TLDR; Japan fucked the market…

Everyone was facing inflation but one country… JAPAN.

This meant Japan was in stagflation, lowering rates, and actually had negative interest rates.

When interest rates go up in the US, it becomes attractive to buy US treasuries especially the 10yr.

People were getting loans in Japan at extremely low interest rates (call it in the 1%) and investing in Nvidia (example), making it an easy trade. Also to make it even juicier the Yen was going down in value so imagine this…

You take out a $100,000 loan (of Yen) that you have to pay back w/ 1.5%, you go invest in tech stocks/treasuries. Let’s say you make 5%, that’s $5,000 profit, bringing you to a total of $105,000. You only have to pay back $101,000 in Yen, but also the Yen has gone down 20% in value, meaning you only have to pay back $80,000 (in Yen). And people keep on adding for YEARS to these loans because it’s getting cheaper and cheaper and free profits.

Not to mention they are also using SOOO MUCH margin. So imagine this, they secure the 100k loan and get a 200k position, 100k margin in Nvidia.

But wait… Japan decides to raise rates which increases the value of the Yen while everyone else is cutting rates (or about to) which decreases the value of said currency

So Yen 📈 everyone else 📉, this makes paying off loans even more difficult and this doesn’t include the margin call.

So now you have a 200k margin position on Nvidia, Nvidia is down 20%, so you’re down $40,000, on your position and get margin called. (More selling pressure)

Now you have to pay back an extra $40,000. Meaning your $100k of equity is now $60,000, and now bank of Japan is margin calling you because you only have 60k of the 100k owed, but also the Yen is up 10%, so you really owe 110,000 of Yen.

This is a super small example… it’s not 100,000, people think it’s 10trillion…