WEBVTT 00:00:00.000 --> 00:00:01.840 I have to be honest with you. When I logged into 00:00:01.840 --> 00:00:05.500 the terminal this morning, I actually refreshed 00:00:05.500 --> 00:00:07.280 the page three times. I thought the data feed 00:00:07.280 --> 00:00:09.599 was broken. I thought maybe I was looking at 00:00:09.599 --> 00:00:12.500 a glitch or a typo. It is the kind of number 00:00:12.500 --> 00:00:14.259 that makes you question your eyesight for sure. 00:00:14.800 --> 00:00:19.839 $5 ,500. Gold trading above $5 ,500 an ounce. 00:00:20.019 --> 00:00:23.059 I mean, we're talking about a 25 % jump year 00:00:23.059 --> 00:00:24.980 to date, and we haven't even finished January. 00:00:25.179 --> 00:00:28.640 And 27 % in the last month alone. It's wild. 00:00:28.800 --> 00:00:32.280 If this were some obscure crypto coin with a 00:00:32.280 --> 00:00:34.280 dog on it, fine, I'd understand the volatility. 00:00:34.640 --> 00:00:37.600 But this is gold. It's supposed to be the boring, 00:00:37.859 --> 00:00:41.460 steady grandfather of assets. What on earth is 00:00:41.460 --> 00:00:44.340 fueling a move this violent? It is historic price 00:00:44.340 --> 00:00:46.899 action. Absolutely. But here's the thing. If 00:00:46.899 --> 00:00:48.899 you're staring at the gold chart, you're actually 00:00:48.899 --> 00:00:51.359 looking at the smoke, not the fire. The fire 00:00:51.359 --> 00:00:53.219 isn't in the commodities market. It's burning 00:00:53.219 --> 00:00:56.340 in the bond market. Specifically, it's burning 00:00:56.340 --> 00:00:59.159 in the world's third largest economy. Japan. 00:00:59.500 --> 00:01:03.299 Japan? That seems, well, unexpected. Usually 00:01:03.299 --> 00:01:04.920 when we talk about financial panic, we're looking 00:01:04.920 --> 00:01:07.760 at emerging markets or maybe a tech bubble popping 00:01:07.760 --> 00:01:11.519 in the U .S. Why is Tokyo suddenly the epicenter 00:01:11.519 --> 00:01:14.700 of a gold rally? Because the Japanese government 00:01:14.700 --> 00:01:18.579 bond market, the JGB, has effectively acted as 00:01:18.579 --> 00:01:21.500 an anchor for global interest rates for decades. 00:01:21.859 --> 00:01:24.400 And that anchor has just come loose. Right. What 00:01:24.400 --> 00:01:27.060 we're seeing in gold is just a symptom. The disease 00:01:27.060 --> 00:01:29.900 is a fiscal crisis unfolding in Tokyo that is 00:01:29.900 --> 00:01:32.819 forcing a complete repricing of risk across the 00:01:32.819 --> 00:01:35.260 entire global financial system. Okay, so our 00:01:35.260 --> 00:01:37.480 mission today is to connect these dots. We need 00:01:37.480 --> 00:01:40.120 to get from a bond trading desk in Tokyo to this 00:01:40.120 --> 00:01:43.840 historic $5 ,500 gold price and explain why this 00:01:43.840 --> 00:01:45.879 matters even if you don't own a single ounce 00:01:45.879 --> 00:01:48.079 of gold or a single Japanese yen. That's the 00:01:48.079 --> 00:01:50.439 plan. And to understand the panic, you really 00:01:50.439 --> 00:01:52.420 have to understand the anomaly first. Right. 00:01:52.480 --> 00:01:54.620 Looking at the notes here, you flagged the yield 00:01:54.620 --> 00:01:57.359 on the 10 -year Japanese government bond. It's 00:01:57.359 --> 00:02:00.519 climbed above 2 .25%. Now, I have to play devil's 00:02:00.519 --> 00:02:03.579 advocate immediately. To a listener in the US 00:02:03.579 --> 00:02:06.359 or Europe, where we've been dealing with 4 % 00:02:06.359 --> 00:02:09.759 or 5 % rates, 2 .25 % sounds like free money, 00:02:10.300 --> 00:02:13.719 why is that number a crisis level for Japan? 00:02:14.110 --> 00:02:17.389 Well, context is everything here. Yeah. You have 00:02:17.389 --> 00:02:20.210 to remember that for over three decades, I mean, 00:02:20.289 --> 00:02:23.330 an entire generation of traders in Bankers Japan 00:02:23.330 --> 00:02:26.909 has existed in a kind of suspended animation 00:02:26.909 --> 00:02:30.669 of ultra -low and often negative interest rates. 00:02:30.889 --> 00:02:33.370 So their whole system is built for zero. Exactly. 00:02:33.569 --> 00:02:35.909 Their entire financial architecture is built 00:02:35.909 --> 00:02:38.719 on the premise that money costs nothing. The 00:02:38.719 --> 00:02:40.919 banks, the pension funds, the corporate balance 00:02:40.919 --> 00:02:43.080 sheets, they're all structured, assuming rates 00:02:43.080 --> 00:02:45.199 stay near zero. It's like a driver who has only 00:02:45.199 --> 00:02:47.379 ever driven at 20 miles per hour suddenly being 00:02:47.379 --> 00:02:49.979 forced to go 100. It's a perfect analogy. The 00:02:49.979 --> 00:02:52.939 engine just isn't built for it. You build a skyscraper 00:02:52.939 --> 00:02:54.800 using materials that are perfectly stable at 00:02:54.800 --> 00:02:56.719 freezing temperatures. Suddenly the temperature 00:02:56.719 --> 00:02:59.340 jumps to 100 degrees, the materials extend, the 00:02:59.340 --> 00:03:02.819 integrity fails. That is Japan at 2 .25%. And 00:03:02.819 --> 00:03:04.860 it's up over a full percentage point from just 00:03:04.860 --> 00:03:08.360 a year ago. In the bond world, that isn't a fluctuation. 00:03:08.620 --> 00:03:11.120 That is a structural failure. But rates don't 00:03:11.120 --> 00:03:13.639 just spike in a vacuum. There's usually a trigger. 00:03:14.159 --> 00:03:16.099 Did the market just wake up and decide Japan 00:03:16.099 --> 00:03:18.400 was risky, or did something happen politically? 00:03:18.659 --> 00:03:21.340 It connects right back to fiscal policy. We have 00:03:21.340 --> 00:03:24.080 to look at Prime Minister Shigeru Ishiba. He's 00:03:24.080 --> 00:03:26.900 been pushing a new fiscal stimulus package combined 00:03:26.900 --> 00:03:29.919 with proposed tax cuts. Stimulus and tax cuts. 00:03:30.280 --> 00:03:33.039 In a vacuum, that sounds like the standard economic 00:03:33.039 --> 00:03:35.319 playbook, right? Stimulate growth, put money 00:03:35.319 --> 00:03:37.979 in pockets. Stock markets usually love that stuff. 00:03:38.340 --> 00:03:39.879 Oh, equity markets might love it temporarily. 00:03:40.759 --> 00:03:43.759 But bond markets hate it. Bond markets look at 00:03:43.759 --> 00:03:47.370 the bill. You have to realize, Japan's debt is 00:03:47.370 --> 00:03:50.669 projected to be around 230 % of their GDP in 00:03:50.669 --> 00:03:54.870 late 2025. 230%. It's the highest among all developed 00:03:54.870 --> 00:03:57.990 nations. It makes the U .S. debt load look almost 00:03:57.990 --> 00:04:00.409 manageable by comparison. That's staggering. 00:04:00.590 --> 00:04:03.030 It's a mountain of debt. So when the prime minister 00:04:03.030 --> 00:04:05.990 says, we're going to spend more and tax less, 00:04:06.669 --> 00:04:08.689 the bond market does the math. They ask, how 00:04:08.689 --> 00:04:10.490 are you going to pay for this? Yeah. The only 00:04:10.490 --> 00:04:13.250 answer is issuing more debt or printing more 00:04:13.250 --> 00:04:16.339 money. So investors just get spooked. They look 00:04:16.339 --> 00:04:19.959 at that 230 percent number and say, I don't think 00:04:19.959 --> 00:04:23.120 you can pay this back without debasing the currency. 00:04:23.120 --> 00:04:26.120 So they sell the bonds. And just to clarify the 00:04:26.120 --> 00:04:29.379 mechanics for everyone, when investors sell bonds, 00:04:29.560 --> 00:04:32.560 the price of the bond drops and the yield, the 00:04:32.560 --> 00:04:34.060 interest rate the government has to pay goes 00:04:34.060 --> 00:04:37.000 up. Precisely. And that selling pressure is what 00:04:37.000 --> 00:04:41.160 drove us to this 2 .25 percent level. OK, so 00:04:41.160 --> 00:04:43.319 yields are rising. But here's what I struggle 00:04:43.319 --> 00:04:45.819 with. Japan has a central bank. The Bank of Japan, 00:04:45.959 --> 00:04:48.560 the BOJ, they have been the masters of market 00:04:48.560 --> 00:04:51.800 manipulation for decades. They literally invented 00:04:51.800 --> 00:04:54.120 yield curve control. They did. Why don't they 00:04:54.120 --> 00:04:56.759 just step in, print a few trillion yen, buy the 00:04:56.759 --> 00:04:58.860 bonds, and squash the yield back down? Why allow 00:04:58.860 --> 00:05:01.300 this to happen? That is the trillion -dollar 00:05:01.300 --> 00:05:03.920 question. And the answer is why we are seeing 00:05:03.920 --> 00:05:08.279 gold at $5 ,500. The BOJ has lost the luxury 00:05:08.279 --> 00:05:11.360 of choice. They're currently caught in what I 00:05:11.360 --> 00:05:14.800 call an impossible bind. An impossible bind? 00:05:14.879 --> 00:05:17.519 They're trapped between two disasters. Okay, 00:05:17.699 --> 00:05:19.879 let's unpack the trap. What's behind door number 00:05:19.879 --> 00:05:21.500 one? Door number one is what you just suggested. 00:05:21.839 --> 00:05:24.860 Yield suppression. They print money, they buy 00:05:24.860 --> 00:05:27.240 the bonds, and they artificially keep interest 00:05:27.240 --> 00:05:29.319 rates low to help the government finance all 00:05:29.319 --> 00:05:31.699 that debt and to protect the banks. Okay, that 00:05:31.699 --> 00:05:34.060 keeps the borrowing costs down. What's the problem 00:05:34.060 --> 00:05:36.220 with that? The problem is the currency. It's 00:05:36.220 --> 00:05:39.399 just supply and demand. If Japan prints massive 00:05:39.399 --> 00:05:41.839 amounts of yen to buy bonds while the rest of 00:05:41.839 --> 00:05:44.000 the world is holding rates steady, well, the 00:05:44.000 --> 00:05:46.420 supply of yen floods the market. The currency 00:05:46.420 --> 00:05:48.779 gets crushed. And the yen is already weak. Right. 00:05:48.879 --> 00:05:51.259 Trading near one fifty five to the dollar. Exactly. 00:05:51.399 --> 00:05:53.420 And you have to remember, Japan is an island 00:05:53.420 --> 00:05:56.899 nation. Very few natural resources. They import 00:05:56.899 --> 00:05:59.240 almost all their energy and a huge portion of 00:05:59.240 --> 00:06:02.160 their food. So if the yen collapses, you get 00:06:02.160 --> 00:06:05.149 imported inflation. The cost of living for the 00:06:05.149 --> 00:06:08.649 average Japanese citizen skyrockets. Heating 00:06:08.649 --> 00:06:12.629 your home, buying rice, it all becomes unaffordable. 00:06:13.189 --> 00:06:16.589 Inflation is currently holding at 2 .1 % and 00:06:16.589 --> 00:06:18.490 they are desperate to keep it from spiraling. 00:06:18.730 --> 00:06:20.930 So door number one saves the bond market but 00:06:20.930 --> 00:06:23.009 destroys the currency and spikes inflation. Got 00:06:23.009 --> 00:06:25.850 it. What's door number two? Door number two is 00:06:25.850 --> 00:06:29.100 aggressive yen support. They stop printing. They 00:06:29.100 --> 00:06:31.379 maybe even raise rates aggressively to make the 00:06:31.379 --> 00:06:33.920 yen attractive again and stop the currency from 00:06:33.920 --> 00:06:35.779 bleeding out. That sounds like the responsible 00:06:35.779 --> 00:06:37.980 hard money approach. Defend the value of your 00:06:37.980 --> 00:06:40.240 money. It sounds responsible until you look at 00:06:40.240 --> 00:06:42.300 the balance sheets of the domestic institutions, 00:06:42.860 --> 00:06:46.319 Japanese banks, insurers, pension funds. They 00:06:46.319 --> 00:06:48.839 are all sitting on mountains of those old low 00:06:48.839 --> 00:06:51.360 rate bonds we talked about. Ah. Let me make sure 00:06:51.360 --> 00:06:53.180 I have the mechanics right here for the listener. 00:06:53.720 --> 00:06:55.540 Bond prices and yields move inversely. So if 00:06:55.540 --> 00:06:59.259 I hold a bond that pays, say, 0 .1 % and suddenly 00:06:59.259 --> 00:07:02.180 new bonds are paying 2 .25, nobody wants your 00:07:02.180 --> 00:07:04.360 old bond. It's value tanks. It's like holding 00:07:04.360 --> 00:07:07.060 a contract to sell apples for a dollar when everyone 00:07:07.060 --> 00:07:09.860 else is selling them for 10. Your contract is 00:07:09.860 --> 00:07:13.560 worthless. Now imagine you are a major Japanese 00:07:13.560 --> 00:07:16.339 bank and you're holding billions of dollars of 00:07:16.339 --> 00:07:19.810 those old bonds. If yields rise, the price of 00:07:19.810 --> 00:07:23.889 those bonds crashes. That creates massive unrealized 00:07:23.889 --> 00:07:26.709 losses on your balance sheet. That sounds suspiciously 00:07:26.709 --> 00:07:28.290 like what happened to Silicon Valley Bank in 00:07:28.290 --> 00:07:30.850 the US a few years ago. It is exactly the same 00:07:30.850 --> 00:07:33.800 mechanic. But on a national scale, if the BOJ 00:07:33.800 --> 00:07:37.300 raises rates to save the yen, they risk technically 00:07:37.300 --> 00:07:39.800 bankrupting their own banking system. Wow. So 00:07:39.800 --> 00:07:41.879 it's a pick your poison scenario, hyperinflation 00:07:41.879 --> 00:07:44.360 or a banking collapse. Save the currency and 00:07:44.360 --> 00:07:46.740 break the banks or save the banks and trash the 00:07:46.740 --> 00:07:49.339 currency. That is the trap. So where do they 00:07:49.339 --> 00:07:51.000 stand right now? What are they actually doing? 00:07:51.209 --> 00:07:53.250 Right now, they're trying to walk a tightrope. 00:07:53.470 --> 00:07:55.269 The DOJ has kept the short -term policy rate 00:07:55.269 --> 00:07:59.230 at 0 .75%. They haven't confirmed any official 00:07:59.230 --> 00:08:01.550 intervention in the currency markets in 2026 00:08:01.550 --> 00:08:03.610 yet, but they're doing a lot of verbal guidance. 00:08:03.810 --> 00:08:06.430 Just walking the market down. Essentially, they 00:08:06.430 --> 00:08:09.230 are threatening intervention. And interestingly, 00:08:09.730 --> 00:08:13.889 the yen recently strengthened about 1 .71 % just 00:08:13.889 --> 00:08:15.769 on the speculation that they might intervene. 00:08:16.810 --> 00:08:19.829 The market is on a knife's edge, just waiting 00:08:19.829 --> 00:08:22.480 for them to blink. It feels like a high stakes 00:08:22.480 --> 00:08:24.579 poker game where everyone knows the dealer is 00:08:24.579 --> 00:08:27.459 out of cards, but let's zoom out. Because I can 00:08:27.459 --> 00:08:29.819 hear a listener in Chicago or London saying, 00:08:30.480 --> 00:08:33.080 OK, this is dramatic for Tokyo, but if I don't 00:08:33.080 --> 00:08:36.200 live there and I don't hold JGBs, why do I care? 00:08:36.320 --> 00:08:38.559 Why is this my problem? And that raises the most 00:08:38.559 --> 00:08:40.639 important point about global connectedness. You 00:08:40.639 --> 00:08:43.320 should care because Japan isn't just an island 00:08:43.320 --> 00:08:46.480 economy. They are a massive creditor to the United 00:08:46.480 --> 00:08:48.840 States. Specifically, they're the largest foreign 00:08:48.840 --> 00:08:50.980 holder of U .S. treasuries. That's the one. How 00:08:50.980 --> 00:08:52.820 much are we talking about? They hold over one 00:08:52.820 --> 00:08:55.259 point one trillion dollars in U .S. treasuries. 00:08:55.320 --> 00:08:57.480 A trillion. OK, I see the link forming now. Go 00:08:57.480 --> 00:09:01.399 back to door number two. If Japan decides they 00:09:01.399 --> 00:09:03.740 must defend the yen, if they have to stop the 00:09:03.740 --> 00:09:06.580 currency from crashing, they need dollars. To 00:09:06.580 --> 00:09:08.340 buy their own currency back, they need to sell 00:09:08.340 --> 00:09:10.580 dollars. Where did they have a trillion dollars 00:09:10.580 --> 00:09:13.879 parked? In US treasuries. Exactly. So to save 00:09:13.879 --> 00:09:16.539 the yen, they might be forced to sell US bonds. 00:09:16.830 --> 00:09:19.190 When the largest foreign holder starts dumping 00:09:19.190 --> 00:09:21.330 that much supply onto the market, what happens 00:09:21.330 --> 00:09:23.870 to U .S. bonds? Supply goes up, prices go down, 00:09:24.110 --> 00:09:27.870 and U .S. yields go up. Right. So a policy failure 00:09:27.870 --> 00:09:31.470 in Tokyo could directly spike my mortgage rate, 00:09:31.750 --> 00:09:33.950 my credit card rate. And we are already seeing 00:09:33.950 --> 00:09:37.090 it. The 30 -year U .S. bond yields are at multi 00:09:37.090 --> 00:09:39.250 -year highs. That isn't just because of the U 00:09:39.250 --> 00:09:41.590 .S. economy. It's partly because the market is 00:09:41.590 --> 00:09:44.269 pricing in the risk of Japan selling. The market 00:09:44.269 --> 00:09:48.159 is front -running the BOJ. The global spillover. 00:09:48.460 --> 00:09:50.200 But there's another layer to this, right? The 00:09:50.200 --> 00:09:52.440 carry trade. I keep hearing that term thrown 00:09:52.440 --> 00:09:54.639 around, usually without a clear explanation. 00:09:54.860 --> 00:09:57.399 Break it down for me. It's simple, really. And 00:09:57.399 --> 00:09:59.179 it was the world's favorite trade for a long, 00:09:59.220 --> 00:10:00.940 long time. Here's the plain English version. 00:10:01.600 --> 00:10:04.299 Imagine you can borrow money from a bank in Japan 00:10:04.299 --> 00:10:07.240 for effectively 0 % interest. I'll take as much 00:10:07.240 --> 00:10:09.759 as you can give me. Exactly. So you borrow a 00:10:09.759 --> 00:10:12.610 billion yen. You convert it to dollars. Then 00:10:12.610 --> 00:10:15.169 you take those dollars and buy a U .S. stock 00:10:15.169 --> 00:10:18.090 or a U .S. bond paying 5%. You're paying zero 00:10:18.090 --> 00:10:20.389 on a loan and earning five on the investment. 00:10:20.929 --> 00:10:23.769 You just pocket the difference. Borrow at zero, 00:10:24.049 --> 00:10:26.649 invest at five. It's free money. It was a money 00:10:26.649 --> 00:10:29.230 printing machine. Hedge funds did it. Banks did 00:10:29.230 --> 00:10:31.769 it. Everyone did it. But now look at the equation. 00:10:32.339 --> 00:10:35.700 The yen is strengthening up 1 .7 % recently, 00:10:36.419 --> 00:10:38.639 and Japanese rates are rising. So the cost of 00:10:38.639 --> 00:10:40.559 the loan is going up. Not just the interest. 00:10:41.139 --> 00:10:43.500 Think about it. If you borrowed yen when it was 00:10:43.500 --> 00:10:46.200 weak, and now the yen gets stronger, you need 00:10:46.200 --> 00:10:48.519 more dollars to buy back the yen to pay off that 00:10:48.519 --> 00:10:50.919 loan. The principle of your debt is effectively 00:10:50.919 --> 00:10:53.289 growing. The trade doesn't work anymore. In fact, 00:10:53.309 --> 00:10:54.990 it's going backwards. Not only does it not work, 00:10:55.129 --> 00:10:56.850 it's blowing up. People are rushing for the exits. 00:10:56.889 --> 00:10:59.210 They have to sell those U .S. assets, sell the 00:10:59.210 --> 00:11:01.809 tech stocks, sell the bonds to get cash to buy 00:11:01.809 --> 00:11:04.649 back yen and close the loan. And this unwinding 00:11:04.649 --> 00:11:07.710 causes ripples everywhere. It sucks liquidity 00:11:07.710 --> 00:11:10.730 out of the system. It exacerbates dollar weakness 00:11:10.730 --> 00:11:13.509 against other currencies because everyone is 00:11:13.509 --> 00:11:15.529 selling dollars to buy yen. It's like a crowded 00:11:15.529 --> 00:11:17.610 theater and someone just yelled fire. But the 00:11:17.610 --> 00:11:19.830 exit door is getting smaller. It's a global margin 00:11:19.830 --> 00:11:23.340 call. That is a very, very apt analogy. OK, so 00:11:23.340 --> 00:11:25.960 we have chaos and bonds, chaos and currencies, 00:11:26.220 --> 00:11:28.740 a liquidity crisis. Let's bring it all back to 00:11:28.740 --> 00:11:32.340 the headline. Why is gold the winner? Why isn't 00:11:32.340 --> 00:11:34.559 everyone just buying, I don't know, Apple stock 00:11:34.559 --> 00:11:37.299 or Bitcoin? That brings us back to the fifty 00:11:37.299 --> 00:11:39.899 five hundred dollar number. The reason is one 00:11:39.899 --> 00:11:43.419 concept. Counter party risk. Counter party risk. 00:11:43.580 --> 00:11:45.639 OK, explain that like I'm five. Think about a 00:11:45.639 --> 00:11:48.450 bond. A bond is a promise. It's a promise from 00:11:48.450 --> 00:11:50.190 a government that they will pay you back with 00:11:50.190 --> 00:11:52.889 interest. Its value depends entirely on their 00:11:52.889 --> 00:11:55.330 ability to pay, on their solvency. Right. Think 00:11:55.330 --> 00:11:57.789 about fiat currency like the dollar or the yen. 00:11:58.029 --> 00:12:00.049 It depends on policy decisions and the stability 00:12:00.049 --> 00:12:04.509 of the central bank. But gold, gold has no counterparty. 00:12:04.570 --> 00:12:07.830 It's just gold. It's a rock. It's an atom. It 00:12:07.830 --> 00:12:10.049 doesn't rely on a government's promise. It doesn't 00:12:10.049 --> 00:12:12.570 rely on a prime minister's budget or a central 00:12:12.570 --> 00:12:15.980 bank chairman's decision. It's independent of 00:12:15.980 --> 00:12:18.340 credit worthiness. So it's the only financial 00:12:18.340 --> 00:12:21.460 asset that is not simultaneously someone else's 00:12:21.460 --> 00:12:24.779 liability. You've got it. So when investors look 00:12:24.779 --> 00:12:27.580 at Japan and say, I don't trust the government 00:12:27.580 --> 00:12:29.899 to pay the debt and I don't trust the central 00:12:29.899 --> 00:12:33.220 bank to manage the currency, they go to the one 00:12:33.220 --> 00:12:36.120 asset that doesn't require trust. And it's not 00:12:36.120 --> 00:12:38.419 just panic retail traders buying a few coins. 00:12:38.559 --> 00:12:42.440 No. The data shows this is sustained demand across 00:12:42.440 --> 00:12:45.200 buyer categories. We're talking central banks, 00:12:45.779 --> 00:12:47.759 major institutions, high net worth individuals. 00:12:47.960 --> 00:12:49.559 That's a key distinction. This isn't just fear, 00:12:49.700 --> 00:12:51.840 it's institutional positioning. And every time 00:12:51.840 --> 00:12:54.700 the price pulls back, buyers step in immediately. 00:12:55.120 --> 00:12:57.460 It's acting as a specific hedge against sovereign 00:12:57.460 --> 00:12:59.639 debt pressures. Basically, if you think governments 00:12:59.639 --> 00:13:01.399 are losing control of their bond markets, you 00:13:01.399 --> 00:13:04.159 buy gold. And Japan is the poster child for losing 00:13:04.159 --> 00:13:06.080 control right now. Japan is the current crisis, 00:13:06.259 --> 00:13:09.850 yes. But here is the bigger warning. Japan is 00:13:09.850 --> 00:13:12.549 the canary in the coal mine. What do you mean 00:13:12.549 --> 00:13:15.009 by that? Well, Japan isn't the only country with 00:13:15.009 --> 00:13:17.190 high debt. They're just further along the path. 00:13:17.809 --> 00:13:21.210 Japan is a preview, a preview for other high 00:13:21.210 --> 00:13:23.149 debt nations. I assume you're looking at the 00:13:23.149 --> 00:13:26.809 United States. The U .S. has a $36 trillion debt 00:13:26.809 --> 00:13:29.669 load. Europe is struggling with debt as well. 00:13:30.269 --> 00:13:32.990 If the bond market can break in Japan, which 00:13:32.990 --> 00:13:36.149 is a highly advanced stable economy, investors 00:13:36.149 --> 00:13:38.820 start asking... Why can't it happen in the US? 00:13:39.580 --> 00:13:42.039 Why can't it happen in Europe? That is a terrifying 00:13:42.039 --> 00:13:44.840 thought, the idea that US treasuries could face 00:13:44.840 --> 00:13:47.850 a similar buyer strike. It signals a massive 00:13:47.850 --> 00:13:50.129 shift in the era of central banking. For the 00:13:50.129 --> 00:13:52.169 last 20 years, we've been in the era of growth 00:13:52.169 --> 00:13:55.129 optimization. Central banks trying to tweak things 00:13:55.129 --> 00:13:57.330 to make the economy grow a little faster. And 00:13:57.330 --> 00:14:00.389 now? Now we are entering the era of crisis containment. 00:14:01.250 --> 00:14:03.590 Unconventional tools like quantitative easing 00:14:03.590 --> 00:14:06.409 are being tested to their absolute limits. We 00:14:06.409 --> 00:14:08.470 are seeing that you cannot print money forever 00:14:08.470 --> 00:14:10.929 without consequence. The bill is coming due. 00:14:11.080 --> 00:14:13.460 So for the listener trying to navigate this, 00:14:13.559 --> 00:14:15.279 what should they be watching? Obviously, the 00:14:15.279 --> 00:14:17.220 price of gold. But what are the leading indicators? 00:14:17.720 --> 00:14:19.879 You need to watch three specific things in the 00:14:19.879 --> 00:14:23.179 coming weeks. First, the next Bank of Japan policy 00:14:23.179 --> 00:14:26.200 meeting. Any shift there changes the game. Raise 00:14:26.200 --> 00:14:29.139 rates or print more? If they raise rates, the 00:14:29.139 --> 00:14:31.799 banking crisis risk goes up. If they print money, 00:14:32.059 --> 00:14:34.159 the currency crisis risk goes up. OK, watch the 00:14:34.159 --> 00:14:37.259 BOJ. What else? Second, upcoming U .S. employment 00:14:37.259 --> 00:14:40.860 data. Why employment data? Because that dictates 00:14:40.919 --> 00:14:43.200 what the U .S. Federal Reserve does. If the U 00:14:43.200 --> 00:14:45.740 .S. economy weakens, the Fed might want to cut 00:14:45.740 --> 00:14:48.740 rates. But if bond yields are spiking because 00:14:48.740 --> 00:14:51.460 of Japan selling treasuries, the Fed might lose 00:14:51.460 --> 00:14:53.659 control of the long end of the curve. It puts 00:14:53.659 --> 00:14:56.340 the Fed in a nasty bind too. And the third thing? 00:14:56.600 --> 00:14:59.399 Updates on yen intervention. If Japan officially 00:14:59.399 --> 00:15:02.259 steps in to buy yen, that implies they are selling 00:15:02.259 --> 00:15:04.779 treasuries to get the cash. If you see that headline, 00:15:05.179 --> 00:15:07.559 expect volatility to spike across all asset classes 00:15:07.559 --> 00:15:10.620 immediately. So buckle up. This isn't over. Not 00:15:10.620 --> 00:15:13.100 by a long shot. Expect prolonged volatility. 00:15:13.419 --> 00:15:16.039 This is a structural unwind of a 30 -year economic 00:15:16.039 --> 00:15:19.259 experiment. So let's summarize. Japan's massive 00:15:19.259 --> 00:15:21.779 debt and new stimulus are pushing yields up to 00:15:21.779 --> 00:15:24.600 levels their system wasn't built for. The Bank 00:15:24.600 --> 00:15:27.360 of Japan is trapped between saving their currency 00:15:27.360 --> 00:15:30.700 or saving their banking system. This pressure 00:15:30.700 --> 00:15:33.379 is spilling over into the U .S. via Treasury 00:15:33.379 --> 00:15:36.960 sales and the unwinding of the carry trade, threatening 00:15:36.960 --> 00:15:40.320 our own rates. And gold is skyrocketing because 00:15:40.320 --> 00:15:43.039 it's the only asset that doesn't rely on a government 00:15:43.039 --> 00:15:46.519 promise that looks increasingly shaky. That is 00:15:46.519 --> 00:15:48.620 the perfect summary. You know, it really makes 00:15:48.620 --> 00:15:51.159 you think we've lived through decades of easy 00:15:51.159 --> 00:15:53.340 money We got used to the idea that debt doesn't 00:15:53.340 --> 00:15:55.340 matter that we can just kick the can down the 00:15:55.340 --> 00:15:58.019 road forever But Japan is showing us what happens 00:15:58.019 --> 00:16:00.659 when the road runs out. It is a harsh reality 00:16:00.659 --> 00:16:02.799 check I want to leave the listener with a thought 00:16:02.799 --> 00:16:05.700 today. We look at Japan and think that's over 00:16:05.700 --> 00:16:08.840 there But if the world's third largest economy 00:16:08.840 --> 00:16:11.419 can't handle a two and a quarter percent interest 00:16:11.419 --> 00:16:13.600 rate without shaking the global financial system 00:16:13.600 --> 00:16:17.299 to its core What does that say about the stability 00:16:17.299 --> 00:16:20.159 of your own local currency? About the money in 00:16:20.159 --> 00:16:21.960 your savings account? It's the question everyone 00:16:21.960 --> 00:16:23.960 should be asking right now. Keep your eyes on 00:16:23.960 --> 00:16:26.159 the charts, everyone. It's going to be an interesting 00:16:26.159 --> 00:16:28.960 week. Thanks for listening to the Deep Dive.