Navigating Economic Complexity: The Stock Market vs. Reality

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#finance #blackmonday #stockmarket

On Monday the 6th of August the S&P 500 opened down almost three and a half percent with the Nasdaq down FOUR percent and other global markets down by significantly more than that. [put up the google 5d graphs for S&P 500, NASDAQ, ASX 200, Euro N

Markets like the Nikkie 225 are down over TWELVE percent, and Taiwan’s main stock Index having its worst day in HISTORY.

This followed a weekly trend that has seen TRILLIONS of dollars wiped off markets around the world and fingers being pointed at Japan, the Fed, greedy wall street traders or really whoever else people want to blame when things go wrong.

And then just to prove that nobody fully understands what is going on… just one day later markets across the world rallied almost covering the losses from what people are now calling the new “Black Monday”.

Since you should expect a lot of YouTube thumbnails with red graphs, laser eyes and (so so many) flames in your immediate future now is probably a good time to ask… what is happening to the stock market… right now?

Japan’s economy has been stagnant for more than three decades now, and the Japanese Government along with its central bank has been trying to change that by keeping interest rates extremely low, even going NEGATIVE between January 2016 and January 2024.

It was hoped that these low rates would encourage local borrowing boosting the domestic economy but when that never happened the Bank of Japan almost became stuck offering these low interest rates because any increase would further slow down an already sluggish market.

It might not have done much for Japan, but investors took advantage of these low interest rates by borrowing money in Japanese Yen and then either investing in Japan, or more often exchanging Japanese Yen for another currency like the US Dollar and investing in asset markets here in America.

Since stonks only ever go up investors could make money on the spread between the low Japanese interest rates and the higher returns they could get in the market.

dropping in value relative to the USD so investors could make EXTRA money on the foreign exchange exposure if they didn’t hedge against it.

Like all good things, this worked well until it didn’t…

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