An accurate representation of commodity and raw material prices that I
think is very important to understand.
The yield on the ten year rose above their level.
And the effect of that was really particularly in the in the swing
swaps market, which indicated that the level should be 1%.
That's for the yield on the ten year.
We had the bank of Japan stepping in with an announcement, trying to
sort of cool things down, saying that they were going to sort of
effectively ease off, bearing in mind that the yen exchange rate to
the dollar had moved from about 150 down to currently 128 or
something, I think.
So you can see that they were trying to put a message over that the
situation doesn't really warrant higher rates than that.
And I think it's a combination of people having taken positions,
closing those positions, in effect selling the yield down, and perhaps
the bank of Japan intervening as well to give it extra momentum.
So for the moment, panic over.
And I think I'm right in saying that the current yield has fallen from
around about 0.6 down to .425.
I had that just a moment ago.
This actually is very important.
I don't think this problem is over yet, because the rate of inflation,
consumer price inflation, is in the order, I think, of about 4%,
something like that, which compares with their target of 2%.
So to have a ten year bond yielding as little as .4 or .5% is
obviously crazy.
That's that's a complete mispricing in the market.
We have a situation where a lot of the debt in Japan is very short
term, and it's been like that because they've had zero or negative
interest rates for over a decade now, well over a decade.
So it has encouraged everyone in there trying to raise funds for
whatever purpose, whether it's the government to spend more than it
receives in taxes or whether it's corporations or whatever.
They are very highly exposed to short term interest rates.
So consequently, it was very important for the bank of Japan to try
and stabilize the situation.
Otherwise, and particularly if interest rates rose further, it would
create real distress amongst these very, very heavily indebted
borrowers.
Come on.
We still have a problem that inflation is running in Europe.
Europe, depending which country you're talking about, anything up to
10%.
And the interest rate from the ECB is still in the order of a percent
or two.
I can't remember exactly what it is because these things are changing
all the time.
But you can see that the yield and the bonds still way too low.
No, but particularly somewhere like Italy.
Italy is an enormous debt trap.
And I have to say that other countries in the EU are also in debt
traps.
We're all in debt traps because we've all been spending like drunken
sailors while money was cheap to borrow.
I've been warning for some time that there is a fundamental shift
moving from fiat currencies, which are backed by faith and credit in
the government and nothing else, towards currencies which are
perceived to have more backing.
And that is now happening.
In fact, today we have a Saudi minister standing up at the World
Economic Forum saying that they are now prepared to accept payment in
other currencies than the dollar.
So confirming what we know that President Xi was talking about when he
went to Saudi Arabia in December, in earlier December, the agreements
that came out of that, and furthermore, the speech which he made
addressing the wider Gulf Cooperation Council about the facilities
which they might expect if they accepted renminbi in settlement for
oil.
And those facilities include not only deposit facilities, whatever,
but most of that would be recycled in the form of investment in their
So Saudi Arabia, for example, probably end up with a trade surplus of 72 00:04:58,720 --> 00:04:58,686 counterparties.
maybe three, four, $5 billion equivalent.
No more than that.
Because of the inward investment from China.
And as to the balance, it was becoming clear that it would be open to
them to use the financial markets in China to buy into, for example,
gold by selling renminbi.
Now, it's a fascinating situation because we know the TRIF in dilemma
that says that in order to create a reserve currency and ensure there
is a supply of a reserve currency, what you have to do is you have to
run your economy into the ground.
Basically, you've got to have a major deficit on the balance of
payment or sorry, on the trade, so that people.
Can hang on to your dollars.
And the way you do that basically, is by discouraging savings and
having a large budget deficit.
In other words, you run your economy irresponsibly.
And that's basically what America has done to ensure there has been
the supply of dollars.
What we're now emerging into is a world where central banks no longer
will place a premium on having currency reserves, foreign currency
reserves.
They're going to wind those down because there's no point in having
them.
And as President Putin said at the St.
Petersburg International Forum back in June, if you hold onto dollars
or euros, you're using losing 8% per year.
Now, that was at the time, was the loss of purchasing power measured
by the consumer price indices and the two respective currencies.
It's sort of not far from that in the dollar now, going down a bit
less maybe, but you get the point.
Now, there were 81 different official delegations from governments all
around the world at that conference, and they got that message loud
and clear.
Putin then went on to say, and furthermore, the Americans can quite
simply make your reserves completely worthless of the stroke of a pen.
They know that.
Now, given the shift away from the I mean, if you like, the limited
time that the petro dollar has left and the emergence of the petro you
on, that changes the dynamics in terms of the central banks and what
reserves they're going to hold.
So what are they going to do?
They're going to reduce their dollar holdings, that is for sure.
And furthermore, bear in mind that not only central banks, but also
investing institutions and all the rest of it japan, we come back to
Japan, have portfolio investments in Wall Street in addition to bonds
of around about $12 trillion.
That's how much of your stock market the foreigners own.
Why should they own it if they're in a bear market?
A bear market, which is pretty certain, because what do we see?
Rising bond yields.
Rising bond yields equals falling bond values and falling equity
values.
So why hold them?
I mean, when you get this situation and a recession coming up as well,
as a foreigner, you're not interested in having all your money at risk
or a significant slug of your money at risk in a foreign market over
which you got no control.
No, you liquidate it.
So you can see that the pressure is coming onto the dollar.
And it is very much a consequence of two things.
First of all, what's happening to the interest rate trend, which has
reversed from its long term downtrend?
That is now.
Definite the case.
And secondly, the politics of the situation mean that capital is
returning to the east, it's going to Asia and it's flooding out of
countries like America, the EU and other members of the Western
Alliance.
And that second point we've rather brought upon ourselves.
I mean, look at it also from the Saudi's point of view.
Where is their business in future in this country here, we are going
to stop selling new motors with diesel and petrol engines in seven
years time, only seven years time.
And it's the same round Europe.
I mean, different European countries have different schedules, but you
can see that this time of the end of consumption of fossil fuels is
coming up very fast in any geopolitical sense.
What do the Saudis do?
Where is their business going to come from?
Well, it's quite simple.
It's going to come from Asia, where these guys, the Chinese, will pay
lip service to climate change and all the rest of it.
Why?
Because they can get some very good business out of it.
But are they going to amend their own behavior?
Are they hellers like it's?
Certainly not.
And not only that, but think of the Indians.
You have poor people.
Are they going to pay the price of our fancy ideas about climate
change?
No, they're not.
And their governments aren't either.
So the whole dynamic of the situation is the west is basically
committing suicide from the energy point of view and giving an
enormous opportunity to the whole of Asia in the process.
So that, I think, very briefly, is the update I can give you on that
East West thing.
But gold is interesting in this, because I would say two things.
Gold is, I think, above anything else, an accurate representation of
commodity and raw material prices.
That I think is very important to understand.
And the second thing about this is that if there is any increased
stability offered to Asian currencies, it is likely to come from that
source.
And the reason I say this is that I find it unimaginable that the
conversations between Russia and China did not include reassurances
that the renminbi would be a better currency to hold, a better
currency to trade in than the dollar.
Very important point and we mustn't overlook that.
Thank you.