November of 2010, Ben Bernaki basically said, “You know what? We’re going to goose asset values and get stock prices up.” And I’m paraphrasing because that will generate more spending because after the financial crisis, economic growth was very, very sluggish. And so his take, David, was all right, if we boost asset prices, people will feel more wealthy. They’ll have a little bit more wealth and they’re going to spend it. Well, that’s great. It works significantly or maybe too well. But there’s a two-edged sword there. Obviously, if asset values decline, the very people that have been supporting the economy are going to pull back. And that’s when things will get, I think, pretty nasty. We’re just I don’t know that we’re there yet, but I believe that’s what’s coming. And that’s why I try to use technical analysis is, you know, like driving a car. You look through the front window and you want to keep the car on the road. Well, to me, technical analysis helps identify when the road is going to bend and turn so that you, you know, don’t you don’t go run off the road. Yeah. And it says here, just to your point, evidence is mounting. It’s not just lower income shoppers who are becoming more cautious with spending. Home Depot’s customer base tends to be relatively welloff, you know, homeowners and whatnot. And the chain benefits when people buy or renovate homes. So, um, what happens to markets is this, let’s back up here. When consumers pull back on spending, is that a leading or coincident indicator with what’s happening in markets and the economy overall? Well, let’s markets in particular. Does it usually lead a correction when consumers spend less or are they just reacting to what’s already been happening concurrently? I you know, it’s like a continuum. you know, you you see a small group of consumers starting to p pull back and then for whatever reason more consumers start to pull back. If and when we see the unemployment rate, you know, we have to remember the unemployment rate, I think the last time it was posted was 4.2%. You go back in the last 50 60 years, that’s a relatively low level. So that’s the other thing that’s still supportive of the economy. But if that moves up above 4 1/2% and headlines start saying, you know, unemployment at 4 1/2%. Um, then I think that’s where you see the pullback by consumers starts to accelerate because all of a sudden they’re hearing about a guy down the street they know who just lost his job and they begin to worry, hm, maybe we got to pull our horns in a little bit. So it it it’s a process as opposed to an eventdriven type of an occurrence in most cases. So, okay, I’m going to show some charts that you presented here. And speaking of technical analysis, let’s start with the S&P 500. And then you’ve got a few charts in the Treasury yields and the dollar as well. So, time to buy and hold is the title of this particular um or the caption of this particular chart and um it seems here that uh well, the caption here that you have is way above long-term trend. Yes. Can you what is this trend line that you’re drawing? It goes all the way back to the 30s. Yeah. So basically, you know, that’s showing a regression line through the S&P and as it the top half of that chart is showing obviously when the S&P gets comfortably above that uh regression line and then obviously below it. The bottom panel kind of shows um how stretched the market has become in either direction above and below that regression line. So the circles identify extremes and historically those extremes are reached at a point where people are very optimistic. The market has been doing really really well and as the market goes up most people start to put more money in. As I noted earlier, households have more money allocated to the stock market than any other time in history. So from a buy and hold standpoint, I talked earlier about secular bare markets. You can kind of see it. Those three circles were then followed by secular bare markets where the returns were significantly less in the subsequent 10 to 15 years. And so this is just a perspective from the 30,000 foot level, David, where you say, “All right, is it time to become more uh aware that the risk of a secular bare market or an extended period of underperformance in the market is becoming more likely?” My answer to that question is yes. So this just tells us what zip code are we in? Are we in a, you know, like 1982, you know, jump in with all both feet, uh, or 1974, um, you know, 2009. Obviously, that’s not the case. So this is to me just saying that too many people are bullish and it’s time then to begin to look for cracks to appear both in terms of the economy but also uh technically in various markets uh especially obviously the the stock market. I remember where I was in uh fall of 2008 right after the Leman crash. It was my first year in university. So it was my freshman year. I taken a junior uh first year economics class and we had a fun little exercise where we could invest in stocks in a fictitious simulation portfolio and I and I I I I knew nothing about finance and economics and I asked professor literally I asked the question that I’m going to ask you which is the trillion dollar question what do we buy right I mean it’s a the foundation of the entire fund management industry and I remember um he and some other students at the time said literally anything and I didn’t understand what he meant at the time, but looking at this chart, it just reminded me of that story because if you had bought literally anything in 2009 when the deviation from trend was near -2, right? You could have made a lot of money. That was the biggest bull run in American stock market history that I and some other people may have missed. Well, I was I was 18 years old, so I didn’t miss anything. I didn’t have any money. But anyway, other people who have money who didn’t get into the time missed out. So, let me ask you the same question right now. Uh if you were in the same economics class today and somebody asked you, Jim, what do we buy right now? Would you say literally anything? No, I wouldn’t. I’ I’d basically say that uh you can be fully invested at this stage of the game, but you have to have your eyes on the exit, you know, as opposed to in 2009, you could kind of like, okay, I’m going to hang on for a while. Um I don’t think we’re in the same situation. you know, the articles that you just noted and read, David, you know, about the underpinnings of the economy are starting to weaken. Well, those are warning signs. They just haven’t bubbled up to the surface yet. Sooner or later, they will. I mean, as night follows day, recessions develop and occur. So, my point is that being invested at this point in time is fine, but you better be ready to cut back. um when wheels start to come off and I you know I I’m convinced that that’s coming. I just am not convinced that today or next week is that day. You know Nvidia is going to come out with its earnings obviously on a short-term basis. Everybody’s going to react to that. Um but ultimately it’s going to come down to the economy. We the wheels are going to come off. So yeah, we’re actually speaking right after market close. Let’s see how the futures are performing here. uh pre-markets. Um Nvidia came out with their earnings I think at uh maybe 20 minutes ago. Yeah. Well, we’ll look that up uh as you as you move on to the next point. Um but okay, so currently the stock market looks expensive from a long-term trend perspective. Here’s the here here’s what I’ve remembered. Ever since I started working in the um macro business 15 years ago, people have been talking about how the stock markets are expensive on a valuations basis ever since basically 2013. I remember that seemed to be the every single month and it just kept going up and up and up and up to the point where, you know, I’m always convinced that valuations have nothing to do with the direction of the stock market. So, you know, I think that’s a fair comment. I mean, again, it, you know, let’s put it differently. Institutions and most investors aren’t going to sell because their stocks have been going up and now they’re expensive. That’s not a reason to sell. a reason to sell. Uh, and this is one of the things that I think a lot of technicians don’t pay enough attention to is you can look and say, “Wow, look at a survey show, you know, bullishness is really, really high and the market’s expensive and so forth.” But no one’s going to sell unless they have a good reason. The the business is structured to be long. Institutions buy for the long term. Financial adviserss tell their clients, “Hold on for the long term.” I think right now BFA survey showed that institutions have less than 4% of their money in cash. That’s not that unusual. So to me what it comes down to is, you know, being expensive is not a reason to sell. You need other reasons that are going to motivate people to cut back. And until that they arrive, the market can just keep getting more expensive. And again, if you look at things like the advanced decline, which I find to be one of the best technical indicators, and it’s relatively simple, is nothing more than measuring how many stocks went up each day minus the number of stocks that went down, and you use a running total. Historically, going back to 1928, David, well, let me back up. When the advanced decline is going up in conjunction with the S&P, you’re in a healthy environment. most stocks are participating. It’s when more and more stocks start to fade and the advanced decline line does not make a new high as the S&P does, you got a problem. So, this past February, I was noting that the AD line peaked in November of last year. I thought President Trump was serious about his tariffs. A lot of people thought he would chickenen out. Um, and that would be a reason to sell. and and so the AD line made a new high on October 28th, I believe. And so that is one of the signals that just isn’t in place yet. So that’s why I think historically corrections when the AD line is making new highs typically wind up being 3 to 7%. If you get a decent reason to sell, then all of a sudden 10% to 15% and as we noted it earlier, recessions, you know, is a whole different ballgame. Average decline is 36%. So looking at this stuff, the 80 line made a new high. At the same time, the second chart you’re showing, you lift it up just a tiny little bit. Top panel is the S&P. The bottom is highs and lows. So this is basically saying, all right, let’s take how many stocks made a new high today minus the number of stocks that made new lows. And what you can see is the S&P was making a higher high in October. the number of stocks making new highs was weakening. This was a sign that near-term we were vulnerable to a 3 to 7% correction from my perspective. Um, same thing if you go back to uh late last year, you can see as the S&P was making higher highs in February of this year, uh you can see that the high low indicator was well below where it had been in November of 20 uh of last year, 2024. So, these were warning signs that underneath the surface there’s weakness building. Now it just comes down to what is the strength of the reason to sell. Right now we’re seeing selling more concentrated in you know the AI related stocks which have a great you know weight in terms of the S&P but the overall market is you know isn’t getting smashed quite yet at least. So my take was that we were vulnerable to a near-term pullback. The other thing I’ll point out is the recent sharp pullback. I think it was 6631. Then the S&P rallied to a lower high and then in the last two days the S&P took out that prior low. So for the first time, simple chart analysis, David, you know, if something is making a higher high and higher lows, that’s a definition of an uptrend. What we’ve just seen transpire over the last few weeks is the S&P made a low, bounced, and then took out that low. That’s the first time that’s happened since the April low. So, what it says to me is there’s vulnerability that has crept into the equation. Um, and it’s in part why we’re seeing some of the weakness um, you know, over the last couple few weeks. So, ultimately, what do we do with this information? Do we short the S&P with the NASDAQ? Would we stay out of the markets? Or do we find certain sectors that are maybe less overbought? Um well my approach would be that these are cracks that are starting to show in the bigger picture. My bet would be seasonality is usually very favorable. Um the selling pressure that we’ve seen hit some of the AI related stocks. Some of these stocks are down 20 30%. Um so my bet would be David is we’ll see another rally as we go into end of this year early next year. And in a perfect world, the S&P will make a higher high and the advanced decline line won’t confirm it. And at that point in time, I would look at that as it’s time to become more aggressive in terms of selling and actually be aggressive and going short. So, the pieces are starting to line up. They’re just not there yet. So, I’m looking for a rebound rally. and the quality of that rally once this dust settles from this near-term weakness will tell us a lot in terms of what to expect in the first part of 2026. What about um small caps? Let me pull up a uh a chart here for you that compares large caps to small caps. Let me just uh share my screen against again if I may. This is the S&P 500. Um and then I’m going to overlay that with the Russell 2000. And as you can see, over the last 15, 13 years or so, the S&P has greatly outperformed uh the small and midcap sector um or index. Over the last five years, same story. And even over just the last uh one year or so, we’re looking at something similar as well. Let me just Yeah, let me let me just zoom into the last one year or so. So, so this this story is driven by the Mac 7, uh if you’re aware. And I there’s two ways to look at it. One, like you mentioned, way above historical uh means. That’s the S&P and the the large cap tech stocks. But on the other hand, maybe the uh small caps look reasonably valued here compared to the large caps. What do you think? Well, there’s two things that have caused that underperformance. One is the concentration and increasing concentration in the AI related stocks. I mean the top 10% top seven stocks now in the S&P I think are 37% of the index. JP Morgan said okay here’s 41 related stocks uh AI related stocks they’re 47% of the S&P. The other factor, David, is 35% or more of the companies in the Russell 2000 lose money, you know, so you really have to, you know, you definitely wouldn’t want to buy the IWM small cap ETF. You, you know, so and I don’t get down into the nitty-gritty in terms of, well, okay, there’s some companies that are small cap that are doing quite well. Um, but in terms of the index overall, the fact that so many of them are kind of walking dead, I think is one of the reasons why they’ve underperformed in addition to the the the shift over the last two years to the bigname tech stocks. How do you feel about commodities right now? We’ll talk about commodities, then we’ll talk about the treasury yields and the dollar. Um, let’s start with uh precious metals. So, gold and silver have had tremendous runs, new all-time highs finally for silver and new all-time highs for gold for quite some time. And uh some people say this is overbought, some people say this is just the beginning of an even bigger rally. Uh have you done any technical analysis on the gold and silver spaces? And what I’ve been writing about, uh my expectation coming into this year that we were going to see new all-time highs in the metals in April, I thought they were due for a pullback. that pullback turned into a sideways chop more than um uh a deep correction. This is a long-term chart going back to 2015. And what you can see is from a low of 146 in 2015, gold rallied to 2070. It then had more of a sideways chop pull back to 1616 in 2022 and then this huge move up. So, from a long-term chart perspective, David, my take is you’ve had wave 1, wave two, this spike we’ve seen in recent weeks was the end of wave three, and that we’re entering an extended wave four correction. That’ll take months. Um, ultimately, I think gold will trade under $3,500. Why? the 382 retracement from 1616 to the 4381. Uh you subtract that from 4381, I think it comes out to be 3326 or something. So I think the sentiment and positioning got way extreme in in October is a recent or survey that took sentiment 95% were bullish. It’s kind of like who you going to you know who you going to buy from, right? I mean they’re already all in. So, I just think the sentiment toward gold got way overdone. Historically, gold spikes in wave five. Clearly, that move up was a spike. Silver did the exact same thing. So, I think the um you know, gold is going to go through an extended period of chopping around. Those who are bullish aren’t going to give up the ghost right away. So, after it dropped recently, uh my expectation was a rally to 4190. It got to 4244, I think. So, I think we’re going to see near-term gold trade down close to 30 under 3,800. Price target is 3750. Do you think that gold is impacted any in any way by the overall stock market or maybe the other way around? Well, if you get extreme declines in asset prices, gold gets affected. Think about 2008. I mean, if you were a buyer of gold for the longest time, you’d say, you know what? Someday there’s going to be a financial crisis and I’m going to have my gold, right? Well, gold went down in 2008. Well, in part when people are getting crushed and they need to raise money, then they sell the stuff that hasn’t gone down yet. And that typically is what happens when there’s a liquidity problem. And certainly liquidity was a problem in 2008 that okay, I I I’m going to sell my gold. I’ve got to sell something. So, that to me is the risk to gold is when you kind of need it the most, it ain’t there. What is a safe haven when you need it the most? Is it bonds right now? Is it uh stable? Yeah. No, I don’t think so. Um, you know, as I’ve written over the last couple years, I think Treasury bonds entered a new secular bare market and people like, “What the heck is that?” Well, if you go from 19 uh 45, the 10-year yield was about one and a quarter uh artificially held there by the Treasury at that point in time for World War II purposes. But by September of 81, it hit 15 1.5%. So you had a bare market that lasted 36 years. From 1981, the tenure went from 515 12 to in 2020, it got down to 55 basis points. So that was a secular bull market that lasted uh 30 some 39 years, pardon me. So you these huge swings I mean it’s a small sample size David I don’t want to get too carried away at the same time the trend line that governed that secular bull market as yields were declining from the high in 1981 was clearly broken in 2022. Um, in addition, from the low in 2022, it’s very clearly on the the 30-year bond. You can see five waves down in price on the 30-year bond. And from a pattern analysis, five clear waves, whether it’s up or down, kind of says this is the new direction. And so since um we see we’ve seen the low in October of 23, we’ve kind of been correcting that huge decline uh in Treasury bond prices from the high in March of 2020 to the low in October 2023. On the 10-year, my belief is near-term if it gets above 4.2%. That’ll be a signal that yields are going to then I think start to move up more aggressively. And a big issue here is supply. Uh the deficit in the US hasn’t contracted. Europe uh they’re spending more on military and other issues. They’re tolerating higher budget deficits. So from a global supply standpoint, David, we’re seeing um you know, for the as far as we can see, a lot of paper coming our way. And um you know we have to compete for global money just like everybody else. Uh I think in the last couple days the Japanese the 30-year Japanese uh bond yield highest ever the five and 10 years the highest since 2008. In Germany and France those yields are the highest they’ve been since 2011 which was a crisis as you might remember in Europe. You know Greece was at the forefront of it but that led Mario Draghi to say we’ll do whatever it takes type of thing. So my point is the increase in yields isn’t just restricted to the US, it’s global. And that reinforces my belief that you know potentially we are seeing a more generalized longer term increase in bond yields coming. If you do the 50% retracement at a minimum, let me say this, the high in 2023 on the tenure was a 5%. I think we’re going to go about 5%. Now, if I wanted to take a longer term, I’d say, well, we went from 15 and a half to 50 basis points. What’s the 50% retracement? That’s 7 and a half. So, all this sounds unbelievable, but think about in 1945, did anybody could anybody have imagined that 10-year yields were going to go from one and a quarter to 15 a.5. So, stuff shows up. Um and I think the biggest issue is the US struggling of how do how can we pair our deficit and control um you know the amount of debt that’s being accumulated every year without damaging the economy and that’s really going to be tough and it you know if you want to cut 3% of debt from 6% of GDP to three that’s a lot of money that’s about a trillion dollars of government spending that would have to go away um there’s no way that that happens without GDP, you know, being uh impacted. Uh I want to highlight something else here. The Japanese bond yield is now at the highest level in decades. Let me just find out exactly. Yeah, the long-term bombing costs have surged to highest level in decades and an intensifying Taiichi trade. Taiichi is the new minister uh new administration will unveil a much larger fiscal spending package than originally ex expected. So why does this matter for foreign investors? Well, there’s this theory out there that with the yet carry trade unwinding in Japanese investors who have historically banked on lower yields uh in Japan, they could borrow money in uh and then invest and then invest those Japanese yen in the American markets um and earn a higher yield in foreign currency than in the local currency. That probably is no long going to be the case. So, let me just highlight an article here. Well, there’s one of many articles that explain this, but um here’s one particular analysis here. The analyst estimates that for every 100 basis point increase in yields adds more than 2.8 trillion yen to the government’s yearly financing burden. The analyst explained that when bond yields rise, the yen carry begins to break down. Higher yields make borrowing in yen more expensive and the currency tends to strengthen as money flows back into Japan. That means anybody who borrowed yen suddenly faces higher repayment costs. He also pointed out that the uh uh that Wellington management expects the yen to rise 4 to 8% in the next 6 months. As this happens, many leverage investments become unprofitable. Positions are forced to unwind. Margin calls hit and an estimated $20 trillion linked to yen funds uh yen funded trades can begin moving in the opposite direction back towards Japan out of western markets. Um what do you think about this? I think it’s real, you know. I mean it’s legitimate. uh because the UN carry trade uh has supported uh the US government bond market uh stocks have benefited from it. So if you see you know money being pulled back towards uh Japan and out of various assets that’s selling pressure. So you know these are the things that happen David during if you will secular bare markets or bare markets. It’s like during bull markets, just good news just shows up out of the woodwork. In bare markets, it’s the opposite. Stuff people weren’t, you know, this has been on a back burner where now all of a sudden it becomes a front burner. My take on the dollar is a little bit different than many. A lot of people in recent months after the dollar dropped 11% of you know, oh my god, we’re going to the dollar’s going to lose its reserve status and so forth. I think there’s a chance that we’re going to see a fairly significant rally over the next 12 months in the dollar index and some of it could be due to a liquidity squeeze um that develops and things like the yen carry trade I think promote that. Um so you know I think there’s a you may have a chart of the dollar that I passed along somewhere in there to look at the longer term as well as a near-term picture. Um but the the negative sentiment and positioning in the dollar index as it went down. So, just as a backup, in January of this year, I thought the dollar was topping and I thought a decline below 95 is coming. And that was predicated on this pattern that from the high at 114 and change in September of 22, which incidentally is exactly when gold bottomed at 1616. Um, you had a significant decline, choppiness. So, A down, B up, and I thought wave C could get the dollar index down to near 95, maybe a touch below. So far, it’s only gotten down to 96, I think 21, uh, in September. That well, the next chart, so longer term, what this says to me, David, is the dollar went through a multi-year correction, and I think it’s in the bottoming process. This goes back the last nine months. And you can see as the dollar traded under 100, we’ve been kind of building this base and I think if the dollar can close comfortably above 100.25 uh the recent high in day high is 100.36 it will look like it’s completed this base and you know that would project a move to 104 10 uh6 and ultimately the high that took place in January this year is 110. I think that’s on the table. But first things first, the dollar needs to break out of this base. Um, and near-term, you know, on any pullback, I think it should hold above 98. Otherwise, a retest to of the lows are possible. But the pattern, as I explained, from the high in 2022 looks like the dollar has made an important bottom. Now, it’s a question of what’s going to drive it higher. It’s interesting how you mentioned the strength of the dollar. um irrelevant or regardless of maybe the dollar losing its status as a reserve currency. It is true that uh many central banks around the world now hold more gold than treasuries for the first time in a few decades and people have been calling for the dollar to to to lose its reserve currency status for many years if not decades. Uh this trend seems to have accelerated this darization trend led by China. But it’s interesting how at the same time this has been happening, the US dollar uh the DXY has not weakened significantly. In fact, it’s gone down a little bit this year relative to other currencies. If you just pull up the DXY chart here, uh but if you look over on the longer term horizon here, it’s still up since 15 years ago or so. And you know, the dollar really just hasn’t collapsed relative to other fiat currencies. How do you expect? Well, a few months ago, I did a kind of a deep dive on the dollar index and what it takes to be a reserve st uh currency and the depth of financial markets, uh the liquidity that they provide. No one on the planet can match what we have. The amount of trade that’s still taking place as the dollar being the lynchpin um is still I think around 60%. So, we’re in a very dominant position, David, it’s going to take a lot. Now granted to your point, China and a number of other countries, you know, they they look at how we’ve used the dollar as a weapon. You know, Russia invaded Ukraine. Well, what did we do? We did all kinds of uh sanctions limiting dollar flows and so forth. So, these other countries have been motivated to try to develop an alternative to the dollar. I just don’t think it’s going to happen anytime soon. And historically if you look at the chart of the dollar um you know it has experienced pretty significant rallies when times get tough and difficult. Lastly if you long term the perspective of a president and the administration has had a greater impact on the dollar than interest rates trade and all of it. So in 1985, you know, the the Plaza cord came along and it was like because the dollar was so unbelievably strong, everybody agreed we got to bring the dollar down. Um uh and it subsequently fell from like 164 in ‘ 85 to around 87 in 1987. Um in 2001 or two, uh President Bush Treasury Secretary kind of like, “Yeah, we believe in a strong dollar.” because Ruben all during the 90s was the strong dollar is very very important and I I think the guy’s name was steel in Bush administration kind of like wink wink yeah we kind of think that dollars should be strong you know the markets took their clue cue from that in 2014 Mario Draghi was talking about uh inflation and uh bottom line was the dollar was trading at around 80 at that time I wrote that I thought a rally to 100 was coming cuz Mario wanted the Euro to decline from 160. I thought it would drop to 120. It did. So, um I just think that the negative sentiment, you know, all the articles you referenced about, oh, losing reserve, it kind of came out of the woodwork after the dollar was down 11%. Where were they a year ago? You know, my point is so um I just think sentiment and such is so negative that the dollar is poised to rally. Maybe not necessarily on its fundamentals, but sometimes the dollar benefits because other things look worse and Japan has got a lot of issues going on right now. Absolutely. And uh to close off, do you um do you foresee in a scenario in which uh other currencies or other countries rather use another de facto global reserve currency for um for a common currency or to for trade for crossber payments. Uh right now a lot of that is done the dollar and there’s speculation as to how that will look in the future. Again, um I think if we look out over the next three to five years, that’s very unlikely. Just think about what’s happening with the United States and Saudi Arabia. Our relationship is getting closer and closer. Uh Saudi Arabia has been boosting output. Uh you look at what’s going on in the Middle East and what Israel has done to kind of really damp down the the the importance of terrorist groups as well as Iran. Now, we’re talking about giving and selling F-35s to Saudi Arabia. So, if you want to develop an alternative currency, you better it has to have access to oil. Well, between us and Saudi Arabia, we’re the biggest producers on the planet. So, I I just think again, David, the discussion about losing reserve status is the kind of thing you would expect near a low, not a high. and and that’s what we’ve been seeing. So unless we see the dollar really break down comfortably below 95 uh say 9350 or something on a weekly basis, I I’m still of the mind that we’re the charts suggest the pattern suggests the dollar is going to be okay for a while. Okay, there’s plenty more to discuss. We’ll save that for another time. But that was already our very thorough introduction to the macro overview. We can talk about emerging markets next. um if you have any thoughts on foreign markets outside the US. Uh we haven’t discussed that and we haven’t talked about any other sector specific trades but uh you know don’t give away all the good information in one sitting as they say. You got to hold something back. I’m not really sure who said that. Yeah, I think I just made that up but anyway um it it does it does seem to be true. Where can we learn more about you if we want to want to get some more information out of you? Macrotides.com. Uh you can take a look at some recent videos as well as uh uh this past week’s weekly technical review if you would like to see my analysis from the 20208 financial crisis. I have a piece send me an an email jim welsh macro atgmail. Happy to send it out. And if you want any recent reports, same thing. Send an email to me at that email and I’ll send you some back information. Jim, it was a pleasure to have you on the show today. Thank you for your time. So, uh, we’ll see you again. Sounds good. Thanks. Enjoyed our conversation. David, thank you for watching. 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Jim Welsh, Founder, Author, Macro Tides, expects stocks to enter a secular bear market soon despite no immediate recession, driven by extreme valuations, weakening consumers, and technical warning signs.

*This video was recorded on November 19, 2025.

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0:00 – Intro.
1:00 – Jim’s 2007 and 2022 observations
4:20 – Market outlook
6:17 – Bear market observations and recession outlook
9:08 – Inflation and the “golden age” of America
19:55 – S&P 500 analysis and rebound rally
32:25 – Gold, silver and safe havens
35:49 – Treasury bonds
42:33 – Dollar strength and reserve currency debate

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