Lets talk about macro. There are lots of big macro questions to answer, but I think we now have enough data, and market action to answer them in a coherent and simple way. There are two (or three) big macro conundrums which I think we can answer with a single model. First of all, why did JGB yields fall from 1990 onwards, and Yen strengthened when the US economy weakened in that period? And why are Chinese government bond yields so low now. I think people struggle with the deflationary signal from China, and inflationary signal from Japan, but they make sense to me.
Japanese 10 year bond yields look to have entered a bear market to me, after a 30 year bull market. But why now - and not in earlier? What has changed?
And Yen has obviously broken out of the range it was in from 1990 onwards. Why can Yen weaken now, and not before?
And we have Chinese 10 year bond yields collapsing, while US remain fairly high. Why are this formerly highly correlated assets not correlated any more?
I think there is a good answer to all of these questions, and happily they fit in exactly with the title of this substack - capital flows and asset markets. There is one big difference - when I named this substack, I was thinking about portfolio flows to and from Japan. Now I think we should be thinking about a different type of capital flow.
