As we all know, the whole world is paying attention to the fact that the United States has not cut interest rates. Recently, there was another incident, the Japanese exchange rate fell sharply again, and it fell directly below 161. Some people say that this is a currency war, but many people do not understand the real underlying logic behind this. That is, the American capital tycoons are using this rule to arbitrage.
In other words, the U.S. interest rate hike and the sharp drop in Japan's exchange rate are actually a combination of punches, the purpose of which is to let the American Warren Buffetts arbitrage. So how does this Buffett operate? I'm going to tell you more about it today.
The U.S. has raised interest rates since March 2022, a month before Russia suddenly launched a special military operation against Ukraine. Subsequently, the United States raised interest rates 11 times, raising the base rate to around 5.5%.
Let's take another look at the news, which is that Warren Buffett's company has held an all-time high in cash over the past two years, approaching $200 billion. Many people have always had a question, why did Buffett do so much cash when the U.S. stock market rose so wildly?
Now the interest in the United States, 200 billion US dollars is lying in the bank, and every year if you do nothing, you can earn 11 billion US dollars in interest. Of course, Warren Buffett can be hailed as the god of stocks, and it is not so simple to make money naturally.
Since 2020, Buffett has used deposits in the United States as collateral and then issued 622.5 billion yen in bonds in Japan. So why does Warren Buffett do this?
Because Japan's GDP has been stagnant since 1995, the Japanese government has implemented a negative interest rate policy for a long time in order to stimulate the economy, especially after Shinzo Abe came to power in 2012, the Japanese government began to implement a super quantitative easing policy.
The first is negative interest rates, the second is crazy money, and the third is the Japanese government's stock speculation. So we see the yen continue to depreciate, and at the same time the Japanese stock market continues to rise.
Warren Buffett keeps his cash in U.S. banks and earns huge amounts of interest, while at the same time borrowing like crazy from Japan, where there is almost zero interest. Warren Buffett's interest on money borrowed in Japan is almost negligible, with a 5-year interest of only 0.17% and a 30-year interest of only 1.1%.
Of course, although the interest rate is low, if Buffett can't make money with the borrowed money, the interest is also a cost. But making money is hard to do.
Because they know that Japan is crazy about printing money, and at the same time, the Japanese government is going crazy to buy shares of Japanese companies. So Buffett used the borrowed money to buy the shares of Japan's five major trading companies.
At one point this year, the Nikkei 225 surpassed 1989, when the stock market bubble was at its peak. Some of the five major trading companies that Buffett bought have doubled, and some have risen several times, and he can be said to have made a lot of money.
Some people say that although Warren Buffett has made a lot of money in the Japanese stock market, but now that the Japanese exchange rate has been falling, then if the yen assets he holds are denominated in US dollars, he has not made much money, and may even lose money? After all, the yen has basically fallen by about 5% against the dollar in two years.
But this is another place where people make money. Now that the yen has plummeted, they are just paying back the yen they borrowed earlier. According to the current trend, the yen is likely to continue to fall, if the yen falls to 180, then Buffett only needs to use about 40% of the previous dollar to exchange for yen to repay the previously borrowed Japanese debt. There are several more profits in the middle.
Is that not the end of it? Sooner or later, the United States will cut interest rates, so what will happen after the rate cut? The first is that the dollar will weaken and the yen will strengthen. At this time, Buffett's yen assets will appreciate relative to the dollar.
The second is that there will definitely be problems with the US stocks, because the US is also rising very high at the moment. In fact, in the past two years, the total profits of U.S. listed companies have declined, but the total market value of U.S. stocks has risen a lot. This shows that there is actually a huge bubble. As soon as the U.S. starts cutting interest rates, money flows back to the world. That's what happened to the American thunderstorm.
But you see, when the time comes, Buffett is operating in reverse. He happened to sell the high-valued assets of the Japanese stock market, then cashed out a large amount of yen to exchange for the depreciating dollar, and then went back to the US stock market.
This wave of operations can be said to be smooth. In fact, it is not only Warren Buffett who is operating like this, but also American capital tycoons who are operating like this. After understanding the way the bigwigs play, you know why the United States has not cut interest rates, why the yen exchange rate has fallen, and what is the trend of the RMB in the future?