TRANSCRIPT
good morning sense of things it’s great
to see you again it’s Jeff and Ron here
once again for another episode of the
sense of things and today I’m going to
share a few funny statistics with you
that you may or may not know uh we’re
also going to talk about on this episode
the Yen carry trade uh this is something
that with the market drop that we’ve
seen this week uh this has been
something that’s behind the scenes and
to be honest with you it was totally off
of my radar until I heard it and then I
needed to dig in and find out a little
bit about what was going on and I hadn’t
understood how big of a deal this
actually was uh to affecting some of the
things that we’ve seen going on in the
markets so we’ll cover that today on the
show so stick around we’ll be right back
[Music]
[Applause]
[Music]
good morning sense of things Hey Ron how
you doing my friend morning Jeff I’ve
said it two or three dozen times already
never a dull moment in the markets in
the economy in the world I finally had a
chance to watch a little bit of the
Olympics I haven’t watched much live
though I really wanted to watch the 100
yard and I missed it but I saw the
replay just incredible women’s 200 last
night was one of the best races I’ve
ever seen oh my God it it was just I was
up on my chair screaming about it it was
just fantastic I think our men in the
long distance stuff the 1500 the 10,000
I love the track and field parts so
those are always my favorite and some of
the Oddball ones like the hammer throw
and the shot put and The discus and
stuff like that those are all just I
love track and field events so this is
that’s what started the olymp yep they
got fre dancing as an Olympic I still
trying to figure that out in
skateboarding and the average age of the
medal stand for skateboarding I think
was 15 years old so it’s just ABS yeah
but Jeff I gotta tell you they’re all
incredible athletes I’m not GNA knock it
because I know we got to move on here
but I I I always had a problem with the
Olympic sports that you’re judged
gymnastics you go go diving things
happen so quick and one person is one
1,000 I I never understood that
incredible but the one thing I could
never get into is the synchronized and
the artistic swimming yes
yep there’s a lot going on under the
water the judges are above water what
what I don’t get it I just I don’t
understand I saw the American team that
they don’t even call it synchronized
swimming anymore they call it Artic
swimming that’s what they’re called yeah
artistic swimming I was watching and the
girls come out or the women come out and
they’re doing this and I’m thinking to
myself all I can think of is the scene
from like the third Harry Potter movie
when the other teams come in from other
campuses and they the girls were like
and it was like that’s exactly what it
seemed like coming out that’s they got
the idea from it’s just this weird Harry
Potter thing coming on I just I don’t
get it there are some sports I just
don’t understand I watched the
heavyweight wrestling the Greco Roman
that was amazing where the one guy who’s
literally won five gold medals in a row
after 20 years of doing this and he
retired and just it those guys are just
so insanely talented but I’m a huge just
unbelievable Olympics junkie so I
watched every day of the Olympics I even
watched the six
hourong men’s Road Race 172 miles and
then watched the women’s one the next
day I watched the end of that one but
yeah it just I I I love it I love that
Sport and the just how people train for
years and do this but even you see the
basketball players The Pride that they
have in playing for their country these
are multi-millionaires but the pride
that they have playing for their country
I agree I agree and and how
diametrically oppos the Tokyo Olympics
which were like a ghost town to this one
where the
the the put on one hell of a show and
they’ve been out at every event and they
cheer whether you’re now if you’re
French they’re going to cheer a lot
louder but it doesn’t matter what
country you come from they’re going to
cheer like crazy for you if you’re doing
well absolutely listen I know bride or
whatever I will say I just haven’t had
the time but I know de cathlon I think
started a couple of days ago so I’m G to
try to watch some of that just it
started actually what I have is I have
an eight or nine hour difference yeah so
I’m watching it at night I got YouTube
TV so I got a four screen multiv view I
don’t have Paramount plus and I refuse
to get it but it’s pretty cool oh I
gotta tell you very quickly I watched
pingpong last night wow it was Japan
versus the Tai I was a competitive ping
pong player I was good there were people
that on were just on these guys were
incred
these guys were whacking I was just
like it was so fast it almost looked
like it was like two three times speed y
that they were playing it was I’m just I
even watched a match of the bad mitt
stuff and I’m like I don’t remember that
the people whacking stuff around like
that when I was playing bad mitton as a
kid but yeah these now admitting that
you’re a professional badminton player
or an Olympic level badminton player
that’s hge of Honor maybe whatever it is
I’d rather be saying I competed in
badminton than break dancing I’m just
say I’m right there with you H there was
one of the and I’ll get off of this and
on to my stuff in a minute but there was
one of the one of the J or the Chinese
men’s gymnast and and it was laugh I was
laughing my head off because he was
doing a floor routine and he finished
his tumbling pass and he literally
landed and then he fell forward on his
head and I’m like dude if you would have
just gone into a a break dancing head
spin at that moment they would have
never known that you were that you’d
messed up you just do that little one
where where your legs are twisted and
you spin on your head was he was in the
perfect position to do it and he screwed
it up if you would have you and I would
have gotten down on the ground to do
that we may have been a part of it but
we would have been able to get up that’s
the problem yeah that’s the issue with
it yeah I wouldn’t be able to get up and
do that and I don’t want to ever I don’t
want to have that capability all right
what do you got let’s kick this off I
came up with the few fun facts or funny
statistics that I thought were rather
funny this one I think is hilarious
because it just tells me why Americans
are terrible at
math so the average American believes
they are smarter than the average
American according to a study by the
National Journal 55% of people said that
they thought they were smarter than the
average American while 35%
thought that they were just as smart as
everyone else and probably they’re
comparing themselves to their neighbors
so that’s not
90% think that they’re at least average
or better okay I’m telling you right now
you’re not and I deal with a lot of
people on a daily bases who definitely
are not now those of you listening to
this channel you’re up in that top 55%
we’re just going to go with that we know
you are because you listen to our
Channel America is T is a TV addicted
Nation more people would have difficulty
giving up watching TV and streaming
shows for 40 days the number of people
struggled to give up alcohol chocolate
soda and fast food over that same time
period And I totally believe that before
you go on I had to look up the quote
talking about the percentages just go
back to the first slide I’ll be quick
yep yie Bara who had some of the
greatest quotes of all time he said
baseball’s 90% mental the half is
physical the other half is physical yep
that exactly the same thing actually the
way I was going to do it I had it the
other way around but I had to look it up
go on that is awesome that is awesome
yeah we need to a world according to
Yogi Yogi and Ralph ker had some great
ones too I don’t even know who that is
oh my god really nope we’ll have to have
we’ll have to have a baseball talk some
other time all right how self- sander is
this planet one in four American
surveyed thought that the Sun goes
around the earth Elementary school
science teachers everywhere are shaking
their heads so let’s set the record
straight the earth goes around the Sun
that basic fact might hold getting
killed by the Asian culture yeah
absolutely they at least get the basics
of just quantum mechanics and everything
listen that doesn’t surprise me
considering how many people think that
the there’s a the flat o oh yeah yep
there’s about 10% 10 to 20% of people
think that we’re on a one time yeah so
that would explain why the sun rotates
around the earth because we’re on a flat
Earth yes you are getting more rooc
calls nearly half of all phone calls
about 80% of mine are in the form of
rooc call how annoying hopefully this
statistic will decrease dramatically
going forward I don’t see that happening
it’s just horrible and this is my
favorite statistic of all Harvard may
actually be our safety plan getting into
Harvard may be difficult but getting a
job at Walmart is actually hard harder
according to business in Business
Insider the acceptance rate at Harvard
is
5.2% but when Washington DC got its very
first Walmart over 23,000 applicants
applied for just 600 jobs a
2.6% acceptance rate for Walmart jobs
nearly twice as the selective Harvard so
Walmart the Harvard of Washington DC if
you play a sport do you get a better
chance of getting a job at Walmart
probably could you be on the company
baseball team or the company basketball
team or something like that I don’t know
I think you probably had a you had a
better shot you may have had to do an
essay on why you wanted to work at
Walmart or
whatever all right so I’m gonna walk
through the Yen carry trades this is
something that it was something that I
came to my attention I know it came to
Ron’s attention over the last four to
five days um this is something that I
honestly don’t really follow um I think
I probably will follow it a little
closer now just to just add a another
level of things because it does affect
the market so what is a carry trade so
it in the case of the Yen carry trade it
involves borrowing the Yen or any other
currency that has really low interest
rate and we’ll go through the Y the
chart for the Yen here and in fact I’m
going to blow my screen up a little bit
so you can see it a little bit better
um yeah this will show it to you a
little bit better because this one
chart’s not great but it basically
involves borrowing the Yen at really
super low rates and then turning around
and buying US Dollars Mexican pesos New
Zealand dollars and you’re not buying
dollars per se you’re buying the bonds
of those countries so simple I buy it or
borrow it super low interest rates Japan
anywhere from 0.100 to.
25% then you turn around you buy a
10-year US Treasury at
5% and that has worked for quite a while
here because Japan’s interest rates if
you look at them this goes back to 1973
the highest they were ever at was just a
little over8 and a half% they got back
up to 8 and a half% then we went into
the
1990s where the Japanese economy just
literally imploded upon itself they had
so overbuilt they were leveraged all
over the world if you look at those at
Ron’s and my favorite movies from like
the 90s you had all these movies about
the Japanese businessmen and they were
coming in and they were the most
powerful in the world their economy in
the early 90s going into the late 90s
just imploded upon itself and their
interest rates went down to virtually
zero had a little Spike up before 2008
and then it’s been literally flat since
that time and then all of a sudden you
see this little bump up here uh that’s
happened in
2023 and
2024 and that’s part of the issue that’s
happened now the bank of Japan just
raised interest rates from
.1% to
0.25% 25% okay our rates are well in the
sixes or in the fives they are at
0.25% but when you are highly leveraged
to that little move can make a big
difference but the biggest difference
that it makes is here starting off the
year so this is the US dollar to the Yen
all right so beginning this year this
carry trade piled on people were the
dollar was increasing to the Yen which
meant it was getting cheaper and cheaper
and cheaper to go borrow that money at
super low rates
until the Japanese bumped up the the
bank of Japan bumped up their interest
rates to
0.25% and you look at the precipitous
drop in dollar over this very short
period of time throughout the month of
July and we started to see the the US
market peak in early July and it’s been
slowly its way down and then we saw this
super precipitous drop over those last
few
days this is a major factor if you put a
a chart of the S&P 500 versus this it’s
not as dramatic but these days are
really dramatic so what’s happening hold
on go back if you look at the chart and
if you didn’t know what the chart was
for this is a classic chart of anything
in Trend where you take the escalator up
and the elevator down yep so it’ll
recover probably retrace 50% at some
point over time but this is just a
classic chart of a momentum trade
finishing off that unwinds and escalator
up elevator down yeah and the the reason
that this had such magnitude on our
stock market of course there was the
carry trade of the the bonds to the
stocks that’s one piece of it and a part
of this is with the anticipation and I
think part of this came last week the
anticipation of the US dropping rates
then the Yen with us dropping rates that
changed this dollar scenario because
when the US starts to drop rates the
value of the dollar is going to go down
over time because people are not going
to be buying as many treasuries as the
rates are going down so that kind of
magnified this whole thing but why was
it such a big deal Reuters there was an
article that I I pulled a piece out of
and this gentleman named I forget what
his name Michael Malcolm or something
like that he estimated that the dollar
Yen carry trade grew to at least 500
billion which is not even remotely close
there are some estimates it was as high
as one to2 trillion dollar I heard it
was closer to two I know we talk I
personally think some of this you know
one to two trillion was not okay we’re
taking we’re getting super low rates in
Japan and we’re buying US dollars
through treasuries I think some of this
was all right we’re going to buy borrow
super low in Japan and then we’re going
to come over here and we’re going to buy
the Magnificent Seven and that would
that had to be Unwound really fast as
these rates were changing um otherwise
some of these big hedge funds were going
to be caught with their pants down and
so they Unwound these trades massively
and I don’t even know how they they’re
even able to measure that and JP Morgan
just came out last night or this morning
saying that the unwind of the carry
trade is only half over yeah I don’t
even know how they but that’s beside the
point yeah and it’s still out there and
that’s something that I think is going
to be it’s something that I will pay
much much more attention to now from the
fact of I I just foresee us we don’t
with the current Administration we don’t
have policies that really encourage a
strong dollar and I think we’re just not
going to have I don’t know where the
dollar is going to go and especially
with rates going down I’m hearing
anywhere from 25 to 75 basis points I
understand and I remember the last three
presidents talking about they actually
do want a weaker dollar yeah because
that means we can export more we could
produce and ex a strong dollar is great
around the world for the Imports yeah
but the export suffer so anybody and and
hly we have more multinational companies
now so they actually suffer with a
strong dollar especially if more than
50% of their business is outside of the
country out of the country yeah it’s I
think it needs to be a happy medium
because when we have weak dollar with so
many things are dollar denominated that
commodity prices drop and asset prices
drop typically in those situations
you’ve got to have a balance of all that
and you’ve got to have a balance of
fiscal responsibility you’ve got to have
a balance of a lot of different things
today that it it’s going to affect
something when we have changes like that
we can’t keep running at the highest
point of interest rates some of that’s
going to have to come down and I
personally think some of that’s gonna
happen whether they want to pull it back
or not because I think with the final
straw of employment yet one month does
not make a a trend complete it’s if we
continue to see that going on you’re
going to see them start to reduce rates
and I keep hearing about the FED could
do an emergency meeting and that they’re
not going to do that I on one day is
worth of trading and it comes back yeah
look people are talking now a 50% cut in
September I’m still of the ilk we’re not
going to see a cut until after the
election we’ll see I think I honestly I
think things could improve just enough
that they go we’re just going to hold
for
now listen if people made a living
betting on the ray Cuts they would have
been out of business a long time ago and
once again I’m right there with you I
think it’s h for longer how long been
times we for longer they kept saying
that and know by the way what is a
quarter of a point or really even a half
a point going to do it needs to come
down two two and a half two 200 to 250
basis points to really have a
significant impact and I was told that
if things do come down precipitously the
banks are going to be caught with their
pants down on the risk and that’s
another SE that’s a separate
conversation because that’s a little bit
over my pay grade as far as how all that
unwinds yep but that’s a separate
conversation absolutely absolutely folks
uh hope you enjoyed this one hopefully
you understand the end carry trade a
little bit better now I tried to
simplify it down to the absolute
minimums for everybody so we could all
understand it I will tell you if it’s
still okay I don’t get it or how this
all works don’t be don’t worry because
even the experts that I’ve Seen On TV
have explained this understand the
basics it’s the drill down if you
understand the basics and you understand
what could be still hanging out there
it’s why I think both Ron and I are very
cautious about putting money to work in
this market right now so thanks a lot
appreciate you guys and we will see you
here the very next time