Stephanie Pomboy: Is This The Breaking Point?

**Adam Taggart** (0:01)
And we are live. Welcome to Thoughtful Money. I'm Thoughtful Money Founder and your host, Adam Taggart. Welcoming you back here for another Wednesday with the macro maven herself, Stephanie Pomboy. Hi, Steph, how are you?

**Stephanie Pomboy** (0:13)
I'm good. How are you doing?

**Adam Taggart** (0:15)
Good. Thanks for joining us. Nice to see you in your semi-permanent place now.

**Stephanie Pomboy** (0:24)
Permanent for the time being.

**Adam Taggart** (0:26)
Yeah. So we've had a little irregular schedule over the past two months, and part of that, Steph, is you have had a lot of curveballs thrown your way over the past couple of months, and I know we've kept a lot of that on the down low. But one of the offshoots of that, folks, just to be fully transparent here, is we are going to shift the cadence of Stephanie's appearances here. She's got a lot going on, and so we're going to shift from bi-weekly to monthly. I'm sure that's going to heartbreak a number of folks here, but don't worry, you're still going to get your monthly dose of Pomboy. And we have some other folks that are going to be appearing regularly, too. So we'll make sure there's content here every week. But anyway, Steph, look, we'll take whatever Pomboy we can get. So thank you for still doing the monthly cadence with us here.

**Stephanie Pomboy** (1:17)
I think you can just hear the audible sighs of relief that there will be some respite from me. But no, I mean, my only concern, of course, is that if we convene monthly, that we may be scrambling to cover as much terrain as possible, especially given how quickly things are moving right now. So but...

**Adam Taggart** (1:37)
Well, exactly.

**Stephanie Pomboy** (1:39)
We'll make it work. So I appreciate everyone's flexibility with that.

**Adam Taggart** (1:44)
All right. Well, look, yeah, I'm sure the universe is going to take this as a hold my beer moment and just say, okay, all that change you guys have been predicting, we're going to make it happen in between your appearances.
But hey, folks, we'll do the best we can here. All right. So lots to talk about here. I do have a bunch of visuals to pull up this time that I prepared. So Steph, I titled this session because I have to title them in advance. Is this the breaking point? And it's probably a little bit of a premature headline here, but we are seeing a lot of concern and angst that the market hasn't really shown since probably back in April, right? We're seeing certainly the AI complex start to get a lot of questions. There's some interesting things going on in Japan. Credit markets, private credit, people are getting more concerned about. So these little micro fractures that we've been talking about for the past couple of months don't seem to be so micro anymore. I don't know if we can call them macro fractures yet, but I think we can call them fractures. So why don't we start with this one? And forgive me for not preparing you for what I was going to tell you. But let's see here. Let's talk about Japan for a moment. So Japanese government bond yields have just soared. And you can see here, from 2021, they've kind of been up and to the right here. But they've been picking up momentum and they are now at levels that we haven't seen in this data series. And I think we've seen for a long, long time. I don't even know if these are record levels or not. But we'd love to get a sense from you, Steph, as to the implications for this. And one question I have for you too, I don't know if you can answer, but I'll toss it out there anyways, which is, I have heard folks say that if Japan, it's so over-indebted that if its debt goes over 2%, just 2%, if bond yields go to 2%, it's going to bankrupt the country because of all the debt that they hold. They've got the highest debt-to-GDP ratio of any country, I think, out there. Is that true? Is Japan basically on a death watch now?

**Stephanie Pomboy** (4:04)
Well, they're in that doom loop, obviously, where the higher debt service is such a huge part of the deficit that it just is now in this parabolic move upwards. So, yeah, I think there are a couple of interesting points. First off, it's the highest in 17 years. Long dated bonds. I'm just looking at a benchmark composite of long dated JGB yields highest since basically 2008
But what I think is really interesting, there are two things about this that are interesting. Number one, the implications for the yen carry trade. And when the Bank of Japan sort of tilted away from its stimulative policy, people started to talk about the prospect of higher rates in Japan and unthinkable. And that began to sort of shake the foundation of the yen carry trade. And of course, it has just kind of been compounding over that last year. But now, we're at the point where it's really, you know, clearly that trade is under significant threat. And I saw someone quantify the size of the yen carry trade at 20 trillion dollars. I mean, just to give some context, I know I'm not really sure exactly how they came up with that number. But we know that borrowing in, you know, basically cheap and certain to be cheaper yen at 0% has been a source of funding for global levered positions for well over a decade. So it stands to reason that the, you know, it just keeps building and building and building. So it's certainly in the multi-trillion. So I don't know if it's 20, it seems like a very large number, but it's a multi-trillion dollar bet, and it's a levered position, obviously. So it's a sure bet.