Podcast · Kvarn X · 2025-06-09 · 55:41 · In Finnish
The Wrong Economic Policy? — Sami Miettinen on Kvarn X
Published as “Väärää Talouspolitiikkaa? - Sami Miettinen”
Hosted by: Martin Wichmann
Disclosure. This is Kvarn Capital’s own production with Miettinen as the guest, and Kvarn Capital is a commercial partner of Neuvottelija. It was recorded as a cross-episode: Wichmann appears on the Neuvottelija side in episode 337. Miettinen discusses his own positions, including a roughly one per cent bitcoin allocation. Not investment advice.
The yen carry trade is the centre of it
Miettinen starts from structure rather than from the news. Bretton Woods pegged together things that should not have been pegged — the dollar to gold, other currencies to the dollar — and it holds until it does not. The yen carry trade is a milder expression of the same phenomenon, and it has been a classic among classics for thirty years.
It worked because three things were true at once. The yen trades as a strong currency, because Japanese households hold a great deal of wealth and companies own their assets, even though the state is more than 200 per cent indebted and the central bank complex buys the debt. Domestic bond demand kept Japan’s yield curve the lowest and flattest in the world. From which it followed that it paid to borrow in yen and invest in the dollar — in enormous size and with heavy leverage.
What changed
The wobble in confidence in the US reserve position has raised risk premia, and as a side effect the risk premium has risen inside the carry trade itself. Japan’s long end has started to rise. Japan sits around three per cent, the United States closer to five, so a pickup of roughly two per cent is still available on paper. But yen borrowing is no longer available in the same way, because the Japanese complex now wants to finance itself.
The consequence is direct: less loan money leaves Japan for the dollar complex — Treasuries, corporate paper, other US instruments.
What it does to the US debt market
Three things simultaneously. The dollar has weakened further. The long-end rate has risen, leaving the US yield curve U-shaped. And there is an exceptional amount to refinance: a federal debt stock of 37 trillion, rising by several trillion more under the tax bill, with tax revenues removed at the same time.
On top comes a structural problem that is not in the news: issuance was skewed to the short end under Yellen-era policy. Long-end bond financing is no longer really available from abroad or domestically, so the long-end rate rises on both risk premium and sheer availability. The Chinese are not enthusiastic buyers while being hit with tariffs. The long end has risen in Japan, in Europe and more or less everywhere.
Wichmann asks whether the rate must in theory rise if there are no buyers. We are living under quantitative tightening, Miettinen answers, and a return to QE is always possible — it is precisely what Trump is demanding out loud. But as long as we are playing at an independent Fed, you are entirely right: weak demand has to be compensated with a better rate.
The turn that has not been seen before
This is the sharpest observation in the episode. Uncertainty of this kind has always strengthened the dollar and lowered rates — the dollar was the haven. Now, for the first time, self-inflicted uncertainty weakens the dollar and raises US rates at the same time. Miettinen judges that Trump did not foresee this and is wrestling with it alongside his advisers, facing a fairly hostile Fed that will not correct the effect the way he would prefer.
On Jamie Dimon’s warning that the bond market is cracking, he is calm: the man has far more standing, and may be right, but a five per cent thirty-year yield is not strange to him. Debt service cost is a problem when it is a problem. The more relevant question is where you would run.
Where would you run
The dollar is about 60 per cent of the global currency basket and the euro 20, and the candidates are thin. The euro would be the logical mini reserve currency, but the political and fiscal system on top of the currency is missing — the EU budget is 1.4 per cent of GDP against the US federal government’s 20 — which is why he points to his own ECU-2 twin-currency proposal as the route out. The yen carries enormous leverage and a creaking long end. The renminbi sits on a fairly totalitarian state with vast local property debt. Sterling he calls a complete basket case. What remains is gold and bitcoin, and he has been cutting his own US weighting toward 50 per cent.
Tariffs
Part game, part strategy, with echoes of Nixon breaking Bretton Woods with no plan whatsoever. The frame is Taleb’s antifragile: the United States withstands shaking better than anyone else and may benefit from it. The practical assessment is reassuring, though — a tariff is a value added tax on goods, and the federal government has no VAT. A move from a historical five per cent to fifteen spreads across product categories and is not large next to Finland’s 25.5 per cent. The headline numbers are part of the game and the market has learned to see through them. He rejects the deliberate-dollar-weakening reading: if that were the tactic it would not work like this, because the risk premium rises rather than falls.
Bitcoin treasury companies
The conversation loops back to where it started. Michael Saylor’s strategy is the carry trade reinvented — borrow in the soft currency and invest it in bitcoin — and Miettinen’s critique is technical:
They are still carry trades, and they carry the same maturity transformation problem: bitcoin is not a natural long-horizon yield asset but a zero-duration asset. It is a carry trade without a yield.
On top comes basis risk: if the price falls from a hundred thousand to seventy, the asset is down thirty while the debt stays at a hundred plus interest. The premium to NAV at Strategy and Twenty One Capital draws a comparison to bank leverage and to Sampo Bank being sold to Danske at 3.4 times book — with enough leverage a price-to-book of three is possible when the underlying already carries returns inside it, but a threefold value before the investment has even been made cannot be justified. He still does not recommend shorting: markets can stay irrational longer than you can stay solvent.
Finland, and the closing verdict
The domestic section is blunt. He does not follow the economic reporting of the public broadcaster or the main daily, because they ask for opinions from a woolly-jumper economist — an interest-group economist looking only at Finland’s internal affairs, whose information value for an investor can be negative. The counter-example is Argentina, which cut a deficit worth four per cent of GDP in a single year. The lesson for Finland is 12 billion out of the budget immediately, preferably 20, and a figure nobody tracks: the average Finnish adult owns about €150,000 including their home, the average Swiss €657,000.
Asked for a verdict, he splits it. Part of Trump’s antifragile shaking is theatre and the tariff level probably settles around fifteen per cent. The open question is whether the loss of confidence in the American bond and reserve complex becomes permanent, and whether Japan’s carry trade breaks permanently — if so, risk premia stay elevated and hold asset values flat. Even so he has barely reduced risk, rebalancing into Europe and slightly into Finland, and remains in fairly neutral spirits.
From the same session: Neuvottelija's own episode
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