SI415: Maybe This Is Just What Normal Markets Look Like ft. Alan Dunne

**SPEAKER_1** (0:01)
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**Niels Kaastrup-Larsen** (0:35)
Welcome and welcome back to this week's edition of the Systematic Investor Series with Alan Dunne and I, Niels Kaastrup-Larsen, where each week we take the pulse of the global market through the lens of our old-spaced investor. Alan, it is wonderful to be back with you this week. Hope you're doing well.
How was summer?

**Alan Dunne** (0:52)
Summer was good. Yeah, we had a great summer in Ireland. We definitely had a long spell of good sunshine, which has now come to an end here. It's dark and dreary and it's wet and rainy. So it definitely feels like the summer has come to an abrupt close in Dublin. But yeah, no, we definitely had a really good summer.

**Niels Kaastrup-Larsen** (1:10)
I think a lot of places actually right now in Europe would say, oh, rain, that sounds great, because even here in Switzerland, we had, how should I say, information in our mailbox that you're not allowed to use any kind of watering of your gardens or anything like that. There really is a very, very severe drought, even where I am. So anyways, we've got a pretty good line up of topics. Thanks very much for putting that together. We got a couple of questions that came in.
And so very excited to dive into all of that. But of course, before we do any of that, as usual, we'd love to hear what's been on your radar the last two or three weeks.

**Alan Dunne** (1:55)
Yeah, well, it's probably going back to the end of July.
It's been a couple of months as I was on, but definitely thought it was worth commenting on the US intervention in the end. And because it still remains quite topical, all of, you know, everything that happened around that. So, I mean, for context, I don't know if people don't follow FX markets so closely. It is very rare for the US to intervene in currency markets. They intervened, I think, in 2011, but the last time they bought the Japanese yen was back in 1998 So, you know, we're talking about very rare occurrences, which kind of begs the question, you know, what's going on? And it was very interesting this time around, a couple of aspects. One, they sold the euro and bought the yen, which was an interesting twist in it. And then the second thing was they announced kind of going forward that if Japan would continue to buy yen, they could tap this FEMA facility at the Fed, which would effectively allow them to borrow dollars, to sell dollars, if they felt further intervention was needed going forward. So I think that aspect really points to the sensitivity the US has to a big bondholder selling bonds at the moment and the sensitivity they have to rising yields. And obviously we saw more on that with Scott Bessent announcement the week before last. So I think it's very much consistent with the idea that we're in, okay, unprecedented maybe, or certainly very rare occurrences. And there is this very heightened concern about the US bond market is the sense you get.
And also interestingly, the FT had an article that the US didn't inform Europe, the ECB in advance of the euro sales, which was quite unusual. You might say that's a bit surprising, but obviously there's been a lot of surprise developments in how the current administration has dealt with its international partners. But again, it was another angle on it and kind of a twist of the US very much acting in its own interests and not necessarily coordinating with Europeans. So I think, yeah, I mean, the thing I took away from it was this real sensitivity about rising yields and a real reluctance to allow a big a big asset holder to sell their treasuries.

**Niels Kaastrup-Larsen** (4:16)
Yeah, no, I completely agree, of course. But I think there's more to the story, actually. And later today, I'm actually recording an episode that comes out a few days after this one with Jim and Marvin Bath on a global macro. And I think we're going to probably touch on this as well. But I get the feeling that it's not necessarily just about the level of the currency. There's so much more into it, including sort of interest concerning industrial production.