This is a free preview of a paid episode. To hear more, visit vblgoldfix.substack.com

Housekeeping: Good Morning.

Gold Revaluation is happening (quite literally) before our eyes

Today:

* Commentary: Yen Carry Trade

* Premium: Scotia Bank CFTC report

Equity Recap:

US equities advanced on Tuesday after sharp losses in prior trading sessions amid recession concerns and the yen carry trade unwinding. Real estate (+2.30%) and financials (+1.46%) outperformed the broader market indices, while energy (+0.40%) and health care (+0.48%) lagged. The Nasdaq gained 1.03%, while tech added 1.36%. The VIX declined 28.16% to 27.71.

Premium Markets: Yen Carry Trade

First, Watch this excellent explanation by Kyle Bass tying together Yellen’s Stealth QE and the Yen Carry trade

Now get a real perspective on crowded trades and why they end…

What is “Carry”

* What carry literally means

* What carry assumes- no change in asset prices

Economic arbitrage

* Geopolitical Arbitrage

Why is it done in currencies?

* Perceived economic stability

Why is it heavily leveraged

* Perceived Nation-state stability of currency

* Government policies move slowly and trend for long periods

What are the risks?

* Everyone does it, becomes a crowded trade on exit

* Government policies change abruptly- geopolitics

Risk manifested. Why they exit

* Leverage: 2% to 20%

* government policy changes

* a change from 0.1% to 0.25% is a borrowing cost increase of 150%.. reduces “edge”

* Leverage of 20x that 150% increase is much worse

Crowded trade plus deleverage equals panic

The Hidden Problem: Lemmings

* Doing them just to do them

* cheap financing that everyone does. and job security

* Borrowing the money, then looking for something to spend it on

* The AI example- carry trade determines where you borrow…. hot story determines where you invest

And that is why they need to slow the unwind down.

* Create artificial differences in economies

* Turn a blind eye to opportunist leveraging the difference

* Hope it works out

* Slow it down when it doesn’t

Gold And Open Interest

Market News:

"China on Tuesday launched its first batch of internet satellites that will form part of a constellation it hopes will rival SpaceX’s Starlink. The constellation, known as “Thousand Sails,” is a low-Earth orbit set of more than 15,000 satellites that China has said will create global internet coverage. By 2025, China is aiming to deploy 648 satellites in the first phase of the constellation’s build-out to create an internet network with global coverage." Source: CNBC

"Airbnb warned on Tuesday that more cautious US consumers would weigh on sales in what is normally its peak quarter, in the latest sign of how the impact of faltering demand is being felt by companies across the economy... Source: FT

Politics/Geopolitics:

* Israel estimates that Hezbollah will attack before Iran, according to Israel's Kann News.

* White House said the US has seen some volatility in the economy but the broader economy is resilient and the economic team is going to monitor the ongoing situation.

* US Election Poll showed Harris leads Trump 51% to 48% in National NPR/PBS/Marist poll.

* US Democratic Presidential nominee Harris confirmed Minnesota Governor Walz as her running mate, according to CNN

Some headlines via NewSquawk or DataTrek

Data on Deck:

* MONDAY, Aug. 5 10:00 am ISM services July 48.8%

* TUESDAY, Aug. 6 8:30 am U.S. trade deficit June

* WEDNESDAY, Aug. 7 3:00 pm Consumer credit

* THURSDAY, Aug. 8 Initial jobless claims Aug. 3 10:00 am Wholesale inventories June -- 0.6% 3:00 pm Richmond Fed President Tom Barkin speaks

* FRIDAY, Aug. 9 None scheduled

Premium: