Why Japan's $20 Trillion Yen Carry Trade Unwind Could End Bull Market | Jim Welsh
Speakers
Jim Welsh
— Founder, Macro Tides
Summary
Jim Welsh of Macro Tides says the US economy may avoid a near-term recession because of federal deficits and AI spending, but he expects a secular bear market in stocks as valuations, positioning, and consumer bifurcation become more problematic. He expects a tactical S&P 500 rebound into year-end and early 2026 before a more aggressive bearish turn. He is bearish on gold, silver, and Treasury bonds, avoids small-cap IWM, and expects the US dollar index to rally.
- Jim Welsh sees no near-term US recession but expects a secular bear market in stocks.
- He expects a tactical S&P 500 rebound into year-end and early 2026 before selling pressure resumes.
- He warns that extreme valuations, positioning, and consumer bifurcation are key vulnerabilities.
- He expects gold and silver to undergo an extended wave-four correction.
- He believes Treasury bonds are in a secular bear market as yields rise.
- He expects the US dollar index to rally, citing negative sentiment and a possible liquidity squeeze.
- He avoids small-cap IWM due to unprofitable companies and AI mega-cap concentration.
- He views the yen carry unwind as a real risk to US assets but does not make a standalone yen call.
Ideas
Secular bear market ahead for stocks
Jim expects the stock market to enter a secular bear market over the next window, with significantly lower returns over the next 10 to 15 years. Valuations and positioning are extreme, households are heavily allocated to stocks, and the top 10% of earners who have been supporting spending would cut back after sustained market weakness. He says being invested now is acceptable but investors should keep eyes on the exit, with the trigger for aggressive shorting being a rebound to a higher S&P high that is not confirmed by the advance-decline line.
Avoid IWM; many unprofitable companies
Jim would avoid the Russell 2000 and the IWM small-cap ETF because 35% or more of its companies lose money and many are effectively walking dead. Their underperformance has also been driven by increasing concentration in AI-related mega-cap stocks, leaving the small-cap index less attractive than large caps.
Gold and silver entering wave four correction
Gold completed an Elliott wave three spike and is entering an extended wave four correction that could last months. Sentiment became extremely bullish with 95% bulls and positioning was extreme. He expects gold to trade under $3,500, with a near-term target around $3,750 after a rally failed near $4,244. Silver did the same thing and is expected to correct similarly.
Treasury bonds in secular bear market
Jim believes Treasury bonds have entered a new secular bear market. The 40-year trend of falling yields was broken in 2022, the 30-year bond price shows five waves down, and global fiscal deficits mean heavy bond supply. He sees the 10-year yield moving above 4.2% as a signal for a more aggressive rise, targeting about 5% and potentially 7.5% over the longer term.
Dollar index set to rally
Jim expects a significant rally in the US Dollar Index over the next 12 months. The dollar has been building a base after a multi-year correction, sentiment and positioning are very negative, and a liquidity squeeze or yen-carry unwind could drive it higher. A close above 100.25 would confirm the base, projecting 104 to 106 and potentially the January high near 110; he argues the dollar's reserve-currency status is not at imminent risk.
