Former hedge fund star says this is what will trigger the next bear market.

Much of Wall Street expects easing inflation, but an overshoot could dash hopes of a May rate cut, curtailing the S&P 500’s
SPX
waltz with 5,000, warn some.

Read: Arm’s frenzied stock rally continues as AI chase trumps valuation.

What might take this market down eventually? Our call of the day from former hedge-fund manager Russell Clark points to Japan, an island nation whose central bank is one of the last holdouts of loose monetary policy.

Note, Clark bailed on his perma bear RC Global Fund back in 2021 after wrongly betting against stocks for much of a decade. But he’s got a whole theory on why Japan matters so much.

In his substack post, Clark argues that the real bear-market trigger will come when the Bank of Japan ends quantitative easing. For starters, he argues we’re in a “pro-labor world” where a few things should be playing out: higher wages and lower jobless levels and interest rates higher than expected. Lining up with his expectations, real assets started to surge in late 2023 when the Fed started to go dovish, and the yield curve began to steepen.

From that point, not everything has been matching up so easily. He thought higher short-term rates would siphon off money from speculative assets, but then money flowed into cryptos like Tether and the Nasdaq recovered completely from a 2022 rout.

“I have been toying with the idea that semiconductors are a the new oil – and hence have become a strategic asset. This explains the surge in the Nasdaq and the Nikkei to a degree, but does not really explain tether or bitcoin very well,” he said.

So back to Japan and his not so popular explanation for why financial/speculative assets continue to trade so well.

“The Fed had high interest rates all through the 1990s, and dot-com bubble developed anyway. But during that time, the Bank of Japan only finally raised interest rates in 1999 and then the bubble burst,” he said.

He notes that when Japan began to tighten rates in late 2006, “everything started to unwind,” adding that the BOJ’s brief attempts [to] raise rates in 1996 could be blamed for the Asian Financial Crisis.

In Clark’s view, markets seem to have moved more with the Japan’s bank balance sheet than the Fed’s. The BOJ “invented” quantitative easing in the early 2000s, and the subprime crisis started not long after it removed that liquidity from the market in 2006, he notes.

“For really old investors, loose Japanese monetary policy also explained the bubble economy of the 1980s. BOJ Balance Sheet and S&P 500 have decent correlation in my book,” he said, offering the below chart:


Capital Flows and Asset Markets, Russell Clark.

Clark says that also helps explains why higher bond yields haven’t really hurt assets. “As JGB 10 yields have risen, the BOJ has committed to unlimited purchases to keep it below 1%,” he notes.

The two big takeaways here? “BOJ is the only central bank that matters…and that we need to get bearish the U.S. when the BOJ raises interest rates. Given the moves in bond markets and food inflation, this is a matter of time,” said Clark who says in light of his plans for a new fund, “a bear market would be extremely useful for me.” He’s watching the BOJ closely.

The markets

Pre-data, stock futures
ES00,
-0.41%

NQ00,
-0.80%

are down, while Treasury yields
BX:TMUBMUSD10Y

BX:TMUBMUSD02Y
hold steady. Oil
CL.1,
+0.79%

and gold
GC00,
+0.46%

are both higher. The Nikkei 225 index
JP:NIK
tapped 38,000 for the first time since 1990.

Key asset performance

Last

5d

1m

YTD

1y

S&P 500

5,021.84

1.60%

4.98%

5.28%

21.38%

Nasdaq Composite

15,942.55

2.21%

6.48%

6.20%

34.06%

10 year Treasury

4.181

7.83

11.45

30.03

42.81

Gold

2,038.10

-0.17%

-0.75%

-1.63%

9.33%

Oil

77.14

5.96%

6.02%

8.15%

-2.55%

Data: MarketWatch. Treasury yields change expressed in basis points

The buzz

Due at 8:30 a.m., January headline consumer prices are expected to dip to 2.9% for January, down from 3.4% in December and the lowest since March 2021. Monthly inflation is seen at 0.3%.

Biogen
BIIB,
+1.56%

stock is down on disappointing results and a slow launch for its Alzheimer’s treatment. A miss is also hitting Krispy Kreme
DNUT,
+1.99%
,
Coca-Cola
KO,
+0.24%

is up on a revenue rise, with Hasbro
HAS,
+1.38%
,
Molson Coors
TAP,
+3.12%

and Marriott
MAR,
+0.74%

still to come, followed by Airbnb
ABNB,
+4.20%
,
Akamai
AKAM,
-0.13%

and MGM Resorts
MGM,
+0.60%

after the close. Hasbro stock is plunging on an earnings miss.

JetBlue
JBLU,
+2.19%

is surging after billionaire activist investor Carl Icahn disclosed a near 10% stake and said his firm is discussing possible board representation.

Tripadvisor stock
TRIP,
+3.04%

is up 10% after the travel-services platform said it was considering a possible sale.

In a first, Russia put Estonia’s prime minister on a “wanted” list. Meanwhile, the U.S. Senate approved aid for Ukraine, Israel and Taiwan.

Best of the web

Why chocolate lovers will pay more this Valentine’s Day than they have in years

A startup wants to harvest lithium from America’s biggest saltwater lake.

Online gambling transactions hit nearly 15,000 per second during the Super Bowl.

The chart

Deutsche Bank has taken a deep dive into the might of the Magnificent Seven, and why they will continue to matter for investors. One reason? Nearly 40% of the world still doesn’t have internet access as the bank’s chart shows:

Top tickers

These were the top-searched tickers on MarketWatch as of 6 a.m.

Ticker

Security name

TSLA,
-2.81%
Tesla

NVDA,
+0.16%
Nvidia

ARM,
+29.30%
Arm Holdings

PLTR,
+2.75%
Palantir Technologies

NIO,
+2.53%
Nio

AMC,
+4.11%
AMC Entertainment

AAPL,
-0.90%
Apple

AMZN,
-1.21%
Amazon.com

MARA,
+14.19%
Marathon Digital

TSM,
-1.99%
NIO

Random reads

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Messi the dog steals Oscars’ limelight.

Love and millions of flowers stop in Miami.

Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern.

Check out On Watch by MarketWatch, a weekly podcast about the financial news we’re all watching – and how that’s affecting the economy and your wallet.

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I don’t want to leave my financially irresponsible daughter my house. Is that unreasonable?

I am at my wit’s end and hope someone can recommend ways to help my daughter’s unwillingness to manage her money. When I am gone her chances are slim to none. I am a senior citizen and I’ve had cancer four times in the last three years, so I don’t know how much longer I have. 

I already told her I’d leave her a few thousand dollars from my retirement funds, but I know she’ll blow through whatever I give her. I don’t want to leave her my house in my will. Am I being unreasonable? The loan balance is only $28,000 and mortgage payments are very low. One reason: She’ll be even less motivated to manage her finances wisely if she knows she will get it.  

I’ve talked to my therapist and he has no solutions. All my daughter’s friends are similarly ill-equipped, and there is no adult that she would heed. My therapist said: “Why should I care?” But I do. Plus, she won’t be able to pay the ongoing taxes, insurance and maintenance because of her free-wheeling spending.  

I told her not to spend her modest retirement balance from a previous job. She did and her reason was that she said it was small. I let her use my car, and pay maintenance and insurance.  I pay for her phone. She pays no rent and nor does she do many chores. Oftentimes, she is short of money, and I have to give her a loan. She keeps getting credit cards, pays them off, then repeats the cycle.

When I try to talk to her calmly, she argues. I tried to get her to set up a budget. She won’t do it.  Earlier she agreed to pay the entire phone bill as her contribution. She simply auto-paid using her credit card. The card went into arrears so I had to make good on that, and resume responsibility.

I try to set up small goals for her, but she’s not receptive. Yet she buys plenty of snacks, cosmetics and goes on vacations. I’ve offered to have us meet an adviser of her choice to tackle these issues, but again she’s not interested. I’ve even suggested I’m going to take a home-equity loan to spend on myself and she’d have to pay it back but again, no response.

I love her very much, but don’t know what to do. My wife sabotaged my efforts in her misguided kindness when our daughter was younger. She no longer does that, but it’s too late.

In short, she’s not willing to manage her money properly. She is in school now, but worked several years full time, and is now working part time. I promised her I’d put money toward her degree, but I’m going to pay it directly to the school.

I have calmly told her of the dire consequences of her actions, but it doesn’t get through to her.

The Father 

“You may not realize it, but your daughter, your wife and your good self are all playing a game.”


MarketWatch illustration

Dear Father,

Think twice before disinheriting your daughter. If she is your only child, don’t allow your frustrations to posthumously punish her.

First things first: Take care of yourself. You have had recurring battles with cancer, and that may have taken a toll on your health. Your fears and concerns about your own mortality may be contributing to this laser focus on your daughter’s wellbeing. It could be that you believe you have a shorter period of time to ensure your daughter balances her books, and gets back on the right track, but the truth is that she is operating on her own timetable.

That said, the situation you describe sounds extremely dysfunctional. You are both the enabler and the avenger — paying her phone bill and rent, and threatening to cut her out of your will. What’s more, you and your wife — intentionally or not — are playing good cop/bad cop. This is a “Kramer vs. Kramer” situation where your daughter is able to play her parents off against each other. One rewards, the other chastises. 

It seems like your daughter’s cycle of taking out credit cards is mirrored by the cycle of cat-and-mouse you play with her, even if you do it without realizing it. You are all caught inside a long-running saga that is, perhaps, inherited from your own parents. Your daughter will never be who you want her to be. She can only be who she is, make mistakes, learn from them (or not) and hopefully grow and mature over time. 

You may not realize it, but your daughter, your wife and your good self are all playing a game. Your daughter rebels, you threaten to disinherit her, and your wife plays peacemaker. You are tough with your daughter, your wife shows her kindness, and your daughter plays you both off against each other. Not all games are fun, but they do form a pattern that is so embedded in the family dynamic that it’s hard to see it from the inside.

The ‘games’ people play

Eric Berne wrote a landmark book in 1964 entitled “Games People Play.” He defined these games as follows: “A game is an ongoing series of complementary ulterior transactions progressing to a well-defined, predictable outcome.” It could be “If It Weren’t For You” (perhaps a common one between unhappy spouses) or “Yes, but” (where one person cajoles another to take action, but the other person always has an excuse for inaction). 

Each game has a gimmick and a payoff. I’m not sure what game you’re playing, but it’s repetitive and everybody is getting some kind of reward, even if it is an unhappy one. That is something you will have to figure out. You get to be the leader who knows how the world works, your wife gets to be Switzerland (while surreptitiously fanning the flames) while your daughter gets to defy you and assert her independence, knowing it will provoke you to repeat the cycle.

My point is: You all need family therapy! Not just your daughter. Or you. Or your wife. You need to process this together. Whether or not you leave your daughter your house is, at this point, irrelevant. The threat that you will withhold a large part of your inheritance is the key part. Why would you do that? Would it really solve anything to make your daughter even more financially insecure? Is punishing her more practical and effective than rewarding her?

Elephant in the room

The other elephant in the room is what happens if you predecease your wife. You may wish for your daughter to be disinherited except for a few thousand dollars, but this game of good cop/bad cop and rebellious daughter may continue after you’re gone with your daughter convincing your wife to not act in accordance with your wishes. That may be the final denouement to this “game,” or perhaps a relative or lawyer would take your place.

Your daughter is, I suspect, being infantilized by the constant criticisms and interference in her finances. You don’t trust her enough to make her own decisions, so you interfere and get frustrated by all her bad habits and, as you see them, mistakes. But it also helps prevent her from standing on her own two feet and facing the music when things go wrong. Why? She knows you will step in to show (a) you care and (b) you told her so.

There are financial therapists who can help you analyze your emotional relationship to money and why you make the decisions we do. But it may be that you all have to make decisions that go against your instincts. Stop trying to change your daughter, and stop bailing her out. She may do her utmost to provoke you to lose your cool with her. No more loans. Let her go on vacation. Just don’t be around to pick up the bill.

You could set up a trust with stipulations: when your daughter receives certain amounts of money and how she is allowed to spend it. There is a balance between being too controlling and prescriptive enough to encourage her to make good choices. But ultimately that is out of your hands. As I said at the beginning of my response, I worry that your responses to her are exacerbated by your fears over your own health.

It would be a shame to waste these years sparring with your child when you could put all that aside, and enjoy each other for you are, instead.

More from Quentin Fottrell:

Is it OK for my new boyfriend to ask me to split the bill? ‘I don’t want him to get used to me paying for my own meals.’

My stepdaughter is executor to her late father’s will, and believes she’s now on the deed to my home. Is that possible?

I inherited $246,000 from my late mother and used $142,000 to pay off our mortgage. If we divorce, can I claim this money?

You can email The Moneyist with any financial and ethical questions at [email protected], and follow Quentin Fottrell on X, the platform formerly known as Twitter. The Moneyist regrets he cannot reply to questions individually.

Check out the Moneyist private Facebook group, where we look for answers to life’s thorniest money issues. Readers write to me with all sorts of dilemmas. Post your questions, or weigh in on the latest Moneyist columns.

By emailing your questions to the Moneyist or posting your dilemmas on the Moneyist Facebook group, you agree to have them published anonymously on MarketWatch.



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