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
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


are down, while Treasury yields

hold steady. Oil

and gold

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

Key asset performance






S&P 500






Nasdaq Composite






10 year Treasury


















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%.


stock is down on disappointing results and a slow launch for its Alzheimer’s treatment. A miss is also hitting Krispy Kreme

is up on a revenue rise, with Hasbro
Molson Coors

and Marriott

still to come, followed by Airbnb

and MGM Resorts

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


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

Tripadvisor stock

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

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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.


Security name



Arm Holdings

Palantir Technologies


AMC Entertainment



Marathon Digital


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Europe has a tobacco smuggling problem it needs to curb

Putting an end to tobacco smuggling would mean extra money in the budget to help those who need it the most — an ideal the European Union leaders vowed to uphold, Cristian Gherasim writes.

Unfortunately, contraband and counterfeit goods have always been making their way into the EU with great costs to the economy, health and security of its member countries. 

The illicit tobacco market stands out for its sheer size and the many problems that it brings. 

According to the World Health Organisation, the illicit tobacco market may account for as much as one in every 10 cigarettes consumed globally, and the problem is particularly acute in Europe. 

Furthermore, the European continent leads in the highest number of contraband tobacco product seizures in the world, with some years accounting for as much as 95% of all cigarettes confiscated globally. 

EU’s eastern border an intentional target

The points of entry for contraband goods into the EU are several, with France having fought the flow of illegal cigarettes coming from Algeria for many years. 

The port in Antwerp — Europe’s second-largest — has also been used to bring illicit goods to the continent, while the Belgian authorities dismantled a large-scale illegal cigarette factory some 40 kilometres from the city mere days ago.

Yet, one of the most lucrative regions over the past decade for tobacco smugglers is on the EU’s eastern border. 

Illegal trade is big business in Romania’s eastern region, one of the poorest in the EU, especially in the areas bordering Ukraine and Moldova. Data shows that one in every 10 contraband cigarettes in the EU is smoked in Romania.

The war next door has created new opportunities for smugglers at the Romanian-Ukrainian border in response to an ever-growing demand for cheaper, albeit more dangerous, cigarettes.

The industry reports a 19% increase in smuggling over last year in Romania alone.

According to Stop Contrabanda, a website monitoring contraband cigarette busts, 110 million contraband cigarettes were seized by the Romanian authorities in 2022 alone. 

The risks of illicit trade are growing and manifold, as pointed out by OLAF, the European anti-fraud office.

From ‘Mister Marlboro’ to the ‘Tobacco Metropolitan’

It’s no secret that cigarette smuggling has helped fund terrorism and organised crime around the globe. 

Notoriously, the al-Qaeda in the Islamic Maghreb (AQIM) has been using cigarette smuggling to finance its terrorist operations, in particular while under the notorious Algerian commander, smuggler and arms dealer Mokhtar Belmokhtar — also known as “Mister Marlboro”.

Russian Orthodox Church’s Patriarch Kirill, known both for his vast unexplained riches and vocal support of Vladimir Putin and his war against Ukraine, was dubbed “Tobacco Metropolitan” for his alleged profiteering off of duty-free cigarettes in the aftermath of the Soviet Union’s dissolution.

Now-former Montenegrin President Milo Đukanović, who ruled the small Balkan country for nearly three decades, was also implicated in accruing significant wealth by means of cigarette smuggling during the Yugoslav wars of the 1990s.

In southeastern Europe, on Romania’s eastern border, smugglers are opening up new routes counting on the mountainous terrain to force Romanian police officers less inclined to patrol the area, thus allowing traffickers to reach their destination.

These routes end up being used not only by smugglers but also by various groups of organized crime, weakening the EU’s border at the time of conflict.

Billions of euros lost could have gone into fighting poverty

It’s not only the EU’s southeastern border that’s at risk; the Ukrainian state is being targeted at a time of great need. 

Ukrainian state coffers are losing money because of illicit trade. According to GLOBSEC think-thank, in Ukraine, the illicit tobacco trade resulted in revenue losses of as much as 20.5 billion hryvnias (€505 million) in non-paid or underpaid taxes in 2022 alone.

For the EU, cigarette smuggling and other forms of illicit trade in tobacco products cause an estimated €10bn of revenue loss to the bloc’s and national budgets each year. 

Romania — as both a point of entry and a consumer of smuggler products — lost over €6bn over the past decade due to the illicit trade of cigarettes. 

This money could go into fighting poverty in the very same eastern regions most prone to smuggling activities.

Probably worse than smoking is smoking contraband and counterfeit tobacco.

Besides the heavy yearly losses to the budgets of EU countries and the EU institutions in lost customs duties and taxes, illegal tobacco poses a great health risk as counterfeit cigarettes aren’t checked by anyone with anything from hay to asbestos possibly going into their manufacturing.

The industry and civic society both play a role

Increasing border police activity, and strengthening and enforcing legislation, including laws on online sales of counterfeit goods, are much-needed measures.

At the EU’s southeastern border, Romanian authorities should be further engaging stakeholders to stop illicit trade. 

Some initiatives are already underway both by the tobacco industry, which is also affected by the illicit trade, as well as with NGOs targeting it. 

For example, British American Tobacco is giving scanners and cameras to Romanian border police and running anti-smuggling campaigns to raise awareness, according to local media reports. 

The Romanian NGO ACTIV is educating the public about counterfeit goods, what gives them away as being fake and the risks associated with using them. 

National authorities should also engage international bodies like the WHO to eliminate illicit trade, the EU’s External Action Service to secure borders and trade, as well the European Commission. 

European Union’s ideals are at stake, too

The European Commission, via its Anti-Fraud Office, has the mandate to fight tobacco smuggling into the EU as this is a cross-border issue affecting multiple member states simultaneously.

Partnering with local communities to both uncover smugglers and routes as well as to alleviate poverty and the social problems that fuel illicit trade in the first place should also be high on the agenda.

Health safety and squandered public money are sufficient motives to want to stop illicit trade, and with a war raging next door, security is on everyone’s mind.

But most importantly, putting an end to tobacco smuggling would mean extra money in the budget to help those who need it the most — an ideal the European Union leaders vowed to uphold.

Cristian Gherasim is an analyst, consultant and journalist with over 15 years of experience focusing on Eastern and Central European affairs.

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