WEBVTT - This Is Why Japan Is CRASHING The US Market! 0:00:00.160 --> 0:00:03.080 The Bank of Japan versus the Federal Reserve and how 0:00:03.120 --> 0:00:05.800 their battle crashed the market, and of course what this 0:00:05.920 --> 0:00:09.240 means for you now in today's over financialized world, the 0:00:09.280 --> 0:00:12.840 battle between major central banks can change the asset prices 0:00:13.080 --> 0:00:15.240 in the blink of an eye, and today the stakes 0:00:15.240 --> 0:00:18.600 have never been higher. Japan and the Federal Reserve are 0:00:18.600 --> 0:00:21.599 locked in a battle that sent shockwaves through the entire 0:00:21.680 --> 0:00:22.920 global markets, and the. 0:00:22.920 --> 0:00:25.000 Aftermath could change everything. 0:00:25.079 --> 0:00:27.680 Now what happened, Well, just a few days ago, Japan 0:00:27.720 --> 0:00:31.920 took an unexpected and very bold step that nobody thought 0:00:31.960 --> 0:00:34.360 that they could or that they would do this, and 0:00:34.400 --> 0:00:37.479 basically they raise interest rates against all odds. Now, this 0:00:37.600 --> 0:00:40.760 was a direct challenge to the Federal Reserves dominance and 0:00:40.800 --> 0:00:44.960 has thrown markets into complete chaos. But why did they 0:00:45.000 --> 0:00:47.400 do it and how does this impact you? 0:00:47.680 --> 0:00:47.880 Now? 0:00:47.880 --> 0:00:49.600 In this video, we're going to dive deep into the 0:00:49.680 --> 0:00:52.960 economic chess game that's being played on a global scale. 0:00:53.120 --> 0:00:54.000 We're going to look at. 0:00:53.920 --> 0:00:57.400 How Japan's strategic move against the Fed isn't just about 0:00:57.440 --> 0:01:01.560 saving their currency, it's about redefining global financial power. We're 0:01:01.560 --> 0:01:04.200 going to look at the hidden strategies that traders around 0:01:04.200 --> 0:01:07.680 the world were using and how they're all now unraveling, 0:01:07.880 --> 0:01:10.919 and of course what all this means for your investments 0:01:11.040 --> 0:01:14.880 and your financial future. Now, having this information is going 0:01:14.959 --> 0:01:16.840 to make sure that you're ready to capitalize on the 0:01:16.920 --> 0:01:20.479 risks and the opportunities at play, and if you want 0:01:20.480 --> 0:01:21.800 to protect and grow your wealth. 0:01:21.600 --> 0:01:24.000 The two doesn't. So let's go real quick. 0:01:24.040 --> 0:01:25.720 If you're new the general, my name is Mark Moss, 0:01:25.720 --> 0:01:28.160 and I've been investing my own money in these turbulent 0:01:28.160 --> 0:01:31.120 markets for decades. Now, you know the same smooth sea's 0:01:31.160 --> 0:01:32.240 never made a skilled sailor. 0:01:32.319 --> 0:01:34.679 Well, I've swim in the most turbulent waters. 0:01:34.720 --> 0:01:38.320 Now today, on top of making these investing educational videos 0:01:38.440 --> 0:01:41.800 and coaching thousands of investors on navigating these markets, I'm 0:01:41.800 --> 0:01:44.880 also a partner in a global hedge fund. In this morning, 0:01:45.160 --> 0:01:47.920 we are really busy understanding all of this and of 0:01:47.960 --> 0:01:51.480 course making the corresponding moves. So you're going to get 0:01:51.480 --> 0:01:53.920 the research fresh right now so you can go make 0:01:53.960 --> 0:01:56.160 the same moves that you need to make as well. 0:01:56.240 --> 0:01:57.480 All right, let's get into this. 0:01:59.320 --> 0:02:04.240 All right, we are talking about Japan's desperation, Japan's unexpected move. 0:02:04.280 --> 0:02:07.280 Now, we talked about sort of this global supremacy over 0:02:07.400 --> 0:02:08.239 monetary order. 0:02:08.360 --> 0:02:10.079 And really when we think about this, we have to 0:02:10.160 --> 0:02:12.880 understand that there are just well there's central banks and 0:02:12.919 --> 0:02:15.519 then there's major central banks. So there's I don't know, 0:02:15.560 --> 0:02:17.919 one hundred and sixty one hundred and seventy central banks, 0:02:17.960 --> 0:02:20.800 but there's four major central banks, and they are, of 0:02:20.800 --> 0:02:22.840 course the Federal Reserve the United States the top of 0:02:22.840 --> 0:02:25.400 the heap, right, the reserve currency of the world. 0:02:25.400 --> 0:02:28.000 Then below that we have the Bank of Japan, which 0:02:28.040 --> 0:02:29.000 we're talking about here. 0:02:29.160 --> 0:02:31.440 We have the ECB, the European Central Bank, and we 0:02:31.480 --> 0:02:33.960 have the PBOC, we have China. So those are the 0:02:34.000 --> 0:02:36.640 major central banks. Now, the dollar is a reserve crency 0:02:36.639 --> 0:02:39.760 the world, so the FED sort of drives the market, 0:02:40.000 --> 0:02:42.360 but not every country likes that, and so there's this 0:02:42.440 --> 0:02:43.359 battle for supremacy. 0:02:43.360 --> 0:02:45.160 We're going to talk about that. And they did a 0:02:45.200 --> 0:02:45.799 desperate move. 0:02:45.840 --> 0:02:48.359 Now when I say desperate, they did something that nobody 0:02:48.360 --> 0:02:51.919 thought was possible. Basically, Japan has been the last couple 0:02:52.040 --> 0:02:55.120 decades of what we call stagflation, the lost decades as 0:02:55.160 --> 0:02:57.919 they call it in Japan, where basically the markets crashed, 0:02:57.919 --> 0:02:59.919 everything crashed, and they haven't been able to get any grow. 0:03:00.160 --> 0:03:03.400 They've had no inflation in the market. So Japan had 0:03:03.600 --> 0:03:05.400 rates basically at zero. As matter of fact, they had 0:03:05.480 --> 0:03:08.600 rates negative for a really long period of time. Just 0:03:08.760 --> 0:03:10.760 recently we're going to go through this, but just recently 0:03:10.800 --> 0:03:13.080 they were ady to get them back up to zero 0:03:13.440 --> 0:03:15.799 and a little bit above zero. Nobody's out they could 0:03:15.840 --> 0:03:19.760 actually raise them, and they did. They caught everybody off guard, 0:03:20.000 --> 0:03:23.400 and that's what's causing the whole world to panic right now. 0:03:23.760 --> 0:03:25.360 And what we can see here, we can see it 0:03:25.360 --> 0:03:27.399 in this chart right here. You can see how big 0:03:27.440 --> 0:03:29.440 of a panic, how big of an abrupt move this is. 0:03:29.639 --> 0:03:32.919 So the Japanese gen priced in the US dollar have 0:03:33.040 --> 0:03:35.720 been going down, down, down, down, down, down down for 0:03:35.760 --> 0:03:38.880 a long period of time, and out of nowhere, look at. 0:03:38.840 --> 0:03:41.640 This, it just took off. It top fifteen percent. 0:03:41.640 --> 0:03:44.480 When you're looking at currencies, that is a massive move. 0:03:44.480 --> 0:03:46.800 I know, if you're still looking at bitcoin fourteen percent nothing. 0:03:47.000 --> 0:03:49.000 That is a big deal for the Japanese inen. And 0:03:49.040 --> 0:03:50.680 we can really see how big of a move this 0:03:50.840 --> 0:03:54.240 was made specifically by Japan obviously not just from this 0:03:54.360 --> 0:03:56.680 chart right here, but if we look at the Dixie chart, 0:03:56.840 --> 0:04:00.240 So the Dixie the Dollar index is basically measure the 0:04:00.280 --> 0:04:02.880 dollar against a basket of currencies. So when we look 0:04:02.920 --> 0:04:05.320 at the dollar overall, of course the dollar goes up 0:04:05.320 --> 0:04:07.960 and down. Everything's traded against each other. And we can 0:04:08.080 --> 0:04:11.800 see that the dollar, the Dollar index that Dixie has dropped, 0:04:11.960 --> 0:04:14.400 but it's down two percent. Now that's a pretty big candle, 0:04:14.680 --> 0:04:16.839 two big candles in a row right here, but you 0:04:16.839 --> 0:04:19.560 could see it sort of within this range. So it 0:04:19.680 --> 0:04:22.960 all came from Japan. Like I said, in this very 0:04:23.000 --> 0:04:26.040 desperate attempt that they have all right now, understanding the 0:04:26.080 --> 0:04:29.120 impossible situation that Japan is in means that you have 0:04:29.120 --> 0:04:32.960 to understand the impossible trilemma. Now trilemma is different than 0:04:33.000 --> 0:04:36.039 a dilemma. Dilemma means that you have, you know, to 0:04:36.120 --> 0:04:38.440 choose between one or the other. Trilema it means you 0:04:38.480 --> 0:04:41.200 have to choose two over one. And so the impossible 0:04:41.200 --> 0:04:43.800 dilemma that not just Bank of Japan has, but every 0:04:43.960 --> 0:04:46.880 country with a central bank and policy has, is these 0:04:46.880 --> 0:04:49.920 three things. Number one, free flow of capital. So now 0:04:50.040 --> 0:04:52.840 a country wants to have capital counts, capital markets, they 0:04:52.880 --> 0:04:55.960 want to attract capital, investment, capital businesses to be there, 0:04:55.960 --> 0:04:58.839 people to invest in the country. But then people also 0:04:58.880 --> 0:05:00.440 need to get money out of the country. It is 0:05:00.440 --> 0:05:01.880 one of the problems with China. China is like a 0:05:01.920 --> 0:05:04.479 black hole where money can come in after to come in, 0:05:04.520 --> 0:05:06.719 but it can never leave, which is why people don't 0:05:06.760 --> 0:05:08.680 want to invest there. So you need to have a 0:05:08.800 --> 0:05:11.520 free flow of capital in and out. But you also 0:05:11.920 --> 0:05:15.120 want to have a fixed exchange rate. And then third 0:05:15.240 --> 0:05:17.160 you need you want a country would want to have 0:05:17.200 --> 0:05:20.599 an independent monetary policy. You mean they can adjust their 0:05:20.640 --> 0:05:23.320 monetary policy, they can tighten an ease whenever they want. 0:05:23.480 --> 0:05:25.920 The problem is that if you get two of these, 0:05:25.960 --> 0:05:28.320 you're going to get less of another. So, for example, 0:05:28.520 --> 0:05:30.680 if you want to fix your exchange rate like what 0:05:30.760 --> 0:05:33.560 China does, and you want to have independent monetary policy 0:05:33.680 --> 0:05:36.240 like China, then you can't have an open capital account. 0:05:36.960 --> 0:05:38.839 If you want to have an open capital account and 0:05:38.960 --> 0:05:41.480 monetary policy, then you can't have a fixed exchange rate. 0:05:41.520 --> 0:05:43.080 The market will dictate what that is. 0:05:43.279 --> 0:05:46.880 And so that's sort of the situation that of Japan 0:05:46.920 --> 0:05:51.000 has found themselves in. Now why is that, Well, Well, 0:05:51.320 --> 0:05:53.279 first I want to say is that they want to 0:05:53.320 --> 0:05:55.560 have an independent policy. That's one of the legs of 0:05:55.560 --> 0:05:59.520 the trilemma. But independent from who would be a question 0:05:59.520 --> 0:06:02.480 that I'd want to ask, well, independent from. 0:06:02.279 --> 0:06:04.360 Of course, the reserve currency of the world. 0:06:04.600 --> 0:06:07.680 So we can see in this chart right here, the 0:06:07.720 --> 0:06:12.040 reserve currency, the US dollar, makes up sixty two percent 0:06:12.560 --> 0:06:14.920 of foreign reserves, so of course it's going to dictate 0:06:15.160 --> 0:06:17.480 what the world does. And so Japan has been stuck 0:06:17.520 --> 0:06:20.320 in this situation where they've been again sort of at 0:06:20.360 --> 0:06:24.040 the whims of the United States the dollar, and they 0:06:24.080 --> 0:06:26.880 want to change this. That's the trilimit that they've been in. 0:06:27.200 --> 0:06:29.960 But how can they try to get all three? Get 0:06:29.960 --> 0:06:33.080 that proverbial free lunch. And that brings us to the 0:06:33.120 --> 0:06:35.920 next part, and that is that the FED has been 0:06:36.000 --> 0:06:38.919 fighting back. Now, the FED isn't really so much fighting 0:06:38.960 --> 0:06:42.520 back against Japan or China. Maybe they are a little bit, 0:06:42.560 --> 0:06:45.119 but really the FED just wants to control its own 0:06:45.279 --> 0:06:48.960 independent monetary policy. So the FED can set the interest rates, 0:06:49.080 --> 0:06:50.599 although that's a whole other topic. 0:06:50.600 --> 0:06:51.680 If you want me to make a video on that, 0:06:51.760 --> 0:06:52.200 let me know. 0:06:52.240 --> 0:06:54.440 But really the FED is sort of adjusting to what 0:06:54.480 --> 0:06:56.279 the market wants the rates to be. 0:06:56.400 --> 0:06:57.279 That's a whole different topic. 0:06:57.720 --> 0:07:00.479 But the FED does or is independent and in force 0:07:00.520 --> 0:07:02.919 of the United States has open capital accounts. But the 0:07:02.960 --> 0:07:05.479 problem is that again, because the FED has the dollar, 0:07:05.520 --> 0:07:07.680 which is sixty two percent of the world's reserve currency, 0:07:07.880 --> 0:07:11.160 it's dictating the rest of the market. So what happened is, 0:07:11.240 --> 0:07:15.640 if you remember, the FED started hiking rates. Remember that 0:07:16.360 --> 0:07:18.920 we were on this monetary easing cycle for so long. 0:07:19.000 --> 0:07:21.240 Rates had been basically at zero since like two thousand 0:07:21.240 --> 0:07:23.240 and eight. They went up a little bit, came back down, 0:07:23.480 --> 0:07:26.480 and was it November October of twenty twenty one, the 0:07:26.480 --> 0:07:29.360 FED announced they're going to start raising rates. Then about 0:07:29.440 --> 0:07:31.760 March of twenty twenty two, they went on the fastest 0:07:31.880 --> 0:07:35.720 most aggressive rate hiking cycle in history. Now what does 0:07:35.760 --> 0:07:37.760 that mean for us? Well, if we look at this 0:07:37.840 --> 0:07:38.960 chart right here. 0:07:38.760 --> 0:07:39.760 We can look at Japan. 0:07:40.040 --> 0:07:41.640 We can see in this chart right here, this is 0:07:41.680 --> 0:07:45.200 the Japanese yen again priced in the US dollars. And 0:07:45.240 --> 0:07:47.600 what I'm showing you in this box right here is 0:07:47.640 --> 0:07:51.120 at the price the stability between the yen and the 0:07:51.320 --> 0:07:54.640 dollar had been pretty stable. This is about I think 0:07:54.680 --> 0:07:58.400 about twenty fifteen right here to twenty twenty two. Yeah, 0:07:58.400 --> 0:08:01.360 twenty fifteen to twenty twenty two, it had remained very 0:08:01.400 --> 0:08:04.280 stable in this box. But right here where I put 0:08:04.320 --> 0:08:08.560 this red arrow is drum roll please, it's March of 0:08:08.600 --> 0:08:11.200 twenty twenty two. It's when the FED started going on 0:08:11.200 --> 0:08:12.840 that aggressive rate hiking cycle. 0:08:12.960 --> 0:08:15.000 And so as they started raising rates in the US, 0:08:15.120 --> 0:08:16.360 it started making the dollar. 0:08:16.240 --> 0:08:20.440 Much stronger, and it plunged the Japanese uo all the 0:08:20.480 --> 0:08:25.120 way down, and it plunged the Japanese yen all the 0:08:25.120 --> 0:08:27.800 way down. Now, this blip right here is where we're 0:08:27.800 --> 0:08:29.760 at today. This is what we're talking about. But what's 0:08:29.760 --> 0:08:33.600 important to understand is that this had been a very 0:08:33.640 --> 0:08:38.520 stable monetary policy for Japan during this whole period. And 0:08:38.640 --> 0:08:42.040 during this period about seven year period, people got. 0:08:42.160 --> 0:08:43.160 Lulled to sleep. 0:08:43.440 --> 0:08:46.680 They thought that Japan would never change, Japan would just 0:08:46.679 --> 0:08:49.320 stay in the zone. But of course, as the yen 0:08:49.440 --> 0:08:53.800 started to plunge, then it opened up another trade, a 0:08:53.840 --> 0:08:55.520 trade that we're going to talk about right Now'm gonna 0:08:55.520 --> 0:08:56.920 break it down and then you can see this. 0:08:57.000 --> 0:08:57.680 Pop right here. 0:08:58.559 --> 0:09:02.040 But what happened during that time the yen was plunging. 0:09:02.080 --> 0:09:04.400 It was getting weaker and weaker and weaker. Now, I 0:09:04.520 --> 0:09:07.599 like to use if you remember when FTX, the cryptocurrency 0:09:07.600 --> 0:09:10.880 exchange collapsed, I did several videos on that and I 0:09:11.000 --> 0:09:13.960 used the fall of FTX sort of as a proxy 0:09:14.000 --> 0:09:16.760 to understand what's going on in Japan. Something revived that 0:09:16.840 --> 0:09:18.760 story here real quick so you can understand this. So 0:09:18.800 --> 0:09:22.600 you remember FTX was a cryptocurrency exchange, and if you 0:09:22.640 --> 0:09:24.760 remember what happened during that time, I made a video 0:09:24.760 --> 0:09:28.200 about it where they had their own token and the 0:09:28.240 --> 0:09:31.680 problem is that they used that token for collateral, for 0:09:31.800 --> 0:09:34.160 a lot more debt and to buy other things. But 0:09:34.200 --> 0:09:37.400 the problem is that their token started to drop in value, 0:09:37.720 --> 0:09:39.880 and so what FTX was doing is selling all their 0:09:39.920 --> 0:09:43.200 other assets and buying their token in the market to 0:09:43.360 --> 0:09:47.319 try to prop up that token. Eventually, CZ the head 0:09:47.360 --> 0:09:50.160 of buyinand said, hey, that token's not worth it. We're 0:09:50.200 --> 0:09:52.280 going to sell that token. We don't want it anymore, 0:09:52.559 --> 0:09:56.320 and then it started plunging rapidly. FTX was selling everything 0:09:56.360 --> 0:09:58.640 they couldn't try to buy it at market to keep 0:09:58.679 --> 0:10:02.559 it from following, but they couldn't. Nobody wanted the token, 0:10:02.920 --> 0:10:05.680 and this is exactly what's going on with Japan. The 0:10:06.040 --> 0:10:09.880 japan token stayed relatively stable, but once the FED started 0:10:09.880 --> 0:10:13.720 to raise raids, the Japanese token started plunging. Now Japan 0:10:13.800 --> 0:10:17.880 has been aggressively selling anything they can to buy their token. 0:10:18.280 --> 0:10:20.880 The Japanese en to prop it up, and that's where 0:10:20.880 --> 0:10:23.280 we're at now. We can see this happening in real time. 0:10:23.559 --> 0:10:29.400 The yen weakness persists despite Tokyo's sixty two billion dollar intervention. 0:10:29.679 --> 0:10:34.160 So the Japanese government is selling the US treasury, selling 0:10:34.200 --> 0:10:37.719 whatever they can and buying billions, tens of billions of 0:10:37.760 --> 0:10:41.120 dollars of their own currency at market, trying to prop 0:10:41.160 --> 0:10:43.360 it up. But the problem is, just like with the 0:10:43.360 --> 0:10:46.640 fall of FTX, nobody really wants it, and so we 0:10:46.679 --> 0:10:48.800 can see it plunging, plunging, plunge as a matter of 0:10:48.840 --> 0:10:51.720 fact right here. So it went up and came down. 0:10:51.840 --> 0:10:55.160 This is the first intervention shortly after Yueida is the 0:10:55.200 --> 0:10:57.600 press conference that saw Japanese rip to one sixty. So 0:10:57.960 --> 0:10:59.400 they did an an an intervention. 0:10:59.520 --> 0:11:01.120 It went up up temporarily. 0:11:01.200 --> 0:11:04.240 It worked for a minute, and then it plunged down again, 0:11:05.120 --> 0:11:07.160 and then they did another intervention. They got it back 0:11:07.240 --> 0:11:09.880 up again, but it plunged again. So no matter how 0:11:09.960 --> 0:11:12.760 much they intervene, it has like a sugar rush. It 0:11:13.040 --> 0:11:15.760 gets up really quickly and then it just falls back down, 0:11:15.880 --> 0:11:19.600 sort of like where FTX found themselves. But here's the problem. 0:11:19.960 --> 0:11:22.360 They realizes the problem, and they realize that they're going 0:11:22.400 --> 0:11:25.400 to have to do something drastic in order to get 0:11:25.400 --> 0:11:27.679 this to be fixed. So the end is under pressure 0:11:27.920 --> 0:11:30.920 even as Japan steps up its verbal warning. So then 0:11:31.000 --> 0:11:33.480 Japan's like, well, we're dumping tens of billions of dollars. 0:11:33.520 --> 0:11:36.079 We can get it temporarily. The problem is is all 0:11:36.120 --> 0:11:38.760 these short sellers, these short sellers are piling in and 0:11:38.800 --> 0:11:39.800 pushing the price down. 0:11:40.040 --> 0:11:40.880 So what we're gonna do? 0:11:41.000 --> 0:11:43.840 Japan said they're ready now verbal warning, they're ready to 0:11:43.880 --> 0:11:48.120 take action on currency if needed. So this is after 0:11:48.160 --> 0:11:50.960 this was in June twenty thirds, about a month ago, month, 0:11:51.000 --> 0:11:52.880 a little over a month ago. They're ready to take 0:11:52.920 --> 0:11:55.760 action on currency if needed. What does that mean, Well, 0:11:56.280 --> 0:11:58.960 any action that they have to take. They've been trying 0:11:59.000 --> 0:12:00.880 to buy it back up, and they have about one 0:12:00.960 --> 0:12:03.920 point two trillion dollars of assets they could sell to 0:12:03.920 --> 0:12:06.360 continue to prop up their currency. But they could also 0:12:06.480 --> 0:12:09.400 just try to shake out all the people that were 0:12:09.440 --> 0:12:10.720 shorting the market. 0:12:10.880 --> 0:12:12.640 Now what do we mean by shorting the market? 0:12:12.960 --> 0:12:15.360 This is what you'vebably been hearing about, which is called. 0:12:15.160 --> 0:12:16.120 The carry trade. 0:12:16.440 --> 0:12:19.360 And so the carry trade was opened up because Japan 0:12:19.880 --> 0:12:23.400 was stuck in this trilema situation, and so basically the 0:12:23.480 --> 0:12:26.120 shorts had opened up a carry trade of. 0:12:26.080 --> 0:12:28.280 About twenty trillion. 0:12:27.960 --> 0:12:32.360 Dollars against the Japanese en. They were selling it short. 0:12:32.360 --> 0:12:35.000 I'm gonna break down how this works for you, and 0:12:35.080 --> 0:12:38.520 what we can see is that created a massive risk 0:12:38.559 --> 0:12:40.280 for the market. As a matter of fact, it says 0:12:40.559 --> 0:12:43.680 is the Japanese carry trade the next big risk in 0:12:43.720 --> 0:12:44.160 the market. 0:12:44.360 --> 0:12:45.560 This was in January. 0:12:46.080 --> 0:12:47.960 People have been talking about this, We've been doing videos 0:12:48.000 --> 0:12:49.160 on this for a long time. 0:12:49.200 --> 0:12:50.480 This has been a big risk. 0:12:50.800 --> 0:12:56.160 Japan's government is engaged in a massive twenty trillion dollar 0:12:56.280 --> 0:12:58.120 carry trade. I mean, imagine how massive that is for 0:12:58.160 --> 0:13:01.880 a small country like Japan. It says here that is 0:13:01.920 --> 0:13:07.640 could bring unexpected risks if the central bank titans policy hmmm, 0:13:08.240 --> 0:13:08.600 which is. 0:13:08.679 --> 0:13:10.440 Exactly what just happened. 0:13:10.520 --> 0:13:13.200 So the Japanese couldn't buy enough of their token to 0:13:13.240 --> 0:13:16.160 prop it up. All these short sellers were selling and 0:13:16.200 --> 0:13:18.840 short putting that downward pressure. Like when cz from Binance 0:13:18.840 --> 0:13:21.760 they is gonna sell the FTX token and Japan is 0:13:21.800 --> 0:13:24.000 trying to prop it up, and they're like, well, we 0:13:24.040 --> 0:13:26.719 may have to do something unexpected unexpected like what well, 0:13:26.760 --> 0:13:29.600 this in January says right here it could bring unexpected 0:13:29.679 --> 0:13:33.840 risks if the central bank titans policies, and that's exactly 0:13:33.880 --> 0:13:37.680 what happened. We can see right here that the Central 0:13:37.720 --> 0:13:40.360 Bank of Japan started to do that. So this is 0:13:40.400 --> 0:13:42.800 going back to two thousand and eight. Right here, the 0:13:42.840 --> 0:13:47.120 red line is CPI, the yellow line is the Japanese 0:13:47.120 --> 0:13:50.120 Central banks interest rate policy, and you can see that 0:13:50.240 --> 0:13:53.200 it was basically flatlined from two thousand and eight. It 0:13:53.240 --> 0:13:58.120 went down into negative territory right here around twenty sixteen, 0:13:58.440 --> 0:14:00.520 and it's remained in negative territory. 0:14:01.040 --> 0:14:02.520 Just here. In twenty twinty four it. 0:14:02.440 --> 0:14:06.080 Got above positive territory and now they raised it just 0:14:06.360 --> 0:14:07.880 zero point two five percent. 0:14:07.920 --> 0:14:10.280 Now, to put this into perspective, the Federal Reserve. 0:14:10.080 --> 0:14:14.160 Of the United States raise rates five points. This is 0:14:14.200 --> 0:14:17.719 only a quarter of one point. And look how much 0:14:17.800 --> 0:14:20.760 damage this is done. All right, So that's exactly what happened. 0:14:20.800 --> 0:14:23.920 They raise rates and got unexpected results. Let me show 0:14:23.920 --> 0:14:25.760 you how this carry trade works. 0:14:25.520 --> 0:14:26.440 And why this matters. 0:14:26.640 --> 0:14:29.400 So here's how the carry trade works. It's basically arbitrage. 0:14:29.640 --> 0:14:32.000 What this means is that in the US market, US 0:14:32.120 --> 0:14:36.160 treasuries let's say that we can earn five percent, okay, 0:14:36.400 --> 0:14:37.320 over here in Japan. 0:14:38.520 --> 0:14:40.120 As I just showed you rates were zero. 0:14:40.360 --> 0:14:42.960 So let's say that in Japan I could borrow for 0:14:43.200 --> 0:14:47.680 let's say zero point eight percent. So I go borrow 0:14:47.880 --> 0:14:51.280 money in Japan for zero point eight percent. I bring 0:14:51.360 --> 0:14:53.280 it over to the United States and I park it 0:14:53.320 --> 0:14:56.040 in treasuries, and I make the difference five. 0:14:55.800 --> 0:14:57.760 Percent minus is zero. 0:14:57.520 --> 0:15:01.880 Point eight Or I put it into the US stock market, 0:15:02.520 --> 0:15:04.200 and let's say I put in the SPFI fund, her, 0:15:04.280 --> 0:15:06.000 I put in the mag sevens, I put it in Vidia, 0:15:06.280 --> 0:15:08.680 and now I'm making twelve to fifteen to twenty percent 0:15:09.240 --> 0:15:10.240 minus the eight. 0:15:10.600 --> 0:15:11.720 And so more and. 0:15:11.640 --> 0:15:16.880 More money kept getting borrowed. Selling the end short and 0:15:17.200 --> 0:15:19.960 all that money was finding its way into stronger markets, 0:15:20.000 --> 0:15:22.880 mostly into the United States and the stock market, into Nvidia, 0:15:22.960 --> 0:15:24.040 into US treasuries. 0:15:24.120 --> 0:15:24.840 It's been great. 0:15:25.600 --> 0:15:27.840 But here's the problem. A lot of this money was 0:15:27.880 --> 0:15:30.360 put in there on margin. So that means that they 0:15:30.360 --> 0:15:34.360 would borrow one thousand dollars from here, and they would 0:15:34.400 --> 0:15:36.560 take it over here and they would buy let's say 0:15:36.640 --> 0:15:40.520 five thousand dollars worth of stuff, or maybe maybe more, 0:15:40.560 --> 0:15:42.400 it depends on what their credit is maybe ten thousand 0:15:42.480 --> 0:15:44.840 dollars worth of stuff. But the problem is is this 0:15:44.920 --> 0:15:48.200 unwinds very quickly for two reasons. As long as this 0:15:48.360 --> 0:15:51.720 Japanese rate kept getting lower lower, lower, lower, lower. 0:15:51.520 --> 0:15:53.760 Lower, everything was great, right. 0:15:53.840 --> 0:15:56.880 This debt kept getting cheaper, cheaper, cheaper, more money kept 0:15:56.880 --> 0:15:59.800 coming over, and these assets went higher higher higher. The 0:16:00.080 --> 0:16:04.520 problem is the unexpected results. When Japan raised the rates, 0:16:04.800 --> 0:16:08.200 and only by raising him only zero point two five percent, 0:16:08.720 --> 0:16:12.440 this whole thing started to unwind. When these rates went up, 0:16:13.120 --> 0:16:15.840 all of a sudden, the interest that was owed went up. 0:16:16.520 --> 0:16:19.000 And when that happened, some of this had to start 0:16:19.080 --> 0:16:21.520 selling off to now pay for this. 0:16:22.240 --> 0:16:22.840 And as this. 0:16:22.880 --> 0:16:26.120 Started to sell off, the asset prices started to go down. 0:16:26.440 --> 0:16:28.800 As the asset prices to go down started to go 0:16:28.840 --> 0:16:33.040 down on stuff that was on margin, then the margins 0:16:33.120 --> 0:16:35.160 were called and they had to post more collateral to 0:16:35.160 --> 0:16:37.000 post more colladal, they had to sell more. When they 0:16:37.000 --> 0:16:38.920 sold more, prices went down even more, which then mean 0:16:38.960 --> 0:16:40.680 more margin calls. It means they had to sell more 0:16:40.760 --> 0:16:43.160 to post more collateral. And all the while they were 0:16:43.240 --> 0:16:47.200 selling this creating this downward pressure, this was getting more 0:16:47.240 --> 0:16:50.440 and more expensive, and this whole thing started to wind down. Now, 0:16:50.440 --> 0:16:53.400 this was great for so long because for twenty years 0:16:53.720 --> 0:16:56.520 they kept rates at zero and they just continued to 0:16:56.520 --> 0:16:59.160 stay low and get lower lower lower. But again the 0:16:59.360 --> 0:17:02.120 unexpected did shift to try to shake off these short 0:17:02.160 --> 0:17:05.640 sellers put the entire market into a tailspins. That's where 0:17:05.640 --> 0:17:08.720 we wrap now, confronting Godzilla. 0:17:08.840 --> 0:17:10.080 Where do we go from here? 0:17:10.400 --> 0:17:12.520 All right, the elephant in the room, if you will, 0:17:12.560 --> 0:17:14.040 we'll call it Godzilla because it's Japan. 0:17:14.320 --> 0:17:16.720 So where do we go from here? What happens? 0:17:16.760 --> 0:17:20.680 Can Japan really continue to raise their rates? What happens 0:17:20.720 --> 0:17:23.439 to the US markets? What happens to the four central 0:17:23.440 --> 0:17:27.000 banks that are now fighting against each other. Well, what 0:17:27.080 --> 0:17:31.399 Japan is doing is somewhat necessary, but it comes with 0:17:31.440 --> 0:17:34.240 a very steep cost. So they have all these short 0:17:34.320 --> 0:17:38.640 sellers that have piled in pushing the currency down and 0:17:38.680 --> 0:17:41.840 doing this carry trade over into the United States. They 0:17:41.880 --> 0:17:44.399 need to shake them off. They need to get rates 0:17:44.400 --> 0:17:45.800 back into positive territory. 0:17:45.840 --> 0:17:47.360 But the problem is it comes at a steep cost. 0:17:47.440 --> 0:17:50.640 It comes at the cost of wrecking the global markets. 0:17:51.160 --> 0:17:53.800 The bigger problem is that Japan is one of the 0:17:53.800 --> 0:17:56.719 most indebted nations in the world, with a two hundred 0:17:56.760 --> 0:18:00.879 and sixty three percent debt to GENP. Now, put that 0:18:00.880 --> 0:18:03.440 into comparison, the US is about somewhere in one hundred 0:18:03.440 --> 0:18:06.200 and twenty percent range. They're at two hundred and sixty 0:18:06.200 --> 0:18:09.240 three percent, and not just the government, the private debt 0:18:09.359 --> 0:18:12.040 is one hundred and twenty percent of debt to GDP. 0:18:12.680 --> 0:18:14.800 So the problem is is that they want to sort 0:18:14.840 --> 0:18:19.320 of normalize their policy with the Federal Reserve. But the 0:18:19.359 --> 0:18:21.640 problem is is that the FED is that's, you know, 0:18:21.840 --> 0:18:25.240 five percent, and they're at zero point two five. They 0:18:25.280 --> 0:18:28.159 may have to hike another thirteen forty It depends on 0:18:28.160 --> 0:18:31.440 how fast they hike, but thirteen more times to even 0:18:31.480 --> 0:18:33.919 get anywhere normalized with the FED. And if it the 0:18:33.960 --> 0:18:36.760 whole world is melting down over a quarter point hike. 0:18:37.040 --> 0:18:39.280 What do think happens if they go with a three 0:18:39.440 --> 0:18:43.520