The Global Stock Market Crash JUST HAPPENED. And Its Much Worse Than We Could've Imagined…
Summary
TLDRThe global stock markets experienced a significant downturn, with Japan's market hitting a 40-year low, potentially triggered by a carry trade collapse as Japan raised interest rates. Investors fear a recession, with indicators such as rising unemployment and an inverted yield curve signaling economic uncertainty. Amidst market volatility, Lockheed Martin's stock surged, hinting at defense investment trends. Concerns about potential wars in the Middle East and the Ukraine, along with unsustainable U.S. government spending, add to the market's instability, prompting caution in investment strategies.
Takeaways
- 📉 The Japanese stock market experienced its worst day in nearly 40 years, with the crash being worse than any day during the pandemic, except for Black Monday in 1987.
- 💰 The carry trade, where large corporations and Wall Street firms borrow in Japanese Yen at low interest rates to invest in other countries, is a significant factor in the market's downturn, especially with recent changes in Japan's interest rates.
- 🧐 Renowned investor Warren Buffett has been cashing out, doubling his cash position recently, which may indicate his expectation of a market correction or collapse.
- 🌐 Global fears of a recession are growing, with historical parallels being drawn to post-World War I economic patterns, leading to the Roaring '20s and then the Great Depression.
- 📊 Indicators of a potential recession include rising unemployment in the USA, an inverted yield curve on government bonds, and slowing consumer spending increases coupled with increasing debt.
- 🛡️ Amidst global market instability, Lockheed Martin's stock initially rose by over 20%, suggesting some investors see value in the American military industry.
- 💥 The possibility of war in the Middle East, particularly involving Turkey and Iran, is adding to financial market instability and concerns about escalating conflicts.
- 💡 The US government's spending and debt accumulation, with 30% of the federal budget paid off by taking on more debt, is a significant concern for investors.
- 💸 Modern Monetary Theory, which involves increasing the money supply without concern for debt, is being adopted by the USA and other countries, raising historical red flags about unsustainable economic practices.
- 🚨 The US Social Security program, the largest expense of the US government, may need to change or shut down within the next decade due to demographic and financial pressures.
- 🤔 The script concludes with a cautionary note, advising viewers to be safe with their money during times of market volatility and uncertainty.
Q & A
What was the significance of the Japanese stock market's performance today?
-The Japanese stock market experienced its worst day in nearly 40 years, crashing worse than at any time during the pandemic, except for Black Monday in 1987.
What is a 'carry trade' and how does it relate to the recent stock market movements?
-A carry trade involves borrowing money in a currency with low interest rates, such as the Japanese Yen, and investing it in other countries with higher interest rates. The recent increase in Japanese interest rates has led to concerns about increased debt payments and reduced access to cheap money for Wall Street firms and financial institutions.
Why did Warren Buffett decide to cash out after Japan raised its interest rates?
-Warren Buffett, known for his investment acumen, may have anticipated a market correction or collapse, as he nearly doubled his cash position after Japan's interest rate increase, suggesting he expects market instability.
What historical economic pattern is investors currently fearing might be repeated?
-Investors are concerned about a pattern similar to post-World War I, where a brief recession was followed by a period of economic growth known as The Roaring 20s, which was then followed by the Great Depression, the worst economic downturn in modern history.
How does the current situation of unemployment and job creation in the USA relate to recession fears?
-The rising unemployment rate and falling job creation in the USA are concerning as they align with the 'sum rule', a recession indicator that suggests a downturn if the 3-month moving average of the unemployment rate rises by half a percentage point from its low in the previous year.
What is an inverted yield curve and why does it signal economic uncertainty?
-An inverted yield curve occurs when short-term US treasury notes have higher interest rates than long-term treasury bonds. This is unusual because long-term bonds typically have higher yields due to greater risk. An inversion suggests that investors prefer the safety of long-term bonds during periods of economic uncertainty, indicating they view the short-term as very risky.
Why is consumer spending behavior in the USA a concern for the economy?
-Consumer spending makes up about 70% of the American economy, and while it has been increasing, the rise is slowing and much of this spending is through debt. High levels of debt and bankruptcies among consumers could lead to a recession if economic conditions worsen.
What does the VIX indicator measure and why is its recent spike a concern?
-The VIX is a volatility indicator for the stock market. Its recent spike to levels only seen at the start of the pandemic indicates high uncertainty among investors about the stock market's future.
Why did Lockheed Martin's stock value increase significantly amidst the global market downturn?
-Lockheed Martin, the world's largest military company, saw its stock rise by over 20%, possibly due to investors seeing value in the American military industry amidst global instability and potential conflicts.
What is the current concern regarding the US government's spending and debt?
-The US government is currently spending a significant portion of its budget through taking on new debt, much of which is used to pay off previous debt. This pattern, along with the adoption of modern monetary theory, which involves increasing the money supply without concern for debt, is raising concerns about the long-term stability of the American economy.
How does the situation in the Middle East, particularly involving Turkey and Iran, relate to global financial markets?
-The potential for escalation in the Middle East, with Turkey possibly sending troops and Iran considering an attack on Israel, could lead to increased instability and the involvement of Western powers, including the US, which may impact global financial markets.
Outlines
📉 Global Stock Market Tumble and Carry Trade Impact
The first paragraph discusses a significant downturn in global stock markets, with Japan experiencing its worst day in nearly 40 years, surpassing even the pandemic's impact. The script attributes this to the 'carry trade', where large corporations and Wall Street firms borrow in Japanese Yen at low interest rates and invest in higher-yielding foreign currencies and stocks. The recent increase in Japanese interest rates has caused concern among these investors, fearing increased debt payments and reduced access to cheap capital. Warren Buffett's decision to cash out, doubling his cash position, is highlighted as a potential sign of an anticipated market correction. Additionally, there's a mention of recession fears, drawing a historical parallel to post-WWI economic patterns, suggesting a potential economic downturn following the rapid asset price increase post-2020.
📈 Recession Indicators and Consumer Spending Trends
The second paragraph delves into various indicators pointing towards a possible recession. It starts with the observation that some countries, like Canada and Germany, have been in a per capita recession for years, masked by high immigration numbers. The 'sum rule', an unemployment-based recession indicator, is discussed, noting the rising unemployment rate in the USA as a potential sign of an economic downturn. The inversion of the yield curve, a phenomenon where short-term treasury notes have higher interest rates than long-term bonds, is highlighted as another recession signal. Consumer spending, which accounts for 70% of the American economy, is mentioned as a concern, with slowing growth and increasing debt among consumers. The paragraph also touches on the VIX volatility index, which has spiked to levels seen at the onset of the pandemic, indicating high investor uncertainty. Lastly, geopolitical tensions, particularly the potential for conflict in the Middle East, are presented as a risk factor for the financial markets.
💣 Escalating Geopolitical Conflicts and US Fiscal Concerns
The third paragraph focuses on the escalating geopolitical conflicts, particularly in the Middle East, and their potential impact on the financial markets. It discusses the possibility of Turkey's involvement in Palestine and the recent tensions between Iran and Israel, which could potentially draw the US and Western powers into a larger conflict. The ongoing war in Ukraine and its financial implications for the US are also mentioned. The script then shifts to discuss the US government's fiscal situation, with a significant portion of the federal budget being financed by debt. The rapid increase in national debt and the reliance on modern monetary theory, or money printing, are presented as unsustainable practices that could lead to a financial crisis. The paragraph concludes with a warning about the potential collapse of the American economy due to these massive deficits and the need for immediate corrective action.
Mindmap
Keywords
💡Stock Market
💡Carry Trade
💡Interest Rates
💡Warren Buffett
💡Recession
💡Unemployment Rate
💡Yield Curve
💡Consumer Spending
💡Volatility
💡Lockheed Martin
💡Modern Monetary Theory (MMT)
Highlights
Japanese stock market experienced its worst day in nearly 40 years, worse than any day during the pandemic.
The only worse day in Japanese stock market history was Black Monday in 1987.
Carry trade involving Japanese Yen is a hypothesis for the stock market collapse.
Japan's low interest rates for nearly two decades have made it a safe bet for borrowing cheap money.
Japan raised interest rates for the first time since 2007, causing concern for Wall Street firms.
Renowned investor Warren Buffett increased his cash position significantly, signaling a possible market correction.
Fears of a real recession are growing, with historical parallels to post-World War I economic patterns.
GDP per capita recession in countries like Canada and Germany, despite overall GDP growth due to immigration.
US unemployment rate rising and job creation falling, which historically precedes a recession.
Inversion of the yield curve, a reliable recession indicator, is currently flashing signs of economic uncertainty.
70% of the American economy is consumer spending, and recent trends show slowing increases alongside rising debts.
Volatility in the stock market, as indicated by the VIX, has spiked to levels seen at the start of the pandemic.
Lockheed Martin, the world's largest military company, saw a significant increase in stock value amidst global market decline.
Geopolitical tensions, including potential military escalations in the Middle East, contribute to market fears.
US government spending and debt accumulation are at historically concerning levels, with 30% of the federal budget paid by debt.
Modern Monetary Theory and its potential risks are being adopted by countries, including the USA, raising concerns about unsustainable debt.
Investor caution advised in times of market volatility, with a reminder of past market rebounds and potential for recovery.
Transcripts
this is what happened in the Japanese
stock market today this is what happened
in the Taiwanese stock market today this
is what happened in the British stock
market today and this is what happened
in the American Stock Market Today all
around the world stock markets took a
tumble and almost every single big stock
took a big dip well except for one but
we will get to that but let's start off
with where this stock market collapse
began and that is in Japan you see
Japan's stock Market didn't just have a
bad day today but it had its worst day
in almost 40 years in fact it crashed
worse today than at any time during the
pandemic the only other time it was
worse was Black Monday in
1987 an Infamous day when the world lost
trillions of dollars in the stock market
in just a few hours but why did this
happen today well there are a few
hypotheses one is something called a
carry trade you see Japan over the last
few years has actually kept their
interest rates low and have experienced
very little inflation and so what a lot
of very big corporations and Wall Street
firms have been doing is borrowing tons
of money in Japanese Yen with low
interest rates and then taking that
money and investing it in other
currencies and stocks of other countries
like in Australia and the US that have
much higher interest rates pretty much
meaning these large investment firms
borrowed cheap money in Japan and have
been using that debt to invest in the
United States and it's estimated that
between 5 and 10% of the entire American
Stock Market is on this kind of carry
trade but what happens when that cheap
money from Japan has their interest
rates go up you see Japan has not raised
their interest rates since 2007 meaning
that they have been a safe bet to borrow
cheap money for nearly two decades but
in March Japan raised its interest rates
for the first time and they did so again
just 5 days ago meaning that now all of
the Wall Street firms and financial
institutions that have been relying on
Japan's cheap borrowing cost now are
worried that their payments will go up
on their debt or that they will no
longer have access to cheap money for
future investments into the stock market
and one person who may have actually
seen this coming is the renowned
investor Warren Buffett a man who has
been known for outperforming the stock
market for about 70 years well he
decided to cash out pretty much
immediately after hearing this news out
of Japan now this could have been a
coincidence because he has been cashing
out slowly over the last 12 months but 4
days ago he nearly doubled his cash
position meaning that he expects some
sort of Market correction or collapse in
the near future and that brings us to
the next point about why the global
stock market appears to be showing signs
of collapse right now and that is fears
of a real recession you know one of the
interesting tidbits I always bring up is
that after World War I the world was
expecting to experience something like
the Great Depression essentially
something terrible was supposed to
happen after the war and the Spanish Flu
decimated the world population and
Global Industries and one somewhat brief
recession did happen in 1920 and 21 a
single-ear recession that was fairly
quick but also a very large downward
Spike but then after this downward Spike
the world experienced what was called
The Roaring 20s a time when we hear
about the glitz and Glam and wealth
explosion that everyone got to
experience but in reality only the top
half of the wealthiest people got to
really reap the financial rewards of the
Roaring 20s because asset prices began
to Skyrocket and debt was very cheap to
borrow but if you were a lower middle
class person or were working as
something like a farmer then you
actually lost ground during the Roaring
20s but hey as long as the people who
owned assets got richer that's all that
matters right anyways what followed
after the Roaring 20s was the Great
Depression the worst and longest
economic downturn turn in modern history
a horrible economic decade that
essentially needed a World War to take
the world out of this economic downturn
and now today investors fear we may be
following a similar pattern we
experienced a brief and sharp downturn
in 2020 then asset prices skyrocketed
for the better part of 3 years and now
there are some fears we might be heading
into a very long recession now if you
follow this channel you know that a lot
of countries like Canada and Germany
have actually been in a GDP per capita
recession for a few years now however
High immigration numbers are making the
total GDP increase therefore governments
and Wall Street are able to say that the
whole economy is growing and everything
is fine and dandy even if it means that
the average person is actually losing
economic ground however there are other
signs of a looming recession
unemployment in the USA keeps rising and
job creation keeps falling in fact the
unemployment rate is actually the
highest it's been since the pandemic
started and this is important because of
something called the sum rule it's a
Fairly reliable recession indicator that
indicates a downturn if the 3month
moving average of the unemployment rate
Rises by half a percentage point from
its low in the previous year it's a
mouthful but essentially if unemployment
keeps steadily Rising a recession almost
always follows and that appears to be
something that is happening right now in
in the United States there's also
another indicator that has been flashing
signs of a nearby recession and that is
government bonds an inversion yield
curve occurs when the interest rate on
the shortterm US treasury notes exceeds
that of a long-term treasury bonds
normally long-term bonds have higher
yields than short-term ones due to the
greater risk over a longer period
however during periods of economic
uncertainty investors prefer the safety
of long-term bonds leading to higher
demand and lower yields on these bonds
compared to Shorter term ones now that
is all a mouthful as well but
essentially all this means is that
investors seem to think the USA has a
lot of uncertainty in the economy right
now and these investors demand a lot of
return in order to invest in short-term
bonds because they view it as a very
risky investment so the near-term seems
risky and the long term seems relatively
okay another sign that is pointing to a
looming recession is actually from the
people themselves you see in the USA
what percentage of the American economy
do you think is from consumer spending
is it 20% 30% 50% well it's actually
about 70% of the entire American economy
and so when people spend less money a
recession is more likely recently
consumer spending has been steadily
increasing but its increase has been
slowing slightly over the past few
months but the more important thing here
to note is is that even though consumers
are spending a little bit more this is
also coming at a time when debts and
bankruptcies are also skyrocketing for
these very same people meaning that
consumers seem to be spending more even
though a lot of the spending is coming
in the form of debt and if economic
conditions get poor enough where the
average American can no longer afford to
pay back something like their mortgages
well then we have the 2008 financial
crisis all over again now those are just
the recession fears but there are also a
few other very strange things going on
right now and one of which could be a
major concern going forward first of all
the vix which is a volatility indicator
in the stock market has spiked to such a
high that the only time that it was
higher was when the pandemic started and
they announced the virtual shutdown of
the entire economy so that number that
volatility number being so high is a
very worrying sign that investors are
extremely uncertain about the stock
markets future in the near term but one
thing that kind of started this video is
actually one company that Skyrocket in
valuation over the last 24 hours or so
when all of the global markets were
melting down what was that company that
company was locked Martin the largest
military company in the world initially
locked Martin stock Rose by over
20% signaling that some investors
somewhere be began to see a lot of value
in investing in the American Military
now eventually that stock did fall down
back to Earth but it brings us to the
next point and that is that there is a
fear in the financial markets that there
will be a war you see the war in the
Middle East is showing some worrying
signs lately one of which is actually
turkey turkey's erdogan stated last week
about how he could send troops to help
in Palestine and if Turkey were to send
troops on the ground that could be seen
as quite an escalation for the war that
may see a response from Israel's allies
including the United States turkey also
recently started showing a pre-war sign
by blocking social media apps like
Instagram just a few days ago to control
online information and as of a few hours
ago news reports have been coming out
about how an Iranian attack on Israel
appears to be likely and this comes
after Israel assassinated one of hamas's
leaders so depending on the Iranian
attack the US and the Western Powers
might get pulled further into the war in
the Middle East and the odds of the war
escalating appear to be much higher than
they were just a few weeks ago that's
not even mentioning the war in Ukraine
which hundreds of billions of dollars
are still being poured into by the
United States government and that brings
me to one last thing a ticking time bomb
that appears to be getting more
attention as of late and it is something
that I talk a lot about and that is the
US government spending right now we are
at a point in history where 30% of the
federal budget is being paid off by
taking out debt and in fact a lot of
that debt is getting created to pay off
previous debt and that debt was taken
out to pay off previous debt and so on
right now the government is on track to
actually run out of money pretty soon in
fact every 100 days the US is adding 1
trillion
to the debt and it's only getting worse
programs like Social Security which were
put in place when the average person
would live to about 64 years old well
they are now being put in place to pay
off the average person who is living to
nearly 80 meaning that Social Security
is paying significantly more per person
per year Social Security is also
currently the largest expense of the
United States government taking up 22%
of the American budget and the program
will have to change or shut down at some
point within the next 10 years now the
USA along with many other countries in
the world seem to be adopting this thing
called modern monetary Theory also known
as money printing essentially meaning
that you don't have to care about debts
anymore as long as you keep increasing
the money supply and this is worrisome
because as someone who has studied
history quite a lot one of the Key signs
of a Dying Empire right before it falls
is these two exact things not paying off
debt and increasing money supply I mean
Rome literally tried modern monetary
Theory near the end of its Empire while
taking on tons of debt and yet modern
economists think that because of reasons
X Y or Z that this time it will be
different but certainly if history tells
us anything it's that the debt will come
due and the entire system could come
crashing down if we do not correct it
soon and that is a major concern that
investors have today it's that at some
point the American economy will no
longer be able to withstand these
massive deficits year after year and
that is why there is a big fear about
what will happen to the American Empire
and everything that resides within it
but for now I encourage everyone just to
be safe with your money do not do
anything stupid in a time of volatility
and who knows maybe this thing will pass
I mean there have been a lot of
downturns in markets over the last even
2 or 3 years or so and every single time
the market has rebounded so who knows
maybe this is a bottom of a market or
maybe not maybe it's a time to buy maybe
it's a time to sell who knows but for
now thank you very much for watching
click on my documentaries playlist if
you want to see more videos like this
and I will see you guys in my next video
in just a few seconds
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