Full transcript
0:00He helped break the Bank of England for
0:01a billion dollars. He made another
0:03billion dollars shorting the yen. Now,
0:06he runs the US Treasury. And the yen is
0:09to save, but he can't. That's your
0:11problem, too, because Japan is the
0:13largest foreign holder of US Treasuries.
0:15And when the biggest bidder steps back,
0:17then somebody has to replace him. And
0:19the price of the new buyer is a higher
0:21yield. And that's your mortgage. That's
0:24your 401k. Now, last month, 87 billion
0:27dollars were spent in just 2 days, the
0:29largest currency defense ever recorded.
0:32And it only bought five [music] trading
0:34sessions. And then all it took was one
0:36jobs report that cost no dollars and it
0:38undid almost all of it in a single
0:40morning. Now, Scott Bessent made two
0:43fortunes proving governments don't lose
0:45these fights when the vault runs dry.
0:47They lose when the defense costs more
0:50than it's worth. Now, Japan just hit
0:52that price. There's one number that
0:55tells you when this breaks wide open.
0:57Right now, it's reading zero. But in
0:59this video, I'm going to break it all
1:00down. I want to show you the choice that
1:02Japan can't afford to make. What's
1:04actually in America's war chest because
1:05[music] it's nowhere near the number
1:07you've been told. And we're going to
1:08look at the Thursday number to watch so
1:10you see it all break open before the
1:12market does. You ready? Let's go.
1:16All right. Now, before we jump into this
1:17video, let me just tell you why I think
1:18this video is not just important, but uh
1:21it's interesting. Now, first of all, we
1:23have Scott Bessent who's made a billion
1:25dollars multiple times from shorting
1:27currencies now trying to save a
1:29currency. And he's using the same
1:31playbook. Now, I don't think I'm going
1:33to make a a billion dollars, but I want
1:35to understand the playbook so I can get
1:37on the same side as him. Number one.
1:39Number two, because we're talking about
1:41defending currencies. So, in order to
1:42defend a currency, it takes money flows.
1:45I have to sell certain assets and buy
1:47certain assets. And if I understand what
1:49assets are being being sold, what assets
1:51are being bought, then I can understand
1:53the playbook that Scott Bessent made to
1:55make billion dollars twice in a row,
1:57then hopefully I can get at least a part
1:59of that trade, and hopefully you can
2:01too. Okay, let's break this down.
2:02Currency defense, uh it's been happening
2:04over 5 days. Now, what we're seeing
2:05right now is the weakest yen since 1986,
2:09about of all 40 years. Now, a lot of you
2:10are like, "What do we even care about
2:11the yen?" Well, there's a lot of reasons
2:13we care about the yen, uh which we're
2:15going to break through in this video, uh
2:16and it all matters. So, why the weakest
2:19yen? Well, like I said, it's 40 years
2:21it's been um it or it's the weakest it's
2:23been in 40 years. Now, there's a couple
2:25times in history where we've seen some
2:28massive intervention, not just with
2:30Tokyo and the yen, but with the United
2:32States. Let's look at this chart real
2:33quick. Here we go all the way back to
2:351987.
2:38So, from '87 we saw the yen gain
2:40stronger, it was sold back down, it was
2:41pretty weak through here. It got really
2:44strong, and right about here is where
2:45we're going to pick up the story, and we
2:47can see that it's been cascading ever
2:49since, obviously bouncing around a
2:51little bit. So, we can see that the yen
2:54um it's been strong, it's been weak, and
2:56it's the weakest it's been over 40
2:57years. But, we saw all of a sudden both
3:00Tokyo and the United States coming
3:02together to try to save the currency.
3:04Japan's been doing it on their own, now
3:06the United States has come in. So, on
3:077:30, July 30th, Tokyo started
3:09intervening in the markets trying to
3:11keep that currency propped up. The next
3:13day the United States started joining
3:14in. Now, it's important to point out
3:16that this is the first time that the
3:18United States has gotten involved trying
3:21to prop up the Japanese currency, the
3:23yen, since June of 1998.
3:26All right, so it's a big deal. It's been
3:28a long time since the US has done this,
3:30and it's interesting to think about why
3:32this made might have happened. Now, we
3:34can just see, here's a chart that we
3:35made. This is the US dollar
3:38against the Japan the Japanese yen. And
3:41we can see this is just going back to
3:42July 20th, and we can see it's been sort
3:44of trading in this alone here. But, you
3:46we can see here back to July 30th is
3:48when Tokyo alone was trying to intervene
3:50in the markets, and you can see it
3:52dropping. Here we have the US starts
3:54joining in right around here, and they
3:56started bringing it back up just a
3:59little slowly, and unfortunately we got
4:01this August 7th jobs report and started
4:03smashing it again. So, we're really
4:05trying to get this propped up.
4:08And as you can seen see it's been
4:11struggling to get ahead. Now, look at
4:12this. This is the biggest one-day
4:15defense record. What are we talking
4:17about defense? Well, we have to either
4:19buy or sell the currency, right? Supply
4:21and demand. There's more buyers than
4:22sellers, etc., right? And so, the
4:25defense of the yen is to buy it to make
4:28it strong. If I sell it, it makes it
4:30weak, right? So, this is the biggest
4:31one-day defense on record. Here we have
4:33October 21, 2022. 5.6 trillion yen.
4:372024.
4:39This is 5.9 trillion. 2026, April of
4:43this year. 6.2 trillion. And now just
4:46July 2026, about almost 8 and 1/2
4:50trillion yen. Now, this is about 60
4:52billion US dollars. But notice, this is
4:55just all in the last 4 years.
4:58So, the biggest defense numbers on the
5:00yen in history have all been happening
5:02in the last 4 years. And if you notice,
5:04they're starting to happen more
5:05frequently, more frequently, more
5:07frequently, which means that the yen is
5:09continuing to get weaker and weaker and
5:11weaker. 87 billion, the largest defense
5:13on record. And with all of that work
5:16being done to prop it up, like I said,
5:18it just took one jobs report to smash
5:21that back down to where 87 billion
5:23dollars was spent here. And then the
5:25jobs report The jobs report cost zero.
5:27There was no defense needed.
5:29That was just reality. It's the reality
5:31of the economy, and no matter what the
5:33intervention is doing,
5:35it's smashing it back down. Now, it all
5:37comes down as I said to one number.
5:39We're going to come back to it then, but
5:40as we're talking about this Fed report
5:42H41.
5:44I'm going to show you what that Fed
5:45report is and why you should be watching
5:47it like I am. We're going to come back
5:48to that. Okay, now let's just jump back
5:51to the man himself for a second. I'm
5:53talking about Scott Bessent.
5:55Scott Bessent isn't just the US Treasury
5:57Secretary, which he is. He's the man
5:59that's in charge of selling US debt to
6:01the world, the largest, deepest, most
6:05important financial asset in the world.
6:07The the bedrock of the global financial
6:08system. But Scott Bessent has been
6:11playing this game long before he got to
6:14be the Secretary of Treasury. Scott
6:16Bessent
6:17has been around some of the biggest
6:18circles, as I said in the intro. He's
6:20made a billion dollars twice.
6:22All right, what are we talking about?
6:23Let's go back to September 1992.
6:26This is when George Soros got famous for
6:29making a billion dollars in a single day
6:30by breaking the Bank of England. He
6:34broke a bank. How? By fighting against
6:37the currency. This was known as Black
6:39Wednesday. Look it up. The big day,
6:41Black Wednesday, they broke the bank.
6:43Now, this was George Soros under their
6:45London Fund, okay? Now, couple other
6:47names that I've talked about on this
6:48channel quite regularly. So, George
6:50Soros' fund, the London Fund,
6:52Stanley Druckenmiller, or Druck, we call
6:55him the goat. He's the greatest of all
6:57time. The best track record, no losing
6:59years, all those things. And Scott
7:01Bessent, he was 29 years old at the
7:03time. So, George Soros, now
7:06George Soros politically, there's a lot
7:08of reasons why we should not like him.
7:10Uh but financially, he's made a lot of
7:11money, and so we want to understand
7:13those things. But Stanley Druckenmiller
7:15is the goat, and Scott Bessent, young,
7:1629, executing this trade, again, made a
7:19billion dollars in a day. Now, what they
7:21were doing is they were watching
7:24Britain's, and they were watching the
7:25Bank of England's reserves. They're
7:27looking at how much money they had to
7:30defend their position.
7:32But Bessent, Scott Bessent, he was doing
7:34something different. He was watching
7:36something completely different, a
7:37different number. What he was watching
7:40specifically was Britain's variable rate
7:43mortgages. See in the in the United
7:45States, we have 30-year fixed mortgages.
7:48But the rest of the world, they don't
7:49have that. And so Britain had variable
7:52rate mortgages. And what was happening
7:53is
7:54as Britain as the Bank of England was
7:57trying to protect their pound, they kept
8:00raising prices. So at 9:00 a.m., the
8:02rates were at 10%. By 11:00 a.m., just 2
8:05hours later, they had to raise to 12%
8:09trying to trying to protect that peg.
8:11Here we are by 2:15 p.m., they got to
8:1415%.
8:15And then before even got implemented,
8:19they canceled it and it round tripped
8:21all the way back down. Why?
8:23Well, the reason why is because while it
8:25was trying to protect their market, they
8:28were crushing the consumers.
8:31So, the rule, all governments are always
8:33going to be forced to abide by this
8:34rule, is they're always going to have to
8:36make a choice. It's always going to be
8:38sacrifice one to save the other, right?
8:41And so in this instance, back in the
8:43Bank of England, they either had to
8:45sacrifice the pound,
8:48save the currency, or they had to
8:50sacrifice the homeowners, the
8:52households, the consumers.
8:54So,
8:55they voted to let the currency die. The
8:57currency loses. What does that mean when
8:59the currency dies? The currency loses.
9:01That means it gets devalued. That means
9:02they have to print so much of it that
9:04all the existing currency buys you less
9:06and less and less. So it looks like
9:08prices going up, but it's just cuz they
9:10printed so much. The currency loses out
9:12in order to save the households in that
9:15instance. Okay? Well, let's just look at
9:17one more playbook because percent didn't
9:19just do this once.
9:21He's the mastermind architect of all
9:23kinds of foreign currency games. He made
9:26a lot of money. We're just talking about
9:27two of them, the billion-dollar ones.
9:29And here we are in 2013.
9:32Now this is with Japan with the yen.
9:33Hmm, surprise, surprise. And this was in
9:35an area era that was kind of kicked off
9:37called Abenomics and basically they
9:40wanted to bring the yen down. They would
9:42need to devalue the yen. And so what
9:44Scott Bessent did is he said, "Hey,
9:46we'll short it. We'll short it down, but
9:49we'll do it with you. So we're not
9:50attacking it." With the Bank of England
9:51they were attacking the peg. They broke
9:52the peg. But here they wanted to do it
9:54with them. We're going to go ahead and
9:55short that with you and bring that down.
9:59Now, if you look at this remember I said
10:00we'd come back to this chart. So you can
10:02see right here
10:04right here about 2013-ish right here is
10:07when hey, we need to get this down and
10:09they did. So Scott Bessent shorted this
10:12move
10:13with Japan
10:15and made a billion dollars. How does
10:17Scott Bessent know to make this move?
10:19Well, he knows that again, like I said
10:21the rule, when a country is faced with a
10:24fork, should we either save the currency
10:28or do we save the bond market? We can't
10:31do both. So which ones do we do? He
10:33knows that it's always going to be the
10:36currency to sacrifice. And so which side
10:38of the fork is going to be sacrificed
10:40and then he trades it with them. You
10:42can't beat them, join them. He
10:43understands the dilemma that they're in.
10:45He understands the choice that they're
10:47going to make and he positions himself
10:48to trade with that. So they could either
10:50Japan was forced in this era to either
10:52save the currency, but the problem is
10:55they had debt the bond market. The
10:57government owed debt 236%
11:01debt to GDP. Crazy [snorts] high. 236%
11:04debt to GDP. So if they raised the
11:06interest rate, they had to pay real
11:07interest on that amount which they
11:09couldn't afford. So do we do we do we do
11:13that or do we save the bond market?
11:15And then the currency just keeps falling
11:17out. Remember they have to print it up.
11:19The currency supply expands and it buys
11:21less and less goods and of course they
11:23sacrifice the currency. Scott Bessent
11:25shorted all the way down and of course
11:27made another billion dollars. Now,
11:29that's that's the playbook.
11:32You understand the dilemma. You watch
11:35the indicators because if we're shorting
11:36the market and being wrong on timing is
11:39still being wrong. So, you have to
11:41understand the indicators and understand
11:42what's going on to understand how to how
11:44to position. You need efficacy, but you
11:46also need the ammunition to do it. So,
11:48Scott Bessent tells us it's policy that
11:52turns it. And I'm just I'm just going to
11:53say this real quick. Um I'm not trying
11:55to make this political at all. Um
11:57it doesn't really shouldn't it shouldn't
11:59be political at all. But the previous
12:02the previous chair at the Fed, the
12:04previous Secretary Treasury,
12:06they were both academics.
12:09Jerome Powell at the Fed, he wasn't even
12:12a
12:13he wasn't even a finance guy. He was an
12:15attorney.
12:16Janet Yellen, who was at Treasury,
12:18was an academic. So, she studied a lot
12:21of theory, but she never practiced in
12:23the real world. And you know, Mike Tyson
12:25said everyone has a plan until they get
12:26punched in the face. And it's easy to
12:28teach in theory, but until you've
12:30actually tried to apply that theory in
12:31the real world, until you've had to
12:33compete with the best of the best, until
12:34you've been punched in the face as Mike
12:36Tyson would say, you don't really know
12:37it, right? There's a difference of of of
12:39knowing information, repeating back
12:40theory versus struggling with it,
12:42learning with it. And so, Janet Yellen,
12:45she had the theory, but she never
12:46actually practiced, never made money,
12:47never had to compete with this. Scott
12:49Bessent was at the highest level
12:52in the world. Like, running the biggest
12:54fund, George Soros' fund, with with with
12:55Druckenmiller, with the goat.
12:57And he made a billion dollars in a
12:58single trade a couple of times. So, the
13:01level of confidence that we have in that
13:02position is just hasn't been seen in my
13:04lifetime at all. And so, we want to pay
13:06attention to what he's saying. He's
13:08telegraphing. He's telling us. He's
13:10showing us the play. So, he says that
13:12it's policy. We can see uh one thing
13:14that I really love about Scott Bessent
13:16and Kevin Warsh, they're in the media a
13:17lot. We can listen directly to them a
13:19lot. You should listen directly what
13:21they're saying. He says Secretary
13:23uh Secretary Bessent says, "A stable
13:25yuan is important not just for US, but
13:28for the entire region. So, it's very
13:30important. They're going to do a lot to
13:32prop up to save that currency. Okay? So,
13:35we have to understand it's it's super
13:37important to them. They're going to be
13:38doing that. Now, how? How will they do
13:40that? Well,
13:42the exchange stabilization fund. Now,
13:44this is as of June 30th of this year.
13:47And what this shows us is that there's
13:49about 217
13:51billion in total assets to
13:55stabilize exchange rates.
13:57What it sounds like, right? But, 217
13:59billion in ammunition. But, the problem
14:00is about 172 billion of that is already
14:04accounted for in the SDR book. These are
14:06special drawing rights. This is what the
14:08IMF has. Okay? That's already accounted
14:10for, which leaves only about 43 billion
14:13as a net position that they have to work
14:15with. But, it's even less than that
14:17because only about 18.8 billion is
14:20spendable foreign currency.
14:23And within that, about 13 billion is
14:25euro and about 5 billion is yen. Okay?
14:28So, this is the ammunition, as I say, in
14:31order to do this.
14:32But, the problem is that
14:35they have 18 billion,
14:38but they just spent 87 billion in 2 days
14:42defending it, and it didn't even work.
14:45That just gives you the magnitude of the
14:46problem that they have and the amount of
14:49ammunition they have to deal with this.
14:51Now, it's kind of funny uh
14:53they're spending all of it to try to
14:55defend it, and it's not going to be
14:56enough. But, it's kind of funny uh at
14:58Camp David, Scott Vincent was there, and
15:00he got photographed. Someone caught him
15:02some paparazzi caught him with his legal
15:04pad with the notepad out. And on that
15:07notepad on that legal pad, he had uh
15:09reminders, tasks, things to do. And it
15:12said, "To do, buy Japanese yen."
15:165 to 10 billion to prop it up.
15:19They were selling euros. They they want
15:21to hurt the dollar, selling the euros
15:23down to buy the Japanese yen up. They're
15:26telegraphing. They're telling us what
15:28they're doing. They're telling you how
15:29important it is. They want to stabilize
15:32it. It's the first time they've worked
15:33together in decades. Okay, now they have
15:36a facility that they've set up to really
15:38set this up. I'm going to get the
15:39technicality of it. Um I think of it
15:42like this. It's like uh
15:43It's like I have kids. If you have kids,
15:46uh my kids drive, they're out and about.
15:48I want them to have some emergency
15:50money. So, they have credit cards. Now,
15:52they're not really supposed to use
15:52those, but if they get into an
15:54emergency, they have them. They don't
15:56need to call me if, you know, I don't
15:58answer, I'm sleeping, whatever. I'm out
16:00in the water surfing. They don't need to
16:01call me, get a hold of me. They don't
16:03They don't need me to make a decision,
16:04need me to like go drive and meet them
16:06or Western Union. They They just They
16:07just have the card. It's there. As soon
16:09as they need it,
16:10they can swipe it. And so, that's what's
16:12happening. We have these facilities that
16:14are being set up that allows them to
16:17draw on them if they need them.
16:19Emergency facilities. So, we have this
16:21uh FEMA. The FEMA usage
16:24and we'll talk about uh when it was set
16:25up and how it's been used, but just so
16:27you can understand what it is.
16:29The FEMA is the Foreign and
16:30International Monetary Authority
16:33repo facility. So, that's the FEMA.
16:35Foreign International Monetary
16:36Authority. It's a central bank lending
16:37tool created by the Federal Reserve, by
16:39the US Federal Reserve, and it allows
16:41approved foreign central banks and
16:43international monetary authorities, so
16:44central banks like the Bank of Japan, um
16:46to temporarily exchange their US
16:48Treasury securities for US dollars. And
16:51so, this acts as, as it says here, an
16:53emergency liquidity backstop, but
16:57without forcing them to sell Treasury in
16:59the open market. Why? Because Japan is
17:01sitting on a bunch of US Treasuries. And
17:02if they need money, they could just sell
17:04the US Treasuries. But if they sell the
17:06US Treasuries,
17:08then what does that do to the US
17:09currency? And so, they don't want them
17:11to do that. So, rather than having to
17:12sell the uh the US dollars to prop up
17:15the yen,
17:16they can just get access to the money
17:18without having to do it. They can
17:19exchange it. So, it's it's basically a
17:21collateralized loan. It's It's like a
17:23pawn shop, right? I'll give you
17:24collateral, you give me the money.
17:26And uh foreign institutions pledge US
17:28Treasuries held by the Federal Reserve
17:30um in collateral for overnight US dollar
17:32cash. And it's a market stabilization
17:35designed to calm global dollar shortages
17:38and prevent sudden disruptive sell-offs
17:40of US government debt by foreign
17:41official bank. Okay. So, you kind of get
17:43what it is. So, it's sort of like a
17:44Again, giving my kids the credit card.
17:47Now, in 2020, they set it up and we've
17:49seen like a little blip right here.
17:52It was used a little bit in 2020. Where
17:54we really saw this big blip was right
17:56here. Now, it's important to note that
17:58there's a $60
18:01Let me write that here.
18:02$60
18:04cap on this fund.
18:06In 2023, we saw it actually go all the
18:09way up and touch the cap. What happened
18:11in 2023? If you can remember back, uh
18:14the Federal Reserve, Jerome Powell,
18:16in 2022, started raising rates, one of
18:17the fastest rate hiking cycle in
18:18history, and it caused three banks to
18:21collapse in 2023. It was the big Silicon
18:23Valley Bank was the big one that went
18:24under. And um a lot of banks were in
18:27trouble. Why? Well, because they had a
18:29mismatch on duration. They took in
18:30customer deposits. Customer deposits are
18:32due on demand, so at any time you should
18:34be able to go get the money out of the
18:35bank. But then they take that money and
18:37they put it into long-term Treasuries.
18:39So, they may lock it up for 5, 10, 20,
18:4030 years at a time. And the problem is
18:42because they raised rates so fast, the
18:44value of those bonds had collapsed. And
18:46so, when depositors asked for their
18:48money,
18:50the banks were forced to sell the
18:51Treasuries at a loss.
18:52They went bankrupt, went out of
18:53business, three banks. And other banks
18:55were hurt, and they had to draw on that
18:56facility.
18:58We can see that. And now, here we are
19:00right here, and it's effectively at
19:03zero.
19:05Back to that zero. So, it's there. It's
19:07ready to go.
19:09But it's at zero. Now, Bhasin is urging
19:12to upsize this. So, this is what
19:13everyone's kind of getting all caught up
19:14in and everyone's predicting the world
19:16like, "Oh my god, S got Besant uh said
19:18that we need to upsize it." Yeah. He
19:20wants to be ready. Because what happens
19:21if we need more than that? We want to be
19:23ready again, like giving my kids the
19:24credit card in advance. Now, I I I put
19:27this as a as a marker here because in
19:292022, I think it was 2022, I made a
19:31couple videos talking about the collapse
19:33of FTX, which was a crypto exchange.
19:36And at the time when I was talking about
19:37FTX and what caused them to collapse,
19:40I sort of compared their currency, the
19:43FTT token, that caused them to collapse,
19:44to the Japanese yen. Interesting.
19:47And the reason why is what happened is
19:48they had FTX had created their own
19:50currency.
19:51Sort of like Japan has their own
19:52currency.
19:53And I think it was a tweet that was
19:55posted from CZ from Binance, cuz he was
19:57going to buy it and then he's like, "No,
19:58I'm not going to buy it." which caused
20:00it to start selling off.
20:01And FTX was forced to defend the
20:04currency, the the token.
20:07How do they do it? They have to buy it
20:09in the market. They have to step in and
20:10start buying it by bill buying pressure.
20:12But, how do they buy it when they don't
20:14have any money? Well, they have to start
20:15selling things. They had to start
20:16liquidating their positions to buy the
20:19FTT token to keep it propped up as
20:22everyone else was trying to get out and
20:24sell it. Everyone's trying to unwind
20:25their position. So, they're trying to
20:26absorb it. They're trying to buy it all.
20:28And at the time I talked it's sort of
20:29like the Japanese yen.
20:32Japan has to get sell assets like US
20:34Treasuries or get some sort of funding
20:36like this through FEMA to buy their
20:39token to buy their currency back up.
20:42Now, what's interesting is we can see
20:45that the IMF is warning this and I think
20:47this is real interesting. The IMF is
20:49basically saying, "Hey, hey, hang on. If
20:51you do this,
20:53you can potentially lose your free
20:56floating rate that says that your
20:58currency is free floating. A floating
21:00exchange rate can be classified as free
21:01floating if intervention occurs only
21:04once in a while, only exceptionally."
21:07But,
21:08if you mess with it too much,
21:10it's no longer free, and you got to be
21:12careful for that. So, the IMF is giving
21:13that warning. Okay. Now,
21:16what is what's really driving all this?
21:18Well, you've heard multiple people talk
21:20videos about this. I haven't really made
21:21a lot of videos. I don't find it
21:22particularly interesting, but the Japan
21:25carry trade. The carry trade A carry
21:27trade is basically arbitrage, right? So,
21:29I borrow low, I borrow 1%, and I put it
21:32into something making 5%, and I make a
21:344% spread. All right? So, it's like a
21:36carry trade. But, the carry trade has
21:39been massive because Japan has kept
21:41their rates artificially low,
21:430%, 1%, and someone could just take uh
21:46$100 million,
21:47a billion dollars, $100 million at 0% or
21:501%, and put it in US Treasuries at 4% or
21:535%, and just make the spread, right? So,
21:55of course, people do that. And so, this
21:56carry trade though has been closing.
21:59Now, this is starting to massive unwind,
22:02and it's getting these currencies to
22:03start moving, which is what's behind all
22:05this. Now, if we take a look at this, we
22:07can see this is the carry trade right
22:09here. This The US 10-year yield minus
22:13the Japan 10-year yield, which would
22:14give you the arbitrage, which would give
22:15you the spread. And you can see we're
22:17all the way up here at about 4%, a 4%
22:21positive carry, October of 2023.
22:25But, you can see this yellow line has
22:26been dwindling down, dwindling down,
22:27dwindling down. And right now, we're at
22:29about 1.9.
22:32All right? So, a lot of people that have
22:34this open have
22:35billions of dollars open on that
22:37positive carry trying to make 4% are now
22:39unwinding it, closing their positions
22:41because it keeps dropping, dropping,
22:42dropping, dropping, dropping.
22:44And that's forcing all of this to
22:46unwind, which is then causing all the
22:48currencies to move. And we see the BOJ
22:50has raised their rates five times, which
22:53is what's causing that window to
22:54collapse. And
22:56they've raised them five times to get
22:57them all the way to 1%. I'm going to
22:59talk about that 1% in a second. Um and
23:01it's cut that gap in half from the 3.9
23:03they were making 4% spread, now uh less
23:05than 2%. Now, what's interesting is that
23:08rate change like that should favor the
23:09yen, but it's not. And the reason why
23:12it's not is because the bond market is
23:15is is seeing fiscal risk there.
23:18So, we can see that the currency isn't
23:20listening to what the rates are saying.
23:21There's a disconnect.
23:23And so, what are we talking about? Well,
23:25let me show you how big this disconnect
23:26is. Take a look at this.
23:29This is a chart of government debt and
23:3230-year bond yield.
23:34Now, you would imagine that the more
23:36risk somebody has, the higher the rate
23:39of return they're going to want if you
23:39loan them money, right? So, why when you
23:41get a house, a car loan, whatever, they
23:43they look at your credit worthiness and
23:44depending on how good your credit is,
23:45you're going to higher or lower rate.
23:47And so, what we have here is this
23:50this fit this this fitted line, if you
23:52will.
23:53And over here on the left is low debt,
23:57debt to GDP. This is 60% debt to GDP.
24:00And this is higher debt to the GDP over
24:03here, 220%.
24:05This is the rate that they pay, 7% here,
24:093.5 here. So, Germany is all the way
24:12here on the left. They pay 3.8%
24:15and they have about 60% debt to GDP. On
24:17the other end,
24:20well, we have the United States,
24:225 and a quarter,
24:24and about 120% debt to GDP.
24:27United Kingdom, Euro, Canada are in in
24:30between that. But, way out here,
24:34220% debt to GDP is Japan
24:37at only 3.9.
24:39So, something doesn't add up.
24:41How is a country that's so far indebted,
24:44more than double what the United States
24:46is, without near the economic power,
24:48economic might the United States has, or
24:50any of the other things, and they're
24:51paying 3.9?
24:54So, the question is, what happens with
24:55this? Does this have to start catching
24:58up
24:59to this fitment line? Now, this is no
25:01forecast tool, but it just goes to show
25:03you how disconnected these things are.
25:06As traders start to recognize this and
25:09start to shift, they're going to start
25:10to position.
25:12They're going to realize that the
25:13Japanese debt is way too cheap, and we
25:16can already see this. There was 163,000
25:19contracts
25:21that were shorting this, and they've
25:22already started to unwind 45,000 of
25:24those contracts have already been
25:26dropped off.
25:27Okay, so what's really driving this? And
25:28more specifically, now that we know
25:30this, what do we What do we do about it?
25:32How How did Scott percent make his
25:34billions of dollars, and what should we
25:35be doing if we want to make some money
25:37with this, or we want to be in the right
25:38place with our money? Well, we want to
25:40understand that Japan is at a fork in
25:44the road.
25:45Just like every other nation in the
25:46world at a fork in the road.
25:48And they're all going to be forced to
25:49make the same decision.
25:52Fork one,
25:54the currency,
25:55or fork two, the bond market. You're
25:58either going to pay the debt that you
25:59owe, or you're going to destroy the
26:01currency. Those are the only two
26:03choices.
26:04And there's no country in the history of
26:05the world that's ever decided, well,
26:07we're just not paying debts,
26:09and they can just print the money, and
26:10they can print their own currency.
26:12And so the So the currency is going to
26:13be the one that's going to fail every
26:15single time.
26:16Now, if Japan
26:18forces that, then the US is going to
26:20have a problem because the US is going
26:22to have to replace the highest bidder.
26:25So, Japan, so take a look at this chart,
26:27and this is why Scott percent uh and and
26:29the US wants to protect Japan so much,
26:32is because this is a chart of the
26:33largest foreign holders of US debt, US
26:36Treasuries.
26:37Japan is right here as the largest
26:39holder with over 1.1 trillion dollars.
26:43Then we have the United Kingdom, 948
26:44billion. China, 659 billion. Belgium,
26:47472. Cayman Islands, 471.
26:50Okay, but look how far
26:53Japan is as the largest buyer. So, what
26:56happens if they can no longer buy that
26:58US debt or they can't buy it and they're
27:01selling it at the same time? Well,
27:03that's a problem. The US is going to
27:05have to replace Japan as a buyer and
27:08potentially a holder at the same time.
27:10What does that mean?
27:12Well, that means that they are going to
27:13have to pay higher rates in order to
27:16attract that capital.
27:18What does that mean? Well, that means
27:20your mortgage.
27:22That means your credit lines, your
27:24business credit lines, your business
27:25credit cards, your auto loans, all of
27:28that. It's also your portfolio.
27:31Because the price of your portfolio has
27:33to do with the real rates.
27:35Okay, we have to understand that in
27:37order to protect this, we have a third
27:39branch. So, certainly we have the
27:41Treasury and we have the Fed, but we
27:42have this third facility is this FEMA
27:44facility. As we talked about it, it's
27:46the one that's stuck at 60 billion cap.
27:47Scott percent's trying to get raised
27:49right now. It's the credit card I give
27:51my kids.
27:53And what we want to do is we want to
27:55watch one single number and it comes out
27:57every Thursday. The number that we want
28:00to watch every Thursday is this. It's on
28:03that Fed report I told you we'd come
28:04back to it at the very beginning. It's
28:06called the H41.
28:09And what this shows us is the repurchase
28:11agreements of foreign officials. And
28:14here we can see for the eighth
28:15consecutive week it's at zero.
28:18Right now it's not being tapped, but as
28:20soon as it is being tapped, we can start
28:22to expect this to start accelerating.
28:25All of this is in motion.
28:27It's math. It's there. It's fixed. We
28:29can see the intervention. We have Scott
28:31percent on TV talking about trying to
28:32raise the rates.
28:34It's not happening yet. And being early
28:36is the same as being wrong. So, we're
28:38going to watch that number. We're going
28:39to keep an eye on the US dollar and the
28:41Japanese yen to understand which assets
28:43are being sold, which assets are being
28:45bought, which way the money's going to
28:46flow. Hopefully that makes sense to you.
28:48Leave me a comment down below if you
28:49have any questions about this. Of
28:50course, as I always say, to your
28:52success. I'm out.