Japan Is ‘Insolvent’: Yen Unwind Threatens Global Markets | Michael Gayed
Speakers
Michael Gayed
— Founder, The Lead-Lag Report
David Lin
— Founder & Host, The David Lin Report / ex-Anchor, Kitco News
Summary
Michael Gayed argues Japan remains the key source of global leverage and that a reverse yen carry-trade unwind could trigger repeated deleveraging shocks in global markets. He sees healthcare and biotech as a major underinvested opportunity next year, while flagging private credit as this cycle's subprime risk. He also discusses regional banks, small caps, Fannie Mae, FMKT, silver, and housing.
- Michael Gayed warns that Japan's bond and currency dynamics could cause global deleveraging pulses.
- He expects the yen to weaken longer term despite BOJ intervention attempts.
- He sees Japanese banks and JGBs as vulnerable if Japanese yields keep rising.
- He favors healthcare and biotech, citing deregulation, AI adoption, and underinvestment.
- He flags private credit as this cycle's subprime risk, which is a counterweight to regional banks.
- He watches junk debt and credit spreads as the key signal of a reverse carry-trade unwind.
- He remains long-term bullish on US Treasuries as an eventual flight-to-safety asset.
- Other ideas include small caps, Fannie Mae and FMKT deregulation, silver catch-up to gold, and housing downside.
Ideas
Treasuries regain flight-to-safety eventually.
Treasury selling from Japan is likely mechanical near term, and US Treasury yields could spike above 5% in a panic. But after that yield spike, the classic risk-off flight-to-safety should return: as stocks keep falling and credit spreads widen, money should go back into US Treasuries. He explicitly runs funds designed to use Treasuries as the risk-off asset, though he admits the timing has been early.
FMKT benefits from US deregulation.
He manages the Free Markets ETF (FMKT), a long-only fund built around deregulation as a bullish tailwind for the US. He believes a market selloff would make it a buying opportunity, and it holds deregulation plays such as Fannie Mae.
Healthcare/biotech underinvested with AI/deregulation tailwinds.
Healthcare has real relative momentum and is very underinvested after being left for dead. Deregulation should benefit the sector, especially biotech, and AI integration into healthcare, including surgeries and medicines, is a logical next step. Healthcare also tends to be defensive in a recession, making it attractive if equities weaken. He expects 2025 to be a year for healthcare.
Regional banks interesting despite private-credit risk.
Regional banks remain interesting and have a bullish case, likely tied to deregulation and an improving backdrop, but that bullish case is counterbalanced by private-credit risks. He is not unconditionally positive because private credit could create systemic stress, though he sees that as relatively low probability.
Private credit is this cycle's subprime.
Private credit is this cycle's subprime. Risks have been building, and while he thinks systemic contagion is relatively low probability, it could be systemic and is a clear counterweight to the regional-bank bullish case. Investors should be wary of private-credit exposure.
Small caps eventual broadening opportunity.
Small caps should eventually work and lead a broadening of the market. The majority of stocks beneath the headline S&P 500 and Nasdaq are small caps and remain below their 2021 highs after inflation, so the bull market has been narrowly concentrated. The resolution can come either by AI and concentration breaking or by the rest of the market catching up; small caps hold the key, but timing is uncertain and he has been early.
Junk debt vulnerable to carry unwind.
The reverse yen carry trade would force selling in the most speculative parts of the market, especially junk debt, because the yield differential versus JGBs is highest there. That would cause high-yield bonds to sell off, credit spreads to widen, and trigger the long-awaited flight-to-safety dynamic. He watches junk debt as the key signal: if it starts falling heavily while Japan is rumored to be selling Treasuries, the bigger volatility event may be starting.
Silver catch-up to gold.
Silver has been a catch-up trade to gold via the gold/silver ratio and mean reversion; if gold continues higher, silver is the late catch-up. He also notes the move has short-squeeze and manipulation elements, so it can keep running longer than expected.
Housing faces substantial correction.
The collapse in the lumber/gold ratio points to a substantial housing correction. Housing is no longer the main business cycle driver, AI is, but the ratio's breakdown and weak housing suggest downside. The main counter is government support, such as Trump's 50-year mortgage proposal or Fannie Mae policy support, which could slow the correction but not eliminate it.
Fannie Mae deregulation policy long.
Fannie Mae is interesting as an individual stock again and is held in the Free Markets ETF as a deregulation play. It could be a meme stock and may benefit from government support for housing, such as 50-year mortgage policies. This is a policy and deregulation-driven long.
Eli Lilly pipeline drug big catalyst.
Eli Lilly is interesting as an individual stock because its next-generation GLP-1 or retatrutide-type drug is likely to be a big deal once released. This is a company-specific pipeline catalyst within his broader healthcare and biotech bullish view.
Up Next
This The David Lin Report video, published December 03, 2025, features Michael Gayed discussing TLT, FMKT, XBI, XLV, KRE, BIZD, IWM, HYG, SILVER, US Housing, FNMA, LLY. 11 trade ideas extracted by AI with direction and confidence scoring.
Speakers: Michael Gayed · Tickers: TLT, FMKT, XBI, XLV, KRE, BIZD, IWM, HYG, SILVER, US Housing, FNMA, LLY