← Tom Bilyeu's Impact Theory
Tom Bilyeu's Impact Theory
How Japan’s Broken Bond Market Is Threatening Your Wealth—What You Must Know
00:21:00
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Financial Analyst
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Financial Analyst
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Financial Analyst
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Financial Analyst
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Financial Analyst
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Co-host
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Financial Analyst
Ray Dalio is calling it. The monetary order is breaking down and we're now on the brink of war, both internal and external. This is due to economic forces the world over that repeat throughout history. It includes a decline in confidence in paper currencies and debt as a category, and they no longer view it as a good store of wealth.
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Co-host
The first chip kind of fell yesterday when the stock market lost over $1.3 trillion in value.
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Financial Analyst
Some people are claiming that this is about Trump and Greenland. It is not. That comes later. That is a problem. It's a big problem and it's going to rear its ugly head and it is going to be, I'm sure, similarly catastrophic. This just isn't the effect of that. This is about long term economic forces that are finally spilling over in Japan. The Japanese yen carry trade, which we have talked about before, has been fueling the global economy for decades. I was saying, saying debt fuels this stuff. Well, you've got to have somewhere that's giving you debt at great rates and that somewhere has been Japan. And as rates climb, it's forcing people to sell off other assets that they bought on previously cheap Japanese debt. Japan's approximately $7.6 trillion government bond market experienced sharp yield rises with long dated yields hitting multi decade highs. Now this can be counterintuitive. As the bond yields go up, the price is coming down and as the bond price goes up, the yields are coming down. What happens is, if people know that, oh, you can really trust this, you're going to get paid back over time, then the yield of that is going to be low. They don't have to incentivize anybody to pick up that debt because it's like, hey, this is a super, super safe place as people become concerned that the debt is mispriced or that there's instability, then the price is gonna go up because they have to find or the yields are gonna go up because they have to find a way to get people to come in and buy this. But to make the yield high, the price has to be low. So what you're seeing is the prices of Japanese bonds are dropping like crazy so that the yield can go up to entice people to come in. So basically people are panic selling their bonds and they're getting out of the Japanese debt game. Now, part of how I know this is true is because of the price action in bitcoin. The important thing to understand is Bitcoin trades 24, 7, 365 without delay. So you can see far more accurately what it's based on. Because the US Stock market was shut for the holiday weekend and the bitcoin price dropped right around the sell off of the Japanese yen. So bitcoin fell below key psychological levels of the 89,000 ish range during the sell off. Now, if this had been a Greenland problem, you would have seen bitcoin and the markets react to the news on Greenland, but they didn't. They end up reacting to the news on Japan. Now, the extended crypto market drawdown wiped out about 150 billion in valuation, with bitcoin leading the decline. So keep that in mind. Bitcoin's drop didn't drop with the news about Greenland. It was just perfectly synchronous with the news coming out of Japan. So again, this is not me saying that Trump's attitude, posture towards Greenland, towards Europe isn't going to have problems. It is. This just isn't that one for the
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Co-host
dude who's making pizzas in the back of the pizza shop and has 10k in the bank. He heard all of that and he was like, hey, damn.
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Financial Analyst
First of all, if the homeboy making pizzas has 10k in the account, this is my man.
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Co-host
If he owns a pizza shop, I feel like he needs, he needs a little bit more operating conference.
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Financial Analyst
I didn't hear the word own. I saw him in the back, like clocking $7 an hour.
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Co-host
So when he hears all this, he was like, yeah, this is cool, Tom, but I need to worry about these pepperonis. What does this actually mean? Practically, like, if you can sum it up in two, three, sentence. I appreciate the expanse and thank you for the. The Econ Bros are like, yes, we got it, we'll go do it. But for, you know, the pizza flippers what's. Give it to us kind of in a. In the Lego. Explain it to me. Like, I'm five way.
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Financial Analyst
If you can borrow money from mom and dad, you can go buy pizza, toys, whatever you want. So a lot of people are going to come in and buy that pepperoni pizza from you. When the kids can't borrow money from mom and dad anymore. And now they got to work, like, a whole lot of chores for a lot less pay, all of a sudden, they're not splashing out on pizza. It's. It's only Nintendo and Fortnite and pizza gotta go. So now everybody's gonna feel that pinch of there's just less dollars. People feel. Not only do. Not only are people less rich, meaning they have less access to money, even if it's debt, but they feel less rich. Got it. And so now they start acting in a way where it's like, ah, I don't want to spend this money.
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Co-host
All right, I'm a ground this again. So a couple. There was a couple workers in the chat that was like, drew, that's me. So thank you for asking. I was like, all right. So we grounded that. When there's not enough, a lot of free money splashing around, people withdrawal. So that's why the stock market pulled in.
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Financial Analyst
Well, people actually. So the nature of the debt changes. People realize, oh, I've got to pay back my Japanese debt now because I can't make the Delta anymore. So now I'm at risk. So I've got to sell, but I've got to sell now. Whenever you have to sell now, odds are you're going to sell at a discount. When you start selling at a discount, it sends, like, economic pheromones into the world. And people realize, oh, people are selling at a discount. Something bad is happening.
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Co-host
I got to sell.
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Financial Analyst
I'm going to sell now so I can get the hell out. And you see these huge dips because people are thinking short term, people start panic selling. And because most of the people in the market are trading on margin. So debt, $1.2 trillion of margin exists in the system. That debt has requirements that, hey, in your Robinhood account or wherever you're doing it, you have to have at least this much in collateral. If you don't, don't worry, Drew. I'm just going to auto sell the things in your account to make sure that I Robinhood. And fine. It's called being liquidated. And so if the numbers get off in your account, you could lose everything literally instantaneously at the speed that AI can detect, do the transfer, and now, poof, it's all gone. So, and by the way, if that trade doesn't happen fast enough, you can find yourself upside down because it can go into the negative where we weren't able to sell your assets, but you still owe us the money you owe.
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Co-host
Now on the US Side, we're seeing the US treasury bond markets to start to rise. And some people are saying those two things are tied. Scott Besson talked about it yesterday.
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Financial Analyst
You're going to see how interconnected the global financial markets are. And so people will borrow Japanese yen and invest in Nvidia as one very real, very concrete example, because Nvidia is like just returning like crazy. People think this is going to last forever, so they take that money out and they put it into Nvidia.
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Co-host
Borrowing from Japan cost me 2%. Nvidia gives me 30% returns, I pay the 2% off, I walk away with that delta.
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Financial Analyst
Correct. And so when I become upside down, because either the rate of the yen that I have to pay back is now higher than the delta that I'm making, or I look at the market and I see, oh, the thing that I was counting on giving me a yield is actually negative. So now I'm going to owe that debt and I'm trapped in the market. So the question is, do I panic, sell and take a big loss on what I bought it for, but I can still pay back my debt, or do I hope that fingers crossed that we don't stay in this position and I've got plenty of time to go back and pay that off later? And so people start selling because they think, well, I've already made a bunch of money, so I don't need to make more. But I cannot have the exposure of the debt in Japan because I don't know where this is going to stop. And if this is Japan essentially collapsing economically, well, this may go like that for five to 10 years. And so it's not like I have any safety guarantees whatsoever. So I'm underwater on Nvidia, but I'm still ahead of my debt. So let me liquidate. Lost a bit, but I'm not going to be negative in my account. I'll pay off my debt, I'm good. But that then causes a cascade in the value of Nvidia. And because people do not understand that the stock market is a casino, they don't realize that this is all just paper value. It's worth whatever somebody says it's worth, not a dollar more, not A dollar less. And so when people panic for that period of time, it's really worth less. And so people can get trapped, they get emotional because they don't know is this going to be down forever or is this going to be down for 24 hours. So they panic, sell, and then that drives the cost, the price down even more. It starts liquidating more people because the value of their stock, which is on AI's light speed level, is like. Well, you dip below the liquidation point for a millisecond. Tough. It triggers a cascade of events which, where you get wiped out. And so that's how the red just tumbles. And it keeps getting worse and worse and worse and worse and worse until basically everybody's liquidated and then it stabilizes again. But then that's a lot of people that just got, in some cases lost their entire net worth.
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Co-host
Yeah. So out of that 1.5 trillion, these are actual portfolio accounts and things that are kind of impacting.
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Financial Analyst
This is why I'm as I tried to wrap my head around the stock market. It always pissed people off. But I would say, wait, this is like trading baseball cards. That was my first understanding of it in my 20s and everyone laughed at me. And now the more I learn about it, it's like that curve. It's like idiot says, this is like baseball cards. Guy in the middle's like, you don't understand how sophisticated this is. And then the guy that actually understands, it's like, this is like trading baseball cards. Yeah, I've gone on that journey. This is like trading baseball cards. This is a casino. They are only worth what people say they're worth. Even something that pays dividends can trade below what you would make. Just collecting the money off the dividends doesn't matter. It, it only trades at the price that people are willing to pay. That means this is a psychological game. That means you are gambling on what the emotional state of people is going to be. Period. End of story. Anyone that says any different than that is lying to you now. Or they just don't understand it, which I will never get.
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Co-host
They're lying to themselves based off the story that everybody, somebody else told them.
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Financial Analyst
Correct. Now, the stock market has huge advantages. It's good. It's amazing. Debt has huge advantages.
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Co-host
That's good. That's where I'm going.
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Financial Analyst
Yeah, but oh my God, this stuff becomes a problem.
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Co-host
The Japanese bond market breaks. US stocks are going to take a tumble. Is the s and P500 dead? Should we go to gold? I have six months of cash in my bank account. Should I leave that in there? Should I move it?
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Financial Analyst
I will walk people through the way to think about it, the mental framework. I'll tell you what I'm doing. I do not advise people to attach their boat to my way of thinking. They need to formulate their own way of thinking. That way we don't both get wiped out. Should I be making poor decisions? But it goes like this. So what do we do in a time where countries don't trust each other? So the world order is unstable? I don't know who's going to be friends today and who's going to be friends tomorrow. I don't know if people are going to war. I don't know what that's going to do. I don't trust people to pay back their debt. So you start setting the table like that and you go, okay, well, in times of massive uncertainty, what are the usual plays? One recognize with massive humility that you cannot predict the future well. So you want to have a diversified portfolio that diversifies across economic forces. So what are the economic forces? You've got things like high risk. So when you've got high risk, you've got a lot of volatility. That's going to be the area that pulls back first. That's why you see these lightning crashes in the price of the stock market in a way that you're probably not going to see in something like gold. Gold typically isn't going to go up super fast. It's not going to go down super fast, not by huge swings. Because what gold has shown over time is in times of uncertainty, people go there not because they expect a massive return. They go there to protect themselves against inflation. And so they're just moving to that saying, this is where you park your money when you're like, I don't know what the fuck is going to happen. So it is as close to I'm going to bury my money in the backyard as you're going to get. But I want to bury my money in the backyard in a way that it can't be inflated away. So cool. Gold has been that forever. Bitcoin is trying to be that. Bitcoin trades more like a tech stock right now. But I think that it's got long term legs. But that's a me thing. So people need to be thoughtful. They need to formulate their own opinion about what they think about how the human mind is going to react to bitcoin. I have a thing that says the world is only getting more technical when you start thinking about wanting AI to be able to do whatever the hell you want it to do. You're going to give it digital money. You don't want that digital money to be owned by the government. I think everybody sees now people alive today will see how rapidly a government can become unstable. And so I think they're going to go, yeah, don't want anything controlled by the government. Government has a history of seizing gold. When protesters started getting shot in Iran, the price of bitcoin went skyrocketing there because they just started gobbling up as much as they could. And so it's like. And sorry, prices aren't local. They started buying rapidly there.
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Co-host
It. It was. It outdid the local currency, right? Yeah.
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Financial Analyst
So they. I think people will look at that and go, this is decentralized. I like that. It's far easier to move than physical gold. That's my beef with physical gold also. I feel like I can quote, unquote, see it. Whereas gold, I'm just taking somebody's word. No, no, no. You really do own physical gold, Tom. It's all good. So I'm like, so anyway, you start doing that. So my portfolio looks like I still own quite a bit of debt, but it's all extraordinarily short term. It's all US debt primarily, though I do have some corporate, but I've been slowly backing out of that for the last year. The reason there is that I know that they'll at least print money to cover that. And so at least US government debt is saying every holder of dollars will suffer as Tom suffers. So I'm like, okay, like there's some balancing thing there. But I am going to be migrating more and more out of that into things like gold, gold mining stocks, silver, silver mining stocks, bitcoin. I'm already massively deployed, Eth. I'm already massively deployed, but I might start picking up some more there international exchanges so that I'm, I'm still in risk on markets because I think that's important because you don't want to miss out on something that goes up because again, I don't think I can see the future clearly. I'll stay in the US just not overly indexed on the US and just try as much as possible to spread my risk around with a profile that looks like somebody who is paranoid that the world order is no longer stable.
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Co-host
Do you do any money markets like savings, that type of thing or do you just keep cash as cash in?
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Financial Analyst
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Co-host
And Mark Cuban said it best. The most guaranteed return you can do is pay off debt. Because if you're paying 23% on a credit card, you get 23% returns if you just pay your credit card off. And that money could go into your pocket instead of to Capital One, American Express, wherever you send it to.
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Financial Analyst
So yes, and I agree, penny stocks should not have even come out of my mouth. I am not telling people to buy penny stocks. If you work in university maintenance, Grainger considers you an MVP because your playbook ensures your arena is always ready for tip off. And Grainger is your trusted partner offering the products you need all in one place from H Vac and plumbing supplies to lighting and more. And all delivered with plenty of time left on the clock. So your team always gets the win. Call 1-800-GRAINGER visit grainger.com or just stop by Grainger for the ones who get it done.
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