USD Assets Face Global Exporters Sell-Off As Debt Auction Crash Triggers The Unthinkable

0:00 All right, guys. So, let's talk about the global shift away. Away away from where you might ask, the old world order led by the US. And the global financial system today is underpinned by two things. Global trade and the dollar fueling the trade. At the moment, Trump came in with his tariff war. He basically tore up the old playbook. He is determined to fight the trade war to the bitter end. But the bottom line is that what we're trying to do is onshore as much as we can in the US and make it so that the US is not hyperdependent on imports from China. And so I I think that one of the things we're seeing is that people are moving way faster than you might expect if you look at the 20% equipment investment of the first quarter before the tariffs even came in. you know with supply chains uh moving

0:46 fast and just in time inventory management and AI onshore as much as possible to make it so that the US economy is secure and not prone to uh you know Chinese extortion now Trump's trade war isn't just about reshoring industries to bring back US jobs that's a big part of it for sure but it's also to reduce US dependency on China and the world so we can expect the US to continue the trade war indefinitely even if it stays at 10 or 20% for the next few years. It will also break apart the global trading system. Exporter countries now have to retain the entire business model, not just in selling stuff to the US, but also what to do with the proceeds. Before the tariff war, everything ran like clockwork. This is the blueprint. The US would run a

1:33 persistent trade deficit with the world. America would import stuff from the world like smartphones and clothes. They then export their dollars to the sellers. The total deficit was more than $900 billion last year. That's a boatload of money. So now global exporters have a ton of dollars on their hands. A significant portion of this money is recycled back into the US financial markets. Why do you think US asset prices kept climbing higher and higher nonstop for the last 20 to 30 years? Was it due to US innovation? Sure, some might be. But countries investing in Wall Street plays an enormous part as well. Central banks, exporters and big corporations started storing their excess capital in US

2:18 stocks and bonds. They thought it was a good idea, but now everything has turned on a foreign investor. Say you're an exporter. You're going to trade less with the US. And if you're one of the bigger economies like Europe or China, there will be import tariffs on US goods as well. Suddenly the need for dollars in your daily business starts to dry up. You'll be buying less and selling less in the reserve currency. But there's also the issue of the US dollar collapsing to earth. And that is horrific for exporters, especially if you do business with the US and invoice in the reserve currency. Now take Korean exporters for example. Since the liberation day, the Korean war has been gaining strength versus the dollar. Now it takes fewer Korean units to buy a single dollar. In just two months, the

3:04 dollar fell by almost 7% against the Korean war. So exporters are now caught in a bind. Their converted earnings in the local currency has fallen by 7%. And in many industries, that's enough to wipe out their profit margins. So Korean exporters either have to charge US customers more the next round or they do business elsewhere. They are also sitting on a pile of dollars that could get devalued. So the urgency to sell now and ask questions later is real. You would think that the horror show is over. How far can the dollar fall? Because the lower it goes, the more it will unravel the entire global trading system. But a new fiscal problem from the big crazy bill might just trigger another plunge in the dollar. Major banks standard charted is warning of a

3:51 further crash in 2026. This time it isn't really the tariffs. Trump's tax policies are going to add trillions to the US debt burden. And if that doesn't boost the economy, it's game over for the dollar. There's just too much government debt and money owed to foreigners. If the US doesn't produce more to earn revenue to pay back bond holders, there's only one outcome left. Borrow even more from Peter to pay Paul. The loss of confidence here will be epic. And that's why exporters around the world, they're on the brink of dumping the dollar assets as their own local currency rises. This puts enormous pressure on foreign investors. At the end of the day, they need to cash out their US investments to spend the money back home. But if prices go nowhere and the dollar continues to fall, you'll be

4:38 deep in a raid. There's an incredible $7.5 trillion worth of US assets on the balance sheets of Asian investors. Everyone exporting to the US and collecting dollars to recycle back to Wall Street. But Trump has turned this into a losing proposition. Many people were convinced that the US was going to stay exceptional until it didn't. So many retail and commercial investors really didn't hedge their exposure. Insurers in Taiwan are facing horrific losses of $18 billion alone from just the currency disaster. Are they going to pass on the pain to their customers or book the loss? Many institutions were chasing yield. But now that the dollar is collapsing, that narrative has gone out of the window. It's really important to pay attention to the biggest driver

5:24 of the confidence collapse and that is the endless deficit spending that just seems to get worse with each new president. A few days back, Trump delayed the tariffs on Europe. It won't be in June but until July the 9th. But instead of the markets calming down, there was a big repudiation in bonds yesterday. Yet again, yields across the board went up. The 30-year is almost at 5% again and the 10 year is about to cross 4.5%. So bond holders especially foreigners are getting hammered and they're getting clobbered. If they sell now they will realize a nominal loss plus get dollars that are weaker to their local currencies. The market doesn't really care about a tariff war. They are pricing in Trump's crazy deficit spending plan. But sooner or

6:10 later this trade is going to unwind. global investors, retail or commercial, they all have their own breaking point. And if one country decides to sell, we could have a nasty domino effect on our hands. It's just like the Wall Street margin call movie when paddic sets in, everyone picks up their phone and screams a sell order to their broker. Except this time, it's even faster with all these new trading apps. Since 2000, the world has been piling into US stocks and bonds. They were buying the 10-year note. They were piling into money market funds. They bought the S&P and Nvidia shares. It's the money that's in bonds that's really concerning. When countries decide to dump their treasuries, it spikes yields even higher and that affects the greater economy and slows everything down. Then we have a

6:56 cascading effect that hammers US equities as well. A higher bond yield during a trade war is bad news for the S&P. That's why US stocks are bouncing around without any aim. It feels like an emerging market economy today. It's important that we look at trigger points, trigger events that can set off this massive exodus away from US assets. A US recession could definitely do the trick, but there's also another external threat, and that's the Japanese bond markets. Since liberation day, Japanese bond spreads have been exploding higher. Yields on a 30-year in Japan are now 1.5% higher than a 10-year. This is a big threat to the US markets because Japanese investors have an enormous amount of money in US treasury debt. The

7:43 last thing you want to do as Scott Basin is to drive the yen higher because you are adicing investors back to the Japanese bond market. Even if yields keep rising there, domestic retail investors in Japan, they don't really mind. Firstly, they don't have any currency risk. The bond pays them a yen and they buy stuff in yen as well. And that's just from domestic demand. International investors also have to find avenues to hedge their bets. The US economy might be going down the toilet and with it the dollar strength as well. If we observe what Wall Street is doing, we can see asset managers are being extra bullish on the yen. They have been piling on more long contracts since March when the tariff war became very real. Traders expecting the yen to keep rising for a variety of reasons. Japan

8:30 has a ton of US bonds to sell to prop up their own bond market to buy GGBs. So if they dump dollars to buy yen, obviously the Japanese currency will strengthen. And as the yen rises, it becomes even more attractive for domestic investors to pull their money back home. And that's just on the government side. Japanese insurers also own a ton of US bonds and Japanese bonds. They usually hold both. But one part of their portfolio today is crashing harder than the other. And when that happens, what begin is rebalancing when you sell one asset class or type and take the proceeds to rescue your losing position. And it happens all the time. Well, the pain might be starting really soon. Japan's 40-year bond sale draws the biggest demand since July, and that

9:16 pushes yields up and bond values down. So, holders of ultra long debt have lost even more money. No one believes that the Japanese government can get their house in order. So investors they are avoiding ultra long bonds but if there's one sector that can't avoid these 30 or 40year bonds that's the insurance industry. They have to match their assets to their liabilities. So when ultra long-term yields fly to the moon they are profits dive down to hell. Now Dichi Life is the second biggest insurance company in Japan. They sell a ton of policies and they are managing over 65 trillion yen worth of assets and that's equivalent to $450 billion. But here's the issue. The company holds a lot of 20 to 40year bonds. In fact, that's the bulk of their entire

10:02 portfolio. More than half are 20-year JGBs or longer. So when we see headlines like a bond auction imploding, this also affects companies like Dai Life insurance companies in Japan, they in a world of hurt. Do they sell now or hang on and pray for yields to drop? Because both the internal situation and external environment is horrible. Trump's trade war isn't over yet while Japan's debt power is just too huge for the BOG to print money and resume yield curve control. The global economy today is sitting on a powder keg in a burning room. The tariff war is bad, but we have to watch what global bonds do, especially when it comes to Japan. Japanese insurers could be the canary in the coal mine. Their losses keep piling up and they could be forced to take

10:48 action the longer this drags on. The biggest life insurers in Japan are sitting on an incredible $60 billion worth of paper losses in Q1 this year. We haven't even factored in the crazy spike in use this month yet. This is four times more than the year before, which opens up a whole can of worms. How much more pain can they endure before they crack open? Japanese insurers also hold a lot of US bonds. If they decide to sell debt to raise cash or rebalance their holdings, this will be trouble for Scott Besson. He will be issuing an additional $300 billion annually in treasury bills and bonds. And if yields in Japan keeps rising and the dollar continues to fall, investors could hit to Japanese assets. Then yields in the US would rise as well. But the Japanese

11:35 still has another card they can play and the Ministry of Finance has already hinted at it. They could simply adjust how they issue bonds. Right now, the majority of which are in their 20 plus years, in other words, ultra long bonds. If they decide to issue more on the 5 to 10 year duration spectrum, this will directly compete with US treasuries. Then things will really get spicy. Japan could trigger a feedback loop where money leaves US bonds to enter their own tenure. This in turn pushes the yen higher and the dollar down. And if the dollar falls enough, even these ultra long bonds in Japan will look very very attractive. So we are truly in uncharted waters. Never before has global bonds been so volatile. And I don't think there's a reverse gear for the US there

12:22 either. It's not like you can tell Trump or Basson to spend less. It's not going to happen. Maybe it's time for them to just wave the white flag and revalue their gold holdings. But as always, let me know what you think. Will Asian exporters continue to dump their US asset holdings? And will it be Japan that sets everything off? Let me know in the comments below. Stay safe. Be sure to smash the like button and subscribe as we navigate through this crazy times.