How Japan’s Weak Yen Becomes a U.S. Problem | Mark Malek

The U.S. just intervened in the yen market by buying Japanese yen and selling euros, which was unprecedented. You probably wonder why. Today, we sit down with Mark Malek, who's a longtime asset manager in Wall Street. He's gonna explain why the Japanese yen and the interest rates in Japan's debt matter a lot to U.S. economy. Japan is one of the largest, if not the largest, holders of U.S. treasury notes. There is no free lunch on Wall Street. But there was a pretty good lunch that actually existed for many years between the Japanese market and the U.S. market. Borrowing at 0% and you came over here and bought, let's say, a 2% or 3% treasury note. That was the classic carry trade. But, of course, there's some wrinkles in that. We may say, oh, we don't get involved in FX transactions. I am unaware of what's happening with Japanese bonds. I don't care about that stuff. Okay, but you need to care about that because of all these things which are connected, whether you want them to be connected or not. I'm Siamak. Welcome to Market Insider. Mark, it's great to have you on. Welcome. Great to be here. Thank you so much. We had some intervention in the Japan market and there's been a lot of news from Japan impacting the U.S. Can you tell us what's happening right now? Well, wow, it's a very timely discussion right now because this is a very active trade that's going on that begun last week where we saw a huge move in the exchange rate between the Japanese yen and the U.S. dollar. And you have to actually take a step back to understand the magnitude of that headline because that has somewhat been in the headline, the Japanese, this thing called the carry trade. So this has very much been in the headline for other reasons, but we actually had some headlines over last week that accelerated things. So I think we need to step back and think about, first of all, we have to talk about the carry trade, which is a very commonly used term that people talk a lot about. And it's been around for quite some time. It's known, very well known in certain circles, not to your average investor, although your average investor probably sees the term carry trade floating around often in the news cycle. And so this recent intervention that you just discussed, really that is what I would say some icing on the cake that just happened. So the carry trade, let's say you own a house and you borrow money against your house and you pay, let's say, 4% to borrow that money against your house. You take out a home equity line and you get cash for that. You pay 4% to borrow that money. And let's say then you've realized that you can make 7% somewhere else with that money. You can then take that money and invest it and collect that 7%. So in essence, you've paid 4% and you're getting 7%. And that carry trade is that 3% differential that you're making. And if those investments just stayed the same forever, wow, that would be great. You could just sit in your backyard with a cold iced tea or lemonade or what you like. And you could just watch your money making money on that differential. Makes sense, right? And so, of course, it's never that simple, right? Because as we know, both of us, there is no free lunch on Wall Street. But there was a pretty good lunch that actually existed for many years between, interestingly, the Japanese market and the US market. Japan had near zero interest rates for many, many years. While the US fluctuated back and forth, we had pretty close to zero interest rates over here. But Japan was pegged pretty much near zero for many, many years. And so what that allowed was, that allowed smart folks, they figured out that they can go to Japan and they can borrow money near zero, right? So very cheap money. And they can take the proceeds of that cheap borrowing and they can put it somewhere else, just as I described before, like what you would have done with your home equity line. But where, of course, was the best place to invest for many, many years was, of course, the US, right? So we had, you know, remember the TINA trade? There is no alternative. There was no alternative because the US offered the best returns, not only in the equity markets, right, as the equity markets, as you know, historically earn on average, long-term, 10% on average, but more recently, even more so. So that trade looked very enticing, right? Borrow for almost- Borrow at 0% and then bring it to the US. And go and try to get at 10%. Or if you wanna be less risky, because you know you don't always make 10%, we know how that works, right? But you could buy treasury bonds, US treasury bonds. Those are the safest instruments in the world. And you can essentially lock in those rates, those yields to maturity. And so, again, if you were borrowing at 0% and you came over here and bought, let's say, a 2% or 3% treasury note, then you were essentially making that differential between that 0% and 2%. And that was the classic carry trade. But of course, there are some wrinkles in that. And of course, now I have to go deeper. And so the astute listener or viewer of this is gonna sit and say, okay, well, you're borrowing in yen. You're not buying treasuries or the US stock market in yen. You have to convert over to US dollars, right? So you have to do a foreign exchange transaction in order to do that. And so that differential, as we know, is the most liquid market in the world. And it fluctuates. It fluctuates as well. It might change. It might change, right? So the amount of dollars you get per 1,000 yen or 100 yen is gonna change on a day-to-day basis because it's a free market for the most part. And something that has happened more recently has been very, very interesting. And that really spurred probably your interest and your viewers' interests in this, which is the change that occurred, which was almost pretty historic more recently, which is the Japanese Central Bank started raising interest rates. Let's remember that yields in the US have been on the rise recently. And we'll probably discuss that later on, you and I. But yields are going up over here in the US. Which is the interest rates, right? Interest rates, correct. Interest rates have been going up over here. So suddenly the differential, remember we made money on the differential. And so suddenly it's costing you more money to borrow money in Japan to invest over in the US, right? But you know, as I said before, those things have been moving, not in parity, but US yields have been going up and the borrowing costs have been going up. But the fact of the matter is, is that the differential has been narrowing, has been narrowing. That has been a big factor that has been really spurred a lot of these conversations about you may have recalled fairly recently when the Bank of Japan first started raising rates, there was a big decline in the Nikkei. And so stock markets really went into a bit of a turmoil because of this so-called unwinding of the carry trade, right? Because suddenly the differentials all changed and they almost, you know, they went almost to zero and suddenly folks like hedge funds, et cetera, and speculators suddenly unwound their trade. So who was doing this carry trade? Is it, this is a big thing in Wall Street, but is it the banks? Is it the hedge funds? Is it, is it? That's a great question. There are a number, there are many people that do this. So yes, hedge funds are the ones that do it very often and it's very often highly leveraged, which means always in, for the rest of us, that means it's more volatile and it adds to the volatility. So hedge funds were doing this, banks were doing this, and even some individuals figured out ways to do this. And there were vehicles for people to invest in these things as well. And so it's not very common for average retail folks like us to do these types of transactions, but it does happen. And there's also another interesting factor, which we have to think about, which are Japanese institutions. They too were taking advantage of the differentials in interest rates because over in Japan, you may have insurance companies and pension funds and treasurers of large Japanese corporations. They're all sitting on cash from their operations or money that they're investing for the longterm, like insurance companies and pension funds. They too first look in their local market to invest in bonds. And if their bonds were yielding almost 0%, well, they want to get more yield also. So they too looked to the U.S. to get higher yielding instruments. See, they weren't borrowing money over there, but they're subject to currency moves, right? So if they're invested in the U.S. and they suddenly need their money, and that means they have to convert back into yen so they can use that money to be spent. So where the Japanese yen versus the dollar goes affects the value of that investment, okay? So if you suddenly see a large spike in yen value, okay, that money is suddenly worth less because in dollars, you get less yen. But interestingly, a lot of these companies, institutions in Japan specifically would hedge their positions because they can't take these big risks because they're insurance companies and pension funds. So they hedge these using forward contracts and all kinds of things. And the truth is, is when you see large differentials, believe it or not, in yields, those are eaten up by hedging costs because of something called yield parity. And so when you see these things automatically price to the differentials in yields. So it's a very interesting world. So it's not that straightforward, which I hope the message that's coming is true. And there is risks. Still there is risks. A lot of moving parts, a lot of risks involved. But the biggest risks came from folks that, let's say, invest from Japan. So they start out with yen, they invest in U.S. unhedged, and so they're subject to currency moves. Or you have people in the U.S. trying to take advantage of the differentials, which they can, and that differential closes up because of policy or because of what's going on in the macro economy. And so those things combined with this recent move, which I'll get to now, and answer your original question, because now that I stepped back, back, back, back, I'm gonna step back forward and answer your actual original question, because you need all this background to understand why this move was such a big move over the weekend. So all these things have put pressure on these different types of carry traders, if you like. And so now we get to your question of this intervention. So the yen in value has been slipping quite a bit lately. And the dollar has been strengthening against the yen. And so the value of the yen has been going down and down and down and down. And there are lots of problems with that, okay, for specifically Japan, because Japan is a net importer of energy and all sorts of other things. So they rely on their currency strength to pay for things that they import. And so naturally, you would expect the government to want to prop up the currency. Now, for the most part, governments don't like to mess with their currency. There are no laws against it. It's not nefarious, but it's frowned upon, because we like to let the free markets make those differentials, factor those all in properly. And a lot of it has to do with the interest rate parity, actually. And so all these things are good, but sometimes governments do have to intervene, and they do, and if done properly, you can get away with it, if you like. But if you mess around too much with your currency, you start to lose value. Your currency starts to lose value, and faith in your local economy, globally, you start to lose value. We've seen this happen in other countries that mess around with their currencies often. However, it is not abnormal to intervene in a currency, and it is usually done, it is typically done with other partners. You can do it on your own, but it's better if you do it with a partner. Now, Japan actually did intervene earlier this year to try to prop up its currency, as it hit multi-year lows earlier this year, and it went at it by itself, and it was unsuccessful. And so you saw it bouncing up against 165, and you saw that was sort of a level, that 163, 164, 165, that was the level that the Japanese central banks started to buy their own currency, because that's how you do it. You go out and you buy your currency, and that bid, that extra bidder's demand pushes the value up. With the typical market transaction, just like you would buy any stock, if there's a big buyer out there, it pushes the stock up. Similarly, the government goes out and buys its own currency with its cash, and that is what they did. And so it was not successful. And so I would ask you to put a little footnote on that, because we need to talk about that as well, because there are a lot of implications for that, that sort of transaction. So what we saw in this last weekend was the US and the Japanese working together to try to intervene. And what happened here is, it was a much more successful event. It started on last Thursday, where you saw the yen go down significantly, if you look at the chart, falling down to in the mid 150s from almost 165, or the mid 160s, which is a very, very large move. And if you look at it on the chart, you can see a big move. And the reason for the big move is because it was indeed a big purchase, but it was more of the fact that the US was involved as well. And so if you have your trading partner involved, it adds credibility to the transaction. So it has, so far, if they were looking to prop up their currency, was a successful intervention, right? So they managed to push up the value of the yen. And so there are some big implications of that, as I said earlier. And one of the biggest implication is, as I implied, was that you have, if you're a Japanese company with money invested in the US, and you wanna repatriate back to the yen, your value has suddenly gone down significantly. And so, likewise, if you borrowed yen to invest in US investments, suddenly, and remember, you have to pay back in yen. So you'd have to, even if you're a US citizen or any kind of citizen, any kind of investor, you would have to liquidate your US asset to take your money out. You'd have to get your dollars, convert back to yen, pay back your loan in yen. And you have to pay more now, a lot more. Exactly. So what happens if you're highly levered? Which means you've borrowed a lot. You've borrowed a lot to do this trade. You get a margin call. That's really what it comes down to, right? Because suddenly, your investment is worth less because of the currency differential that happened overnight. If you're unhedged, if you're not hedged. And so that is a pain point, which can cause lots of problems. Again, it can also cause big unwindings and things like that because you're getting a margin call. So you were sitting having your iced tea and suddenly your prime broker calls you up and says, hey, you gotta put up more money because that carry trade, it just is worth significantly less now because you've gotta pay back. If you pay back your yen loan, it's gonna cost you more now. And so what does a hedge fund typically do? Because they're much more nimble. They drop their iced tea or lemonade and they immediately liquidate. And when you do that, that's an unwinding. And that causes things to change in the market. It could put pressure on all sorts of things. It could put pressure on the stuff that you had to sell on the U.S. side. It could put pressure, more pressure, upward pressure on the yen itself, which actually accentuates the move. Because remember, you're selling dollars, buying yen, props up the yen. It's gonna make the yen go higher and higher. It is a relatively complicated transaction. And it's, again, typically very highly leveraged. And so that is why it's making headlines but very few people understand it. And so it's not always a top-clicked headline because people know it's a problem. They suspect it's a problem. And we see the aftermath of it sometimes because you can see markets decline significantly. This is an environment now where there are other moving parts, which may have prevented this from looking a lot worse. But in a normal market, this might have really roiled markets quite a bit. But there are so many other differentials right now, so many other factors that are interesting for us to discuss, if you'd like, which is why would the U.S. get involved? That's exactly what I was gonna ask you. Why are we doing that? U.S. is, you know, the central bank, they're nice guys, they just wanna help out. No, we know that's not true, right? There's gotta be a reason because, you know, this is Wall Street, as we like to say, not Sesame Street. And so we like to, you know, Wall Street is in it for the money, but in fact, taking a step back on that, there's a very good reason for why the U.S. got involved. Probably, I hope some of your viewers know that Japan is one of the largest, if not the largest holders of U.S. Treasury notes. And so U.S. Treasury securities. That's bigger than China, right? They're the number one. I believe, I think that, I think China used to be pretty big and I think Japan probably, they have over a trillion dollars worth of U.S. Treasuries. And this goes back a long time. Japan was always a very large holder of U.S. Treasuries, even back to the days that I got my start on Wall Street back in the early, early 90s, where this relic bond trading calculator comes from. Japan was always a very, very big buyer. They were the first person to step up at all the auctions. It was almost very natural for them to be the biggest buyer, the biggest bid out there. So historically, they have been a very big holder of U.S. Treasuries. So that brings us to the next question. Remember how we talked about how Japan, what does Japan do to prop up their currency? Well, it takes a lot of yen, or it takes a lot of money to do that, right? Excuse me. So of course, they probably don't have a lot of dollars lying around over there, but they do. They use cash, but they also liquidate things in order to buy the yen, to prop up the yen. And so what happens is, is the easiest thing to sell when you need cash to prop up your currency is? The Treasuries, right? U.S. Treasuries, exactly. So that brings us to a much bigger conversation. What happens when people sell U.S. Treasuries? No matter who it is, when there's pressure on the price of Treasuries, what happens? The interest rates will go up. Yields go up. Yeah. Exactly. And that, excuse me, has been a big problem, or challenge, I would say, for the U.S., as in terms of the macro picture in the U.S. Yields, market-based yields, interest rates, have been going up. Regardless of what the Fed is doing with its monetary policy, yields, market-based yields, have been going up. And that is a big, big problem for many, many reasons. The obvious ones are, the ones that we hear about often, are mortgage rates, right? So mortgage rates here in the U.S. are based on 10-year and higher yields, 10-year maturities. And if those yields are going up, mortgage rates are going up. And so the reason we have seen a spike in mortgage, mortgage rates had gone down for quite a bit earlier last year, but they have been going back up. They're not quite at their highest, back at their highest yet, but they've been going up. And that's a big problem for folks who are out trying to buy a home right now and looking to finance those with mortgages. Corporate borrowing costs also go up, right? We've seen a huge wave of corporate borrowing hit the market recently, namely in the AI infrastructure players, and they're borrowing money in the bond market to pay for these infrastructure build-outs. That is based on treasury yields, right? They're priced based on treasury yields. And those yields are going up. That means their cost of borrowing is going up. So there are many, many challenges that you have there. There's another one, which I can bring up, which probably hits home closer to a lot of people, which is when we price a stock's price, especially a growth stock, think of our favorite growth stocks that most of us own. Think about Apple, Microsoft, Google, any of these that many people own one or all of these things whether they like it or not, whether they own it through an index fund or they own them directly. These stocks are growth stocks and they're priced based on something called a discount rate and the discount rate is based on the treasury yields, okay? And so when treasury yields go up, future, because a lot of these investments are based on future potential returns out far in the future of these growth stocks. And when you're using a higher discount rate, those future earnings are worth less than today's dollars. So that puts pressure on growth stocks. And that's why you see every time you see interest rates or you hear treasury yields spike, you also hear that you check your brokerage account. You see that your favorite growth stocks go down no matter what, even if you didn't hear any bad news. So you see growth stocks have become very interest rate sensitive. So that could cause problems. So remember this, Japanese government selling US treasuries to buy their currency pushes yields up, adds your, makes your costs go up if you want to, if you're buying a home and you want to take out a mortgage or if you own stocks that you think have nothing to do with Japan or interest rates, they too get pressure. And so that is a big problem, but there's even a bigger problem. And this is the interesting part. And this is something I think that your viewers know a lot about. There's another reason that yields have been going up here. Longer yields have been going up on treasuries in the US, regardless of the Fed. And that is because the deficit. And that's a big, big buzzword here in the US and for good reason. It's at record levels right now. And that is due to several things, right? Obviously it's due to fiscal policy. When you are spending more money than you're taking in, that's a problem. And- Which we have had a big habit of doing that. We have had a big habit of doing it for many, many years. And so that has been going. So if you're collecting less taxes and you're spending more on services and what have you, your deficit gets higher. In order to finance that deficit, what does the US government do? They go out and they borrow money by selling treasuries. And so when they have to sell more treasuries, that's more supply and more supply pushes up yield, pushes up- The rates. Prices down, yields go up. So that is what's been pushing yields higher. Now it gets worse, sadly, because when you have higher yields, and I just told you before, the US is financing all of that spending using these treasuries. Well, when those yields go up, your price of borrowing goes up. That means your spending is going up, okay? Just because of yields alone, just by paying your interest payments are going up with higher yields. That's why the administration so aggressively would like to see lower yields right now. Because, well, we'd all like lower yields, but the government specifically, of course they'd like lower yields for you and me, but they're facing just an operational challenge. They wanna see borrowing costs come down because they borrow so much to finance the deficit. And so that is a very, very big factor, and that has been pushing up yields. And that is why the government, the US government, is very sensitive to yields rising. And if so, there's a fear that Japanese selling will cause yields to go higher. Well, that is why you saw on Scott Besson's notebook, I guess someone caught a picture of him saying on it, right as, oh, buy Japanese yen, sell, so he actually, you knew that they were, the US was involved in that transaction. And that is very much why the US was involved in the transaction, not necessarily as a friendly gesture, but I'm sure there is, we do have a good relationship with the Japanese government, but I think it was more a, something to protect from a bigger challenge, right? Seeing yields going higher. Now, side note on that, Japan is having the same problem. And that is a very important thing to know for your viewers, right? Because remember we talked about the differentials have been getting smaller, right? Because Japanese yields bond, JGB yields have been going up as well. Yes, their central bank has been raising rates. It's at 1% right now, but their yields on their bonds have been going up. And the reason bonds yields have been going up in Japan to something like two and change percent, which are multi-decade highs, if not all time highs in some cases, is because of the Japanese government right now has taken a very similar stance, which is they're trying to lower taxes and spend more. So every time you see the Japanese administration say something like that, you see Japanese yields going up. And so what that in essence does is it lowers the differential that we've been talking about. And so you see they're having the same challenges as the US is having, but in a different, and it may be in a slightly different scale, but how the effects of what those two fiscal policies are having on international markets and how you can see the effects cascading into, can become a much bigger challenge, right? So for your viewers and just you and me, we may say, oh, we don't get involved in FX transactions. I am unaware of what's happening with Japanese bonds. I don't care about that stuff. Okay, but you need to care about that because of all these things which are connected, whether you want them to be connected or not, the financial markets, they're all connected. They're all connected. You mentioned that the impact of this wasn't big on the markets. It should have been in a normal market. What are you seeing right now in the markets? Is the economy in a way that is very healthy? Yeah, well, that is a, I wish there was a short answer to that, but let's start with why it hasn't impacted the markets, right, because many people, they hear about the economy, but at the end of the day, what happens in the markets is what we see and feel, many of us, if you own stock or you hear about it, it affects people. Even if people don't own stock, we know that it affects their consumption patterns, right, because they hear the stock market's going up. They feel they have higher sentiment. They spend more, so it's very, very important. Why has the market, why is the market sitting near all-time highs right now? And I think it probably is really pushed forward as we're speaking right now. A lot of this is due to the headlines that we're getting right now. Mainly, it's highly driven from what's going on right now in the Strait of Hormuz in Iran, right? So this is a big factor right now impacting markets because that is affecting, what is it affecting? It's affecting over here, certainly in the US, inflation, and inflation drives interest rate policy, affects consumption, affects pretty much everything, right? So that is why markets are being driven by that. And also interest rates, bond yields are going higher, have been going higher based on expected inflation because of what is going on in big part, in large part, what is going on right now in the Iran conflict. So we've been seeing interest rates rise, and certainly we saw more spikes happening as tensions heated up when you saw the ceasefire collapse a couple of weeks ago and intensified. But within the last two days, we have seen tensions thankfully deescalating, and sort of the headlines today have been positive, but we've had positive headlines before too, but the markets react very, very quickly to that. So you see crude oil quickly coming back down. You see a little bit of interest rate, seeing right now, yeah, a little bit of interest rate relief. I'm looking at my screens right here as a result of these positive headlines, right? So the markets are very much driven by these macro geopolitical headlines lately. If this were not happening right now in Iran, you would see a much bigger reaction to the yen intervention and to this potential unwinding trade that is probably happening as we speak more on the speculative side, where this big speculators are probably unwinding because the differentials, because the currencies, because of margin calls and all the things we discussed. Now, there's another thing. Right now, we're in the middle of earnings season right now in the US, and earnings so far have been fabulous, right? They've been really, really good, right? So top line growth has been amazing. Earnings growth has been fabulous. Margins have been increasing, right? These are all the things that you didn't think could happen and they keep happening. And so the surprises are happening on the upside, forward guidance is going beyond what we expect. It's not only in technology, it is now spreading into the industrials for lots of reasons, tech-driven, AI-driven. We heard from this morning from Caterpillar, they make yellow bulldozers, but they also make power equipment that goes into data centers, right? So we just saw a top line growth on an old industrial company that you would only see out of a tech company. So you see all these very, get all these positive, so companies are doing well. Companies themselves are doing well. Whether they can keep doing it or not, that is a separate question, but for now, for the next, let's say, six months to 12 months, these companies look like they're doing well. And that's propping markets up, and it should, as it should. However, there's still the macro, the economy in the background, and the economy, the answer to your question of how is the economy, the US economy doing, is a tough question to answer in a simple answer, like every question you've asked me today. The economy on the surface looks like it's doing well. Let's talk about what that means. Unemployment, 4.2% was the last read. We'll get another one this Friday, whether that spikes up to 4.3. Okay, that looks like it's okay, and the Fed thinks that it is stable. Interest rates, excuse me, inflation is a problem. Inflation has been picking up. However, we know that the bulk of those hot inflation prints is coming from high energy costs, which are driven from the conflict in Iran, and so if that conflict goes away, and it will, and hopefully sooner than later, those prices at the pump, those energy prices, it'll take time, but those will come down, and so inflation will come down and stop crimping, potentially crimping consumption, also taking away the driver for why the Fed might raise interest rates further, and we're still expecting interest rate, at least one interest rate hike between now and the end of the year, although that's probably changing as we speak because of the interest rates, because of the conflict resolution, hopefully, but these things, we know that inflation could get better, but inflation is not the problem in a lot of cases. It's absolute prices that are a problem for average, for folks that are watching this, watching us now, they're probably feeling more pain than the headlines suggest, right? Because remember, right now, not right now, always, inflation is a rate of change. It's just a measure of where prices are this year versus last year, and so if they're 4% higher, that's not good. If they're 5%, that's worse. If they're less than 4%, that's better, but it doesn't really matter to you and me at the end of the day, when you go to the grocery store or you go to the auto dealership or you go to buy a house, you're not thinking about what's the percent of inflation. You're thinking about the absolute price you're paying, and what we all know, all of us, no matter how much money you make, is that you're paying more. Things got very expensive. Everything got very expensive. You have shrink inflation, and you think it's costing more money, and so this is affecting a lot of how people feel right now, and right now, people are holding up. They continue to consume, despite the, some of you see some lower consumer sentiment numbers out there, but people are nervous, so if you asked your viewers, they'd probably tell you that they're okay, but they're nervous. They have high hopes, but they're nervous, but they're not spending less. They're still spending. They're still consuming. How are they consuming? Well, we look at other numbers. We scratch below the surface. We see credit card debt is at all-time highs, credit card balances, so people are using credit cards. We know this. Credit card interest rates are higher than they've ever been. It's something around 22%. What drives that? Bond yields, so those are going up. So are the costs of borrowing. We also see the savings rate. We learned last week in last week's numbers that the savings rate is low and kind of trending lower, so people are saving less means they're spending more of their savings, and they're using credit cards to buy things, and that's fine because that's how it works in the U.S. for the most part. The U.S. is comfortable with that. Not all countries like that, but that can't go on forever. Something has to give, right? Either prices have to come down or what have you. We recently got GDP from second quarter that came in at 1.4 or 5%. That was lower than expected. It was expected to be closer to where we were in Q1, 2.1%. That was last quarter, so we're now in this quarter. So that's gonna be revised, and that number was lower, not for any nefarious reasons. There's still a lot of spending going on in AI. That's propping up growth. People are still spending money more or less. Government is spending less money, interestingly, which kind of pulled that number down a little bit, and net exports came down, which also took out from that number. So the number was lower, but it's not worrisome to economists, but we have to watch it closely. How is that gonna be revised? Because we know it gets revised another several times. And then what's happening in this quarter? Now that we see energy prices are persistently higher, we have new tariffs that might be entering the fray right now. The administration just is focusing on a new type of tariff that might impact things. So there are many, many moving parts right now for the economy, but for the most part, I will tell you that things are holding up, but there's a general sense of unease that has not run away yet, but can very much cause problems. Labor markets are changing right now because of AI. And so we'll get numbers from the labor market on Friday, and we'll look beneath that 4.1, 4.2 number, and we will see that people are leaving the job market, and that could affect that number. There are a lot of numbers beneath those numbers that are all very real numbers, but you really need to go below the surface to recognize what's going on. And you see a lot of people either leaving the workforce or stop looking for jobs. And obviously it affects younger folks more than folks that are more established. We had a JOLTS number earlier today. That's Job Opening Labor Turnover Survey. That number showed less openings than was expected in less than last month. So we have to see, are these just temporarily moves? Are these longer term patterns that would cause the Fed to say, okay, we're not gonna raise rates, maybe we're gonna lower rates in the future, or at least keep them here and stop the hawkish rhetoric that is tamping down a lot of people's fears now. They don't wanna see rates go higher. Most people would generally like to see them go lower, unless you're an economist, so yeah. Now, Mark, with all that you're seeing out there, is there any recommendations you give to people in terms of how they should invest or how they should look at these markets? Yeah, yeah, so let me start with this. Long-term always wins. That is the most important thing to remember right now. Markets are undulating all over the place. There are all these factors that absolutely affect how markets go up and down. You may look at your statements quarterly and say, oh my God, it's going up, or oh my God, it's going down. The advice that has worked, and we have the numbers to prove it, if you can afford to stay in the markets longer, you have a better probability for success, right? Your average returns for longer holding periods goes up. So the goal always is to invest as much as possible, as early as possible, and for as long as possible, right? So you have everything working for you, right? You have the compounding effect working for you, and you have time working for you. And the statistics are in your favor. So when you see these markets, don't try to be cute about it. Just continue to go in, continue to focus on long-term. Now, understand what your risk profile is. That's really important. How much risk can you afford to take? Do you need money in the near term? Are you buying a house? Are you retiring? Do you have a wedding to pay for? Do you have a car that needs to be serviced? If you need money in the near term, you have to be smart about how you invest that money. You don't wanna invest in highly volatile instruments that promise great returns, but the volatility that comes with that might mean that when you really need your money, it's gonna be in a downswing, and you will have a hard time getting your money out. So those folks should be focused on instruments that are less volatile and with more known returns. And in that case, you're talking about lower maturity, near maturity treasuries, which you're guaranteed you're gonna get your money, it's the US government. And the yields are still pretty good. We talked about how they move around a lot. So you wanna make sure that you're in the lower maturities that don't move around as much, and that you can hold them to maturity. If you have a longer focus, then you can look at the more interesting things that are out there. Look, the AI trade, it's a very volatile trade, but there's a lot of upside out there. You have to be smart about it, right? Not every company is the same, but the stock market has still a lot of potential upside as a result of all these opportunities from here. And of course, not every year goes up, but if you're in it for the longterm, you're gonna weather those storms. All you need to do is take a step back and look at a price chart from the S&P 500, and you can look at those times that everyone tells you that there were such terrible times, and you could see right now how much higher we are. So the folks that had the staying power, that stayed in, were rewarded by not panicking and selling when markets trade off, but stay in, cost dollar average, keep investing as much as you can, and stay long focused. Look, these are time proven results, right? I manage lots of money, and I have learned in my years, almost four decades on the street, that long always pays. And I always tell my people, start with this, right? Slow is the new fast, right? It's very easy because we're so inundated with information these days. You hear this, you hear that, you hear about great potential returns here, you hear about something selling off. The intuition of humans is to jump in because you heard it can go up or jump out because you heard it went down, and that is almost always the wrong result. So if you want to increase your probability of success, that's all you can do. You have no guarantees in the market, but you keep that long-term focus, keep investing as much as you can, know your risk, understand the risks that you're getting involved in, and of course, diversity, right? Don't invest in one thing only. Diverse yourself across different types of investments. We like to say that there is no free lunch on Wall Street. I like to say, and I didn't invent it, but I say it all the time, the only free lunch on Wall Street is diversification. So diversify, stay in for the long-term, know your risk, don't react, be proactive. And that's, I can give you, those are my top five market cheats for you right there. Mark Malek, it was great to have you on Market Insider. Thank you so much for coming, and hopefully we'll see you again in person here. Thank you so much, I can't wait. Tell us about your thoughts about this conversation with Mark. Did you learn a lot about the carry trade and our ties to Japan? Make sure to leave a comment and let us know. I'm Siamak, this is Market Insider, we'll see you next time.