To The Moon

$S&P 500(.SPX)$

It’s time to talk about something massive—something that could reshape the global financial system as we know it: the unraveling of the old world order led by the United States.

At the heart of today’s international financial system are two pillars: global trade and the U.S. dollar. But those pillars are cracking. The world is undergoing a dramatic shift away from this decades-old setup, and the ripple effects are starting to surface in ways most investors aren't prepared for.

The Trade War That Rewrote the Rules

When former President Donald Trump launched his tariff war, he didn’t just raise taxes on Chinese imports—he tore up the existing playbook. For decades, globalization was seen as the end goal. Now, the U.S. is doing everything it can to reverse that course, pushing for “onshoring” to make its economy less dependent on Chinese manufacturing.

This effort isn’t just political posturing. It’s happening faster than many expected. In fact, U.S. equipment investment surged nearly 20% in Q1—before the tariffs were even enacted. Supply chains are shifting. Just-in-time inventory models are being rethought. And with the rise of AI and domestic automation, the race to bring production back home is accelerating.

But Trump’s trade war is about more than just job creation. It’s part of a larger effort to insulate the U.S. from global vulnerabilities—especially from economic leverage wielded by rivals like China.

Exporters Face a New Reality

Here’s where things get complicated. For decades, the global trading system operated like a well-oiled machine. The U.S. ran massive trade deficits—over $900 billion in 2024 alone—importing everything from smartphones to T-shirts. Exporters would collect those dollars, then reinvest them into U.S. assets: stocks, bonds, real estate. This cycle underpinned the rise of Wall Street.

But that cycle is now breaking.

As the U.S. erects trade barriers, exporters are forced to rethink their entire economic model. They’re earning fewer dollars. They're questioning the wisdom of reinvesting in dollar-denominated assets. And they're getting nervous—because the value of those assets is starting to fall.

Take Korean exporters as a case in point. The dollar fell nearly 7% against the Korean won in just two months. That’s a huge hit. For companies invoicing in dollars but reporting in won, that currency swing can wipe out profit margins entirely.

So what happens next? They either raise prices on U.S. buyers—risking lost business—or look for alternative markets. Meanwhile, they’re sitting on billions in dollar reserves that are rapidly losing value. The pressure to sell is real, and rising.

Confidence Is Cracking—And the Dollar Is Dropping

We’re witnessing something rare: a confidence collapse in the U.S. dollar.

It’s not just tariffs. The U.S. government’s fiscal trajectory is raising alarm bells. Trump’s tax policies—combined with unchecked spending—are set to add trillions to the national debt. And if that spending doesn’t stimulate growth? Then bondholders start to panic.

That’s the warning Standard Chartered recently issued: a potential dollar crash by 2026. If the U.S. can't grow its way out of the debt—or rein in its spending—then the only option left is to borrow more. That would spook foreign investors who already hold over $7.5 trillion in U.S. assets, much of it in low-yielding Treasury bonds.

The result? A rush to the exits.

Retail and institutional investors alike are already feeling the sting. Taiwanese insurers alone are staring down $18 billion in currency-related losses. As the dollar falls, their U.S. holdings become less valuable. At some point, selling becomes the only rational move.

The Domino Effect: Bonds, Yields, and Global Markets

This isn’t just about stock portfolios. When foreign investors sell Treasuries, yields rise. And when yields spike, the U.S. economy slows. It's a cascading effect—higher rates mean more borrowing costs, slower growth, and weaker equities.

That’s exactly what we’re seeing now. Bond yields are climbing—again. The 30-year U.S. Treasury is near 5%, while the 10-year is pushing past 4.5%. That’s a red flag for both domestic and foreign investors. If they sell now, they lock in a loss. But if they hold, they risk further devaluation.

It’s a lose-lose situation.

Worse still, if even one major player decides to dump their holdings, it could set off a domino effect—like a global-scale margin call. In a world of real-time trading apps and instant liquidity, that kind of panic can spread at lightning speed.

Japan: The Ticking Time Bomb

While all eyes are on China, the real flashpoint might be Japan.

Japanese investors are major holders of U.S. Treasury debt. But bond yields in Japan are finally starting to rise. The spread between Japan’s 30-year and 10-year bonds has jumped by 1.5%. That makes local bonds much more attractive to Japanese investors—especially since they don’t carry currency risk.

Domestic insurers like Dai-ichi Life, managing over $450 billion in assets, are already sitting on tens of billions in paper losses. Over half of their portfolios are in 20- to 40-year bonds, which are getting hammered as yields rise. If they’re forced to rebalance—selling U.S. bonds to prop up their yen holdings—it could accelerate the global exodus.

To make things worse, Japan’s Ministry of Finance has hinted it may change the structure of its bond issuance—shifting away from ultra-long bonds and focusing more on the 5- to 10-year range. That would directly compete with U.S. Treasuries in the most liquid part of the curve.

And if that happens? We could see a feedback loop: Japanese investors sell U.S. bonds to buy local ones, pushing the yen up and the dollar down. That would make U.S. assets even less attractive to foreign holders—fueling more selling.

Final Thoughts: A System Under Siege

The global financial system is entering uncharted territory. U.S. fiscal policy is out of control. Trade wars are fragmenting supply chains. Exporters are losing confidence in the dollar. And global bond markets are flashing red.

The next trigger could come from anywhere: a U.S. recession, a Japanese bond shock, or a sudden policy change from a major central bank. But the writing is on the wall: the world is preparing for life beyond dollar dominance.

If exporters continue to dump U.S. assets, and Japan leads the charge, we could see a global reordering unlike anything in recent memory.

What do you think? Will Asia continue to unwind its dollar holdings? And could Japan be the first domino to fall?

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

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