The Japan Bubble: How One Country Is Holding Up The Entire World

"so the markets got really scared and they sold off and of course right now they've recovered but I still have a lot of questions like was that the end of it did we fully unwind or is there more left to go"

"and on top of that we added another Foundation which represented all the countries in the world that wanted to get yields from their cheap loans so it looks like that creates a beautiful little pyramid but here's where it gets interesting because as things start to change like for example interest rates are no longer zero or negative we get this very interesting effect to happen then we start to remove other things like investor confidence for example kind of interesting and then of course we remove other things like Global liquidity and we get something that liquidity and we get something that makes no sense at all and that's a visual analogy of the stock market as it is today"

"because on August 5th we broke it because that's when Japan introduced the force of gravity my first question is would you please subscribe cuz that took me way too long to do and the second question is how did we get to a point in time where one country raising its interest by a tiny amount could affect someone on the other side of the world to wake up and say what just happened to my stons"

"because Japan started to experience deflation and prices started to fall so to save itself Japan slashed its interest rate to nearly zero and then eventually to negative to encourage people to go out borrow money and spend it but the Japanese people just experienced the worst economic crash of their lifetime they didn't want to borrow instead the borrowers became speculators from other countries and that's what created the carry trade that turned Japan into the biggest creditor Nation in the world where countries go to borrow cheap money"

"and the Cary Trade was revived under Shinzo Abe's policies which kept Japanese interest rates low and then eventually negative in 2016 while the United States and the rest of the world started to increase their interest rates and that once again creat created this opportunity for the carry trade and once again the cycle started to repeat money could once again be cheaply borrowed and invested into high yield assets like the US Stock Market and treasury bond market for a guaranteed return"

"so it works when things are working but when things go bad it can lead to a flash crash and that's how you can get someone to wake up one week halfway on the other side of the world and wonder why their portfolio is crashing"

"all that happened was the bank of Japan unexpectedly raised interest rates for the first time in 17 years and just a small increase of 0.25% of the key interest rate was enough to scare investors and force their liquidations when interest rates go from negative to positive really bad things could happen to the market in fact the same thing happened to Europe in July July of 2022 that's when the European Central Bank the ECB started to raise rates for the first time in 11 years and watch what happens to the Vanguard international Market ETF ticker symbol vxus right around that same time frame the market corrected 15% between the end of July to Mid October and some of that can be attributed to the unwinding of their carry trade thanks to Europe ending its negative interest rate policy"

"but what we do know is they are really really big in fact according to bis the bank of international settlements which is sort of like a group of banks that report on information they say that the loans out standing from one country to another denominated in yen is valued at 41 trillion yen or a little over A4 trillion but economists also say that's not an accurate measure of how big carry trades actually are and that's because foreign exchange borrowing is not actually included or counted on A bank's balance sheet instead it's hidden within what's called foreign exchange swaps and the swap Market including the Yen totals wait for it 14.2 trillion us"

"it could be in the hundreds of billions or in the trillions of dollars analysts at UBS for example say that it's 500 billion so half of it just got Unwound but JB Morgan says it's $4 trillion so we're nowhere near it being over but no one knows all we really know is that we got really lucky this time around because Japan backtracked and was like we're not going to raise interest rates anymore just kidding but no one really knows the full size of the mother of all carry trades and how bad this could really get"

"economists say that it takes on average roughly 10 quarters after the first rate increase to put economies into a recession and right now we're on that 10th quarter which means the likelihood of us being in a recession is statistically higher"

"no one knows what they're going to do until September but right now the market is predicting a 74% chance that they're going to lower interest rates by at least a qu% in September"

"now this doesn't always happen but when the FED starts to Pivot and lower interest rates that usually means the sign of a slowing economy and a potential recession ahead"

"the way that I'm looking at everything is this year we're in an election year so all the numbers that I'm seeing reported by the government I tend to think the real numbers are probably not as good as what I'm seeing maybe I'm wrong but that's the way I look at it now when I ask people what they're doing with their finances they're saving are you investing are you just waiting to buy a lot of times I I hear people say I'm going to wait until interest rates come down until house prices car prices all come down and I can finance and buy when it's cheaper and that's fine but I think what most people forget is that when interest rates come down it's because the economy is slowing down and when asset prices come down it's not because interest rates are cheaper it's because people lose their incomes now I hope that doesn't end up happening but when it happens people lose their purchasing power that's why things go down that's also why I've been building a cash position just in case life throws a lemon in my face I think it's really important to save at least 3 to 6 months worth of an emergency fund just in case but when it comes to investing I'm also dollar cost averaging right now for example when the market flash crashed I was buying a little bit of Bitcoin unfortunately I missed it below 50,000 but that's okay because I'm putting in about $100 a day into Bitcoin sometimes more sometimes less but that's about my pace when it comes to the stock market the S&P 500 I'm also dollar cost averaging at the exact same rate of $100 a day and that's into an ETF ticker symbol vti which is basically the broad stock market that's made up of thousands and thousands of different stocks"

"I'm also reinvesting all my dividends and right now I'm buying a dividend ETF ticker symbol jeq or Jep Q to supercharge my dividends at the rate of $200 a day and my goal is to get to about $1 $1,000 in that position which I also realize all these numbers are completely unrelatable to most people so I don't want anyone to look at all this money that I'm investing in thinking wow Andre is really confident and knows what he's doing that is not the case and to prove to you that I'm no genius stock picker I will show you that so far my year-to-date returns are only 11% compared to vti's 177%"