That was ugly. It looked like a blow out earnings report put the market back on track, only to see a massive intraday reversal.

NVDA did its part: record revenue, sturdier guidance, margins holding, and data‑center demand that still looks more secular than cyclical. Yet the tape rolled over anyway.

Famed “Big Short” investor Michael Burry has been questioning AI…..

But remember he’s also called 200 of the last 2 market selloffs.

The final payroll print before the December FOMC was mixed—headline jobs solid, unemployment up to 4.4%—and a string of hawkish Fed comments reminded everyone the bar for a December cut is high. That one‑two (AI capex intact, policy support uncertain) explains the intraday reversal, VIX jump, and why even a clean NVDA beat couldn’t pull the complex higher. In short: the first pillar of the bull case (capex) held; the second (a dovish Fed) wobbled.

Odds of a December cut slipped as officials leaned “go slow,” and this was the last jobs print the committee sees before the meeting.

NVDA’s strength came from units, pricing, networking attach, and Blackwell ramp—not accounting noise—so the AI build remains funded, even if leadership rotates inside the stack.

Noise: treating December vs. January as a binary cliff. The path matters more than the month; if employment cools, policy still migrates toward neutral. Also noise: extrapolating one risk‑off day into “AI is over.” The market is recalibrating position and price, not abandoning compute.

How I’m Trading It

I’m still building exposure—but smaller, later, and with defined risk.

• Upside, defined: favor call ratio spreads when I can, (buy out of‑the‑money, finance with at the money strikes) instead of max‑delta calls.

• Hedges over hope: keep 1–2 month SPX/QQQ put spreads sized to offset a slice of equity beta; on jumpy days I’ll use intraday 0DTE put ratio spreads to cover tails. People always ask me how much of their portfolio should be hedged. If you haven’t been happy the past couple of days then the answer is more than you currently have.

• AI barbell: accumulate quality “arms dealers” with pricing power and operating leverage—networking and power/cooling (ANET, AVGO, VRT) and select servers (DELL/HPE on pullbacks)—while avoiding balance‑sheet stretch and vendor‑credit dependency until credit spreads calm.

• Healthcare ballast: stay overweight durable cash generators and obesity/oncology leaders (LLY, NVO, JNJ, MRK); use XBI call spreads for controlled exposure to improving biotech breadth.

• Income with brakes: when I sell downside, I’m mostly doing put spreads over naked puts to cap gap risk in a hawkish tape.

What I’m Watching

Hyperscaler and sovereign AI order visibility on NVDA follow‑through; any softening in backlog conversion or utilization commentary; jobs data timing quirks into the December meeting; simple price—the 50/100‑day on SPX/QQQ—and credit tells around AI‑linked issuers. Net‑net, the playbook hasn’t changed: lean into AI where cash flows and moats are real, finance upside with structures that pay for themselves, and keep hedges on so you can buy weakness instead of selling fear. I’m nibbling the names I want, in smaller size, using ratio spreads whenever I can, and when I write puts I’m doing more put spreads than naked puts until the Fed pillar starts to firm.

I’ve talked at length about AI capex and the Fed as the key market drivers, but beneath the surface another issue may be lurking that not many people are focused on…..

The news

Long‑dated JGB yields have ripped to multi‑decade highs (30‑year near the mid‑3%s), while foreign buyers have been scooping ¥10Y+ paper at a record pace. Currency‑hedged yields on the long end now screen compelling versus Treasuries and Bunds, thanks to wide short‑rate differentials. At the same time, the classic “cheap yen funding” that underpinned global carry (including equity and basis trades) is less assured as BoJ tapering and domestic demand shifts make Japan’s curve more volatile and the term premium positive again.

Why It Matters

If the Yen Carry trade goes away it could take money out of our markets. For a decade, macro and stat‑arb books funded in ¥ at de minimis rates and bought USD assets or cross‑currency basis. If JPY funding costs grind up (or simply becomes more volatile) while USD collateral haircuts rise, the PnL convexity of levered long‑risk trades worsens. That can force deleveraging in crowded positions (U.S. tech, EM carry, credit beta) even without an outright shock.

Potential market impacts

• U.S. equities: Marginal headwind to long‑duration growth and crowded AI complex when the discount‑rate narrative and funding narrative both tighten. Not necessarily a crash trigger—more like sand in the gears that raises the bar for multiple expansion.

• Credit: Higher all‑in hedged JGB yields compete with IG credit for global income flows. Spread products sensitive to foreign demand could cheapen at the margin, especially at the very long end.

• FX/vol: A JPY impulse (intervention risk around 155–160; policy drift) can force deleveraging in yen‑funded books. Expect episodic spikes in USDJPY and a fatter‑tailed VIX distribution on “Tokyo time” headlines.

• Systematic flows: Trend and vol‑target strategies may reduce gross if JGB/FX vol bleeds into SPX realized. Short‑term rebalancing can amplify intraday reversals.

News vs. noise (what actually matters)

Noise: “Foreigners buying JGBs = bullish everything.” The signal is subtler: hedged JGBs are now a credible competitor for duration and a more volatile yen funding tape increases the fragility of levered risk.
News: The yen carry is no longer a one‑way free lunch. Even small JPY rate/basis moves can force position trims across otherwise unrelated assets.

Bottom line

A rising, more volatile Japan term premium plus a less reliable yen carry changes the plumbing of global risk. It doesn’t end the bull case by itself, but it raises fragility: lower safe gross, tighter position sizing, and more respect for funding shocks. In a market already debating AI capex sustainability and a will‑they/won’t‑they Fed, the last thing you want is to be the weak hand financed in a currency that just woke up.

The H.E.A.T. (Hedge, Edge, Asymmetry and Theme) Formula is designed to empower investors to spot opportunities, think independently, make smarter (often contrarian) moves, and build real wealth.

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