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Japan’s foreign reserves fall again as Tokyo carries on dumping dollars and buying the yen

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Japan has been buying up yen and selling dollars in a bid to support its struggling currency.

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  • Japan’s foreign currency holdings fell for a third straight month in October, official data show.
  • Tokyo is battling to prop up the yen, which has tumbled 27% against the dollar in 2022.
  • Japan has been offloading its dollars and buying the yen in a bid to stabilize its struggling currency.

Japan’s foreign reserves fell again in October as Tokyo battled to prop up the yen by dumping its holdings of the US dollar.

The value of the country’s reserve assets dropped by $43.5 billion to $1.19 trillion at the end of October, according to Japanese Ministry of Finance data published Tuesday.

It’s the second month of declines in foreign reserves in a row for Japan, after they sank by a record $54 billion in September. That’s when Japanese authorities intervened in currency markets for the first time since 1998, selling some dollar holdings in a bid to prop up the struggling yen.

The yen has plunged 27% this year as aggressive Federal Reserve interest rate hikes help drive a surge in the dollar against other currencies. Rising interest rates tend to support a currency because foreign investors attracted by the higher yields need to buy it.

In the US, the Fed has hiked rates by 75 basis points four times in a row to combat soaring inflation. Meanwhile, the Bank of Japan has kept its interest rates in negative territory, currently at –0.1%.

But Tokyo has still been drawn into an ongoing “reverse currency war“, which has had countries around the world  battling to prop up their currencies against the dollar. They are attempting to keep a lid on import costs — which rise as their currency weakens against its US counterpart — and in turn, on inflation.

Japan spent 2.84 trillion yen ($19 billion) on September 22 in an intervention to prop up the struggling currency, according to further Ministry of Finance data released Tuesday.

That failed to stop the yen from continuing to slide. It has fallen another 2.7% since that date to 146.22 yen per dollar, at last check Tuesday.

The official figures also confirmed the September sale remains Tokyo’s first and only foray into currency markets since 1998, despite traders’ speculation that the ministry has subsequently stealthily intervened.

Read more: Decades-high inflation has triggered a ‘reverse currency war’ as a soaring dollar leaves central banks scrambling to catch up

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Americans’ confidence in home buying has fallen to its lowest level since Fannie Mae’s survey began

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Rising mortgage rates and high house prices are driving potential homebuyers away, according to Fannie Mae’s chief economist.

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  • Just 16% of Americans believe now is a good time to buy a home, a Fannie Mae survey found.
  • Rising mortgage rates now at 7% and high house prices are putting off potential buyers.
  • “We expect home sales to slow even further in the coming months,” Fannie Mae’s chief economist said.

Americans haven’t felt this gloomy about the US housing market since Fannie Mae first started surveying the sector over a decade ago.

The government-sponsored mortgage provider’s Home Purchase Sentiment Index, which tracks attitudes towards both buying and renting, fell 4.1 points to 56.7 in October for its lowest reading since it began in 2011.

Just 16% of respondents believe now is a good time to buy a home, down from 19% last month.

Meanwhile, the percentage who feel it is a bad time to buy rose from 75% in September to a record 80% in October.

Rising mortgage rates and elevated home prices are both pushing potential buyers away from the housing market, according to Fannie Mae’s chief economist.

“Consumers are increasingly pessimistic about both homebuying and home-selling conditions,” the firm’s senior vice president Doug Duncan said.

“Amid persistently high home prices and unfavorable mortgage rates, the ‘bad time to buy’ component increased to a new survey high this month, while the ‘good time to sell’ component continued its downward trend.”

Mortgage rates have soared this year as the Federal Reserve hikes interest rates to try to curb red-hot inflation, with higher borrowing costs making it harder for homebuyers to enter the market.

The 30-year mortgage rate averaged 6.95% as of Thursday, according to Freddie Mac, compared with 3.09% a year ago.

High home prices are also alienating potential buyers, with the national average house price jumping 40% since the start of the pandemic in March 2020 due to fiscal stimulus fueled demand clashing with tight supply, according to ING.

Fannie Mae forecast home sales – which have already fallen for eight consecutive months – to carry on slumping as the market becomes even less affordable.

“As continued affordability constraints reduce homebuyer demand, and homeowners become reluctant to sell at potentially reduced prices, we expect home sales to slow even further in the coming months,” Duncan said.

Some experts believe the downturn in the US housing market could prompt the Fed to re-evaluate its policy on monetary tightening. Wharton professor Jeremy Siegel has said the US central bank is overlooking how significantly home prices are declining, as the available data is backward-looking.

Read more: The Fed’s latest jumbo hike will put ‘lead into the heels’ of the US housing market, Freddie Mac says

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The ‘seesaw’ in markets is a signal to dump bubble assets like tech stocks and crypto, investment chief Richard Bernstein says

Traders work through the closing minutes of trading Tuesday on the New York Stock Exchange floor on February 25, 2020 in New York City.

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  • Investors should ditch overvalued assets like tech and crypto, Richard Bernstein said.
  • He slammed cryptocurrencies as being the biggest financial bubble in history.
  • Bernstein expects bitcoin to tumble 90% from current levels.

Investment chief Richard Bernstein said he’s skeptical of assets with high valuations, and called cryptocurrencies the biggest-ever financial bubble.

The investing world can be viewed as a risky seesaw with bubble assets balanced to one side, Bernstein said.

“On one side, we have all that I would call the bubble assets: tech, innovation, disruption, cryptocurrencies,” he said in an interview on CNBC’s “Trading Nation” on Friday.

“On the other side of this seesaw, you have literally everything else in the world,” he continued. “I think if you’re looking at 2022 into 2023, you want to be in the ‘everything else in the world’ side of that seesaw.”

Tech stocks, including those benefiting from the shift to remote work during the pandemic, have continued their upward ascent in 2021, with many investors viewing the FAANG group as a comfort zone. The tech-heavy Nasdaq is up about 27% so far this year.

While tech valuations appear overvalued to some, others have trumpeted the prospect of growth in segments including cloud, cyber security, 5G, and the metaverse as unparalleled in history.

But Bernstein warned investors could be hurt by “bubble assets.” “Valuations are very high and what you have to remember is the valuation is more important than the story,” he said.

Even participants in the tech bubble of the 2000s took years to pocket profits, he noted. “If you invested in the Nasdaq 100, which were the real companies at the time, it took you 14 years to break even,” Bernstein said. “Something tells me that the people today are not paying attention to valuations, but also aren’t thinking it’s going to take them 14 years to break even.”

Bernstein said there’s a scarcity of capital on the other side of the seesaw, which is likely to generate higher returns. 

After earlier this year calling oil the most ignored bull market, he said the top play for 2022 should be the energy sector. The Energy Select Sector SPDR Fund, which measures stocks in the sector, is up 51% so far this year, according to data from TradingView. 

“The last time the FCF [free cash flow] yield for the energy sector was this high relative to either the market or the tech sector was around the tech bubble, and energy outperformed for a decade. The sector’s dividend yield is >3x the S&P 500′s dividend yield,” Bernstein wrote in a note to CNBC.

As for cryptocurrencies, the investing chief expects bitcoin to tumble 90% from current levels. “Cryptos are the biggest financial bubble ever in history,” he said. “This is just a monster one.”

Bitcoin was last trading around $48,509 at last check Monday. While its year-to-date gains stand at 66%, the crypto is down 28% from its record high in November.

“I think one wants to wait to look at the true fundamentals, and look at the valuations before deciding that this is all over,” Bernstein said.

Read More: A couple on track to retire in their 30s share their top 3 strategies for achieving financial freedom, including their house-hacking tactics

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Fundstrat lays out the scenario that would ruin its call for a 6% S&P 500 rally into year-end

A trader looks distressed while staring at a computer screen, with his hand on his head.
Traders on the floor of the New York Stock Exchange May 31,2019 in New York. – Wall Street stocks closed out a downcast May on an especially negative note on Friday, falling hard after President Donald Trump announced new tariff measures on Mexico. Major indices were in the red the entire session after Trump unveiled his latest trade broadside on Twitter Thursday night, vowing a string of gradual tariff increases to pressure Mexico into cracking down on illegal immigration into the United States. (Photo by Don Emmert / AFP) (Photo credit should read DON EMMERT/AFP via Getty Images)

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  • Fundstrat’s Tom Lee expects the S&P 500 to rally 6% by year-end, according to a Monday note.
  • Lee points to de-risking among investors as evidence that a lot of bad news is already priced in.
  • There is one possible scenario that would derail Lee’s expectations of a year-end rally in stocks.

The Omicron variant of COVID-19 and Fed Chairman Jerome Powell’s hawkish pivot last week are two risks that have investors on edge, with the S&P 500 falling about 5% in a week.

But according to Fundstrat’s Tom Lee, much of the concern surrounding these two factors are already priced into markets, evidenced by a surge in de-leveraging among institutional money managers over the past few days.

“Hedge funds have dramatically de-risked on the dual risks of Omicron and Fed tapering,” Lee said, explaining that institutional investors have raised cash in each of the last 5 weeks and institutional cash on the sidelines now sits at more than $3.2 trillion, the highest level in all of 2021.

“Cash on sidelines = firepower. Sign of a bottom, not a top,” Lee said. But while Lee still expects the S&P 500 to surge 6% to 4,800 by year-end, there is one potential, though unlikely, scenario that could derail that projection, according to the note.

The “bad” scenario is Omicron turning out to be more lethal than anecdotal evidence suggests, combined with the Fed remaining hawkish and not walking-back prior comments to a more dovish stance.

Admittedly, this scenario only has a 2.5% cumulative probability, according to Lee, because the Fed is likely to become more dovish if Omicron does infact turn into a deadly threat that evades vaccines and shatters consumer confidence.

The more likely scenarios seen by Fundstrat is Omicron being a milder variant of COVID-19, and the Fed remaining either hawkish or pivoting back to a dovish stance. According to Lee, stocks can still rise in the face of a Fed that is rolling back its monthly bond purchases at an accelerated pace because interest rates are still historically low and the economy remains on strong footing. 

“While there was a lot of carnage in the past few weeks, this does not negate the probability of a strong equity rally into year-end. That remains our base case,” Lee concluded.

Potential scenarios for stock market into year-end

Fundstrat

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2022 is shaping up to be a bad year for the stock market as investors grapple with these 3 ‘shocks,’ BofA says

Trader nyse stock market

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  • The stock market’s strong gains so far this year are unlikely to see a repeat in 2022, BofA said in a note on Friday.
  • Rising interest rates represent the third “shock” that will cause a surge in volatility and ding stock prices, according to the note.
  • “We are on the cusp of a policy pivot from pro-growth to anti-inflation,” BofA said.
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2022 is shaping up to be a difficult year for the stock market as the Federal Reserve prepares to make a policy pivot, Bank of America said in a note on Friday.

Investors shouldn’t expect the near 20% year-to-date gains in stocks repeat next year due to a “rates shock” that will occur when the Fed is forced to raise interest rates sooner than expected, according to the note.

Rising interest rates will represent the third “shock” investors have had to deal with over the past three years. While a growth shock turned stocks into winners in 2020, an inflation shock this year led to a surge in commodity prices, which will make it even more difficult for the Fed to avoid making a policy change next year, according to BofA.

“Bear case is pandemic ending and so is $30 trillion of emergency policy stimulus,” BofA said, referencing the liquidity provided by global central banks since the pandemic began. The bank pointed to three catalysts that give it confidence the Fed will raise interest rates next year instead of waiting until 2023 like most investors expect.

1. “Powell re-nomination triggers more hawkish Fed rhetoric.” Jerome Powell’s current term as Fed Chairman ends in February.

2. “Payroll recovers,” meaning the economy no longer needs near-zero interest rates as stimulus.

3. “Wage and rent inflation remains elevated,” which can be combated with higher interest rates.

“We are on the cusp of a policy pivot from pro-growth to anti-inflation, [and a] policy mistake has already happened,” BofA said, inferring that the Fed is behind the curve and should have already been reducing its stimulus programs.

The Fed has signaled that it plans to end its $120 billion monthly bond buying program by the middle of next year with a monthly tapering.

But despite the bleak outlook for 2022, investors shouldn’t sell their stocks just yet.

Instead, investors should wait to sell stock after an expected year-end rally due to already bearish investor positioning. “More bearish Wall St positioning reflects concerns [about] inflation and China, [which] supports a typical year-end rally. We say sell it,” BofA said.

Read more: ‘History repeats itself’: The manager of an inflation-focused ETF breaks down why she thinks stagflation is the ‘biggest threat’ to investors – despite Wall Street saying fears are overhyped

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A BofA indicator that measures Wall Street stock bullishness is signaling weak 12-month returns

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  • Bank of America said its contrarian indicator measuring Wall Street bullishness is close to triggering a sell signal.
  • The Sell Side Indicator is at 59.5%, which is near the contrarian sell signal of 60.1%.
  • The current level projects 12-month price returns of 6%, lagging the average forecast of 13% since the financial crisis ended in 2008.
  • See more stories on Insider’s business page.

Bank of America on Wednesday said its measure of equity-investor enthusiasm is signaling underperformance relative to history for the S&P 500 over the next year.

The investment bank said its Sell Side Indicator – which assesses sell-side analyst sentiment across Wall Street – was at 59.5% in August for a second straight month. It remains dangerously close to the 60.1% threshold, which would trigger a contrarian sell signal. That level has not been breached since 2007, according to BofA.

The figures come as investors assess a mix of factors that could cause gyrations in stocks, such as a drop in consumer sentiment, peak profit growth for corporate earnings, and potential benefits from a pending infrastructure bill in Washington.

“The current level is forecasting 12-month price returns of just 6%, a much weaker outlook compared to an average 12-month forecast of 13% since the end of the Global Financial Crisis,” said equity strategists led by Savita Subramanian in a note.

The indicator is at its closest sell threshold since May 2007, after which the S&P 500 declined 7% on a total return basis in the subsequent 12 months. BofA said usually when the indicator has been this close to a sell signal – or even closer – subsequent 12-month total returns have been positive 62% of the time compared with 83% positive returns over the entire time period.

BofA’s caution arrived as the S&P 500 index finished August trading with a seventh consecutive month of gains and as numerous record highs have pushed the index up by 20%.

September historically is the worst month in the year for stocks in terms of generating returns. But research firm Fundstrat this week said September market returns could be stronger than consensus after a strong performance in equities during the first half of the year.

Read more: A 48-year market vet warns that the Fed will be forced to tighten policy ‘way sooner’ than investors anticipate as inflation continues to soar – triggering a stock market crash of up to 80%

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Tips from a trader up 227% this year, plus 5 high-upside altcoins

Hello, and welcome to this week’s edition of Insider Investing. Here’s what’s on the docket:

Programming note: This newsletter is going on hiatus – but we’ll have some exciting updates soon. In the meantime, we’ll still be sending you our best markets stories each week, so keep an eye out in your inbox. For now, please fill out this quick, four-question survey to help us improve our markets newsletters.

Tips from a trader up 227% this year

Mark Minervini

Mark Minervini

Mark Minervini, a trading legend and four-time author, won the US Investing Championship in 1997. He entered the championship again this year and is leading with a 226.6% gain through July.

He breaks down his trading strategy and shares 5 core rules that he follows with great discipline.

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Veteran trader Mark Minervini gained 226.6% through July this year. He breaks down his trading strategy, including how he identifies optimal points to buy – and shares 5 trading rules he sticks to with discipline.

5 altcoins that could surge 10-100x

This is a photo of Adrian Zduńczyk in a shirt with parrot prints touching his glasses.

Adrian Zduńczyk

Adrian Zduńczyk, the founder and CEO of the Birb Nest, identifies 5 altcoins he says could surge by 10 to 100 times during an upcoming “legendary” season for crypto. He tells Insider some are undervalued and have room to grow, while others are great longer-term projects.

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5 altcoins that could surge by 10 to 100 times in the coming ‘legendary’ altcoin season that outshines bitcoin, according to a crypto technical analyst who’s holding them

Stock pick central

Seeking experts who are willing to name names? Look no further:

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Cathie Wood’s China strategy, plus chart-driven trading tips

Hello everyone! Welcome to this weekly roundup of Investing stories from deputy editor Joe Ciolli. Please subscribe here to get this newsletter in your inbox every week.

cathie wood

CNBC

Hello and welcome to Insider Investing. I’m Joe Ciolli, and I’m here to guide you through the current market and investing landscape. The newsletter will be taking a week off and returning on August 29. Here’s what’s on the docket:

If you aren’t yet a subscriber to Insider Investing, you can sign up here.

Have thoughts on the newsletter? Just want to talk markets? Feel free to drop me a line at jciolli@insider.com or on Twitter @JoeCiolli.

Cathie Wood’s China strategy

Cathie Wood, CEO and chief investment officer of ARK Invest, on a purple background with the Ark Invest logos patterned behind her.

Ark Invest; Insider

Cathie Wood has been selling out of Chinese stocks amid an expanding government crackdown, according to daily stock-holding reports analyzed by Insider. We compiled Wood’s recent comments about how she’s approaching Chinese investment going forward, and where else she’s seeking opportunities.

Read the full story here:

Inside Cathie Wood’s China investing strategy: The Ark Invest CEO breaks down why she’s selling out of Chinese stocks – and what she’ll be buying instead with the cash raised

Chart-driven trading wisdom from Katie Stockton

Katie Stockton, founder and managing partner of Fairlead Strategies

Fairlead Strategies

Katie Stockton founded Fairlead Strategies and is a technical analysis expert with over 20 years of experience on Wall Street. She shared the secret behind her methodology, as well as three top indicators she’s always watching. As a bonus, she explained why charts signal ether is gearing up to outperform bitcoin.

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Legendary technical analyst Katie Stockton shares her secret sauce for spotting turning points in markets with 3 of her top indicators – and why the charts signal ether is set to crush bitcoin

How to invest like a contrarian

trader surprised skeptical

Reuters / Brendan McDermid

Jason Shapiro is a contrarian trader whose system doesn’t correlate to any other strategy. He broke down for us his investing approach, including the indicators he uses to identify consensus ideas he wants to defy. Shapiro also shared his risk-management measures, and two trades on his radar right now.

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A 30-year futures trading veteran breaks down his contrarian approach designed to beat the market against all odds – and shares 2 trades on his radar now

Stock pick central

Seeking experts who are willing to name names? Look no further:

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Bitcoin to $250,000, plus secrets from a market wizard

Hello and welcome to Insider Investing. I’m Joe Ciolli, and I’m here to guide you through the current market and investing landscape. Here’s what’s on the docket:

If you aren’t yet a subscriber to Insider Investing, you can sign up here.

Have thoughts on the newsletter? Just want to talk markets? Feel free to drop me a line at jciolli@insider.com or on Twitter @JoeCiolli.

Bitcoin’s path to $250,000 by 2025

The photo shows physical imitations of cryptocurrency

INA FASSBENDER/AFP via Getty Images

Joseph Edwards is the head of research at Enigma Securities, a London-based crypto liquidity firm. He called bitcoin’s meteoric rise to $60,000 last year and predicts it could reach $250,000 by 2025. The ex-professional esports coach also shares two altcoins that could surge 20 times over the next few years.

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The head of research at a crypto firm who called bitcoin’s surge to $60,000 last year breaks down why it will reach $250,000 by 2025 – and shares 2 altcoins that could go up 20 times

A market wizard explains how to find asymmetric opportunities

old school stock trader

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Peter Brandt is a highly skilled trader profiled in Jack Schwager’s book “Unknown Market Wizards.” Over the years, Brandt has grown from a technical analysis trader to a meticulous risk-taker. He broke down how he identifies asymmetric opportunities and avoids performance-dragging trades.

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Unknown market wizard Peter Brandt averaged an annual compounded return of 58% over 27 years. The highly profitable trader breaks down how he finds asymmetric opportunities – and shares 2 rules to avoid ‘popcorn trades.’

How to master house flipping

Deb Cleveland

Deb Cleveland

30-year real-estate-investing veteran Deb Cleveland is a house flipper who owns 80 rentals. She got her first property for $62,000 with a five-year loan and sold it at $225,000 18 years later. Cleveland explained how she finds discounted properties, renovates on a budget, and sells for huge profits.

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Deb Cleveland is a master house flipper who maintains 80 rental properties. The 30-year real-estate-investing veteran breaks down how she picks discounted houses to buy, renovate on a budget, and successfully sell or rent for huge profits.

Stock pick central

Seeking experts who are willing to name names? Look no further:

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China stock crackdown, plus experts share their favorite crypto apps

Hello everyone! Welcome to this weekly roundup of Investing stories from deputy editor Joe Ciolli. Please subscribe here to get this newsletter in your inbox every week.

China's flag with a downward trending arrow stemming from the second small star on a black gridded background

Samantha Lee/Insider

Hello and welcome to Insider Investing. I’m Joe Ciolli, and I’m here to guide you through the current market and investing landscape. Here’s what’s on the docket:

If you aren’t yet a subscriber to Insider Investing, you can sign up here.

Have thoughts on the newsletter? Just want to talk markets? Feel free to drop me a line at jciolli@insider.com or on Twitter @JoeCiolli.

A full-blown meltdown in Chinese stocks

china chinese stock market traders investors screen

Getty Images / VCG

US investors hold $2 trillion in Chinese stocks, but the entire market is effectively a financial house of cards. By skillfully exploiting regulatory loopholes in both Beijing and Washington, Chinese companies have evaded oversight, keeping investors in the dark about the true state of their finances. Read our full analysis here.

Read the full story here:

Chinese stocks are tanking. Here’s why their financial meltdown could get way, way worse.

10 crypto traders show us the apps they use

In this photo illustration, the Coinbase cryptocurrency exchange logo (C) is seen on the screen of an iPhone

Chesnot/Getty Images

Cryptocurrency trading can be incredibly challenging, with 24-hour markets and extreme volatility. Investors often use multiple apps and platforms to make sense of what’s happening in the market. We spoke to 10 crypto experts to understand what apps they use for trading, price monitoring, and news.

Read the full story here:

We asked 10 crypto traders to show us the apps they use on their phone to trade, track prices, and read news

Meet a real-estate investing power couple

This is a photo of Sean Pan on the left and Sharon Tseung on the right, sitting next to each other.

Sean Pan and Sharon Tseung

Between the two of them, real estate investors Sharon Tseung and Sean Pan own 21 rental units. In an interview with Insider, they explained their entire process, from how they decide which geographies to pursue, to how they normally finance their properties.

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A couple in their 30s breaks down how they came to own 21 rental units in affordable, high-appreciating areas across the country – and share their approach for picking top cities, realtors, and financing strategies

Stock pick central

Seeking experts who are willing to name names? Look no further:

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