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This, when encountering the issue of inflation, uh, the issue of, uh, rising energy prices and its prolonged nature, one and two, uh, you see, uh, the American economy is stronger than expected, as I was just telling you. If I were Kevin Watch, I would say, "Okay, I'm tired now." For Kevin Watch, it will be very difficult to lower interest rates. Good or bad, might we have to face an interest rate hike? If Kevin Watch does not raise short-term interest rates to show a rather disciplined financial stance of the American central bank, the market will think you cannot control inflation. What we see is that the issue with Iran is not ending, and it's not just not ending, it's dragging on longer and longer. It's dragging on longer and longer. This Iran issue is very scary, that it's dragging on longer than before. Trump cannot control it. >> Uh. >> Trump cannot control it at all. >> Yes. Uh. >> I think investors, I, I read investor comments every beginning of the week and they say, "The Iran issue will end soon, it will end soon, it will end soon." It's been 4 weeks, hasn't it? This is worse. Because this morning, it turned out that even though Trump said he ordered, he ordered Netanyahu, the Prime Minister of Israel, not to attack Iran, he attacked anyway. This morning, Tehran was hit, and two other cities were hit. >> Uh. >> So the issue has expanded further, and Trump cannot control it. When Trump cannot control it, it opens up a gap, a loophole. It opens up a loophole, and the issue will be a long-term problem. >> Uh, yes, Professor. Actually, investors shouldn't overlook the Middle East war, right? Because right now, it seems like money is pouring directly into AI groups, chip groups, technology groups, all into the infrastructure of AI. Everyone says it's like they've ignored it, meaning they're not paying attention to the Middle East war. Actually, there's a connection, right, Professor? [Laughter] Professor, uh, AI, it needs to build data centers, right? >> Yes. >> Data centers need electricity, right? And where does electricity get its energy from? >> The biggest source right now must be oil, Professor. Fossil fuels. >> Natural gas, right? >> Yes. >> Right? Or if you're lucky, solar. But solar prices are also starting to rise. So how can you ignore it? I can't imagine. Because when you, the AI people, you use a massive amount of energy, sucking up energy from everywhere else, to the point that in foreign countries, data centers are being opposed in many states because you're making electricity prices for the public more expensive. >> Uh. >> And you say you can separate your AI world from the world of energy prices? I can't imagine. >> Yes, yes, Professor. As you mentioned earlier, the US figures are still strong, and on the other hand, US inflation figures have risen for two consecutive months, from 3.3 to 3.8. We have to wait and see what happens this latest month. Now, it turns out that at the meeting on the 16th and 17th, it will be a new Mr. Kevin. Professor, what do you think about this new person? Will he continue with a policy of low interest rates, or do you think interest rates might surprise and signal an increase? What are your thoughts, Professor? >> It's like this. If anyone has been following US inflation figures closely, they will see that the Federal Reserve started losing control of inflation even before Trump attacked Iran. Because in the 4-5 months leading up to February, uh, both headline CPI, core CPI, and core PCE and headline PCE were not moving down, and they were trending upwards even before February for PCE. After that, of course, it went up even more, but there were signs from the beginning that, hey, inflation is chronic, it's not being controlled at over 3%, right? Or close to, or around 3%. If core PCE might be slightly lower, maybe 2.8%, but it's significantly above the Federal Reserve's target of 2%. So, when encountering the issue of inflation, uh, the issue of, uh, rising energy prices and its prolonged nature, one and two, uh, you see, uh, the American economy is stronger than expected, as I was just telling you. If I were Kevin Watch, I would say, "Okay, I'm tired now." Because Kevin Watch thinks like this. He thinks AI will be very beneficial in helping to boost US productivity significantly, productivity will increase greatly, to the point that in the long run, America will grow more without high inflation because productivity increases. But my problem is that during the period when you are building out AI, when you are creating AI, when you are building a railway, but there are no trains running yet. You are building data centers, you are providing cloud services, you are investing massively. In the next 2 years, productivity will not come, but you are accelerating the competition for resources, causing inflation to rise first. >> Uh. >> So, for Kevin Watch, it will be very difficult to lower interest rates. Good or bad, might we have to face an interest rate hike? >> Uh. >> This has another point that many people don't consider. We already said that inflation will rise because of energy. Inflation will rise because AI is accelerating the competition for resources. Inflation will rise because the US economy is stronger than expected from the beginning. >> Uh. >> But there's another point, which is if Kevin Watch doesn't raise short-term interest rates to show a rather disciplined financial stance of the American central bank, the market will think you cannot control inflation. If you cannot control inflation, the market will adjust the risk for long-term interest rates, meaning they will increase the term premium on long-term interest rates, causing long-term interest rates to spike further. >> Uh. >> Long-term interest rates rise, do you understand? If you don't raise short-term interest rates. >> Until the market is confident. >> They will raise long-term interest rates. Investors will raise long-term interest rates instead. There is a risk that the curve will be steeper than expected. If that happens, and US government bonds rise to 5%, let's say, or over 5%, it makes me wonder, why would I invest in stocks when I can deposit and buy US government bonds and get 5%? >> Uh. >> This is what I think makes Kevin Watch even scarier, even scarier. >> Uh. >> Don't think that you can control short-term interest rates solely by looking at the US economic picture. But you have to consider that the market will calculate the price of long-term government bonds based on your stance, meaning they will calculate long-term US interest rates. I think this is what will be difficult for Kevin Watch, and it will make the situation even more difficult. Kevin Watch said he will reform the Federal Reserve. >> Uh. >> And one thing he said he disagrees with the Federal Reserve on two points: 1. He said your simulation models are very poor, and he will redo them. >> Your models are poor. >> He said he will redo them, manage them anew. 1 and 2. He said he doesn't like forward guidance. He said the central bank shouldn't tell the market. >> Uh. >> If you tell them, it will be wrong and lead the market astray, and they will follow us too much. If he does both of these things as he said, first, redoing all the models will take time. >> Yes. >> If he doesn't have forward guidance, we will be even more blind. >> Lost. >> Now, now it won't be pleasant because this is a period when we ourselves are less likely to know which way everything will go. And you're also closing this communication channel. And you're also saying that the Fed's work is poor and unusable. You're going to read it, writing it in that manner. >> Uh. >> It will only make things more difficult for us. Uncertainty will increase. >> Yes. Uh. Yes, Professor. As you said, if the market thinks the Fed cannot control long-term interest rates, they will rise. Does this indicate a situation, Professor? Because the 30-year yield has risen to 5%, and the 10-year is around 4.5-5%. Is this considered a reaction to this situation, Professor? What are your observations? >> No one knows, Mr. Nao. No one knows. >> Uh. >> Okay, let's stick to theory first. Let's stick to theory. Because in the end, we have to rely on theory. >> Long-term interest rates depend on, I think, three parts. >> Uh. >> It depends on the fundamental factors of the economy. >> The faster the economy grows, the higher the interest rates. Because, do you understand? Economic growth means the return on being in this economy. If the economy grows by 2%, >> then interest rates must be at least 2%. The interest rate that reflects fundamental factors, okay? In the case of America, the Federal Reserve estimates that the economy will grow by 1.8%. >> Yes. >> But many people forecast that it will make the economy grow much more than that. Much more. Suppose AI is really brilliant and makes the US economy grow by 2.5%. So, from an economic perspective, it must be pushed up, pushed up from before. This is the first point. The second point is, what is the steady-state inflation? What level can the Federal Reserve control US inflation at? Suppose it can control it at 2%. Add to that, it becomes 4.5%. >> Yes. >> Not yet including the last part, which is the term premium. That is, when we hold bonds, the longer they are, the riskier they are, and the more premium we need. This means, as you mentioned earlier, holding a 10-year bond at 4.5%, I accept it. For a 30-year bond, I want 5%. >> Uh. >> Even though it's the same US government. >> Yes. >> Right? And good or bad, if you are very confident, why don't you hold a 30-year bond and get 5% per year, while another one only gets 4.5% per year? Do you understand? This is the term premium. All three of these, good or bad, are rising. Do you understand? >> Uh. >> Right? They are rising. In the past, the term premium was negative. It's difficult to calculate the term premium. It's called the residual, the remaining part. Originally, the term premium was 0. But now it seems it might not be 0. For example, these three things. >> Yes. [Clears throat] >> Three things. Originally, the Federal Reserve calculated, to make it easy to understand, originally, the assumption was that the economic growth rate was only 0.5%. And inflation was around 2%. So, adding these two together, 2.5%. And if there was a small term premium, it would only be around. I remember back then, before COVID, US government bonds only yielded around 2.3% on average, 2.2%. At that time, the term premium was even negative if calculated quickly. But today, at 4.5-5%, I'm not sure if it's enough. Because you still don't know how much AI will increase GDP, how much it will increase. Whether the Federal Reserve can control inflation. And the term premium. Will Trump have fiscal discipline? He has no discipline at all in fiscal matters. >> Because the deficit is 8% of GDP annually. >> Yes. >> All three of these seem to be rising. I don't know if the US bond at 4.5-5% for 10 years or 5% for 30 years is correct. But if I had to guess, I think both of these plus another 50 basis points would not be surprising. That is, 10 years at >> Uh. >> 5%, and 30 years at 5.5%. I wouldn't be surprised, looking at these three conditions. >> Uh. Yes, Professor. As we know, we have always understood that America is a capitalist system. They will use future money in advance, whether it's credit cards or financing, etc. If they can't control it and have to raise interest rates, Professor, looking at the signals from government bond yields, how will it affect, especially the government's own debt, the refinancing of the government's own debt, or that of its citizens? How much will it increase? Not to mention growth stocks, Professor. How will growth stocks be valued? [Inhales] >> Uh, Mr. Nao, let's just say this. I think we tend to think they can control their own lives, and it also has global effects. It might be the other way around. >> Yes. >> Right now, America relies on foreign countries more than we think, generally. >> Uh. >> America is like this now. America is overspending. This is evident from the current account deficit of about 3% of GDP annually. Over 3% of GDP. GDP is about 30 trillion US dollars. So, it's almost 1 trillion dollars that they are overspending. >> Yes. >> You ask, what is this overspending for? In the recent period, I think the overspending is in two parts: 1. Overspending by the government. >> And another part of overspending is in the part where they take our money to invest in their AI. >> Uh-huh. >> We invest in AI. We say, "Wow, Alphabet stock is so good, this stock is so good." We like Nvidia so much. We go there, we buy American assets. We have capital inflow, money flows into America. The latest gross inflow I saw was about 4% of GDP. 4% of GDP. Because there's a net, meaning America also invests abroad. But the gross inflow is 4% of GDP. This is a quick figure, but it's an old figure. >> Uh. So, in reality, they rely on our money so they can overspend. They rely on our money so we can help them raise funds to build AI. So, it depends on whether they do a bad job and our money doesn't come in, because we don't want to anymore. It affects them too. So, it's not that they are the only ones leading. It's a two-way street. Everything can happen in two ways. Uh, the most frightening thing is likely the issue of foreign countries having to buy American government bonds. Foreign countries have to buy American government bonds. >> Which foreign countries buy American government bonds. Originally, foreign countries held American government bonds as a proportion. 15-20 years ago, >> Yes. >> We foreign countries really liked American government bonds. >> Right? So, all American government bonds, back then, if I remember correctly, around 2010, there were about 10 trillion US dollars. The debt was very low. We, foreign countries, bought American bonds for 4.4 trillion dollars, or 47%. We thought, "Wow, American bonds are excellent," and we rushed to buy them. Who are we? Mostly central banks. Various central banks. Today, American debt instruments have expanded from 9 trillion dollars to about 28 trillion dollars. And it turns out that we can't buy anymore. The proportion we buy is only 33%, or about 10 million. It's about 9 trillion dollars left. >> Uh. >> And here, what we have, what we, the central banks, have reduced. We are mutual funds, we are various funds that buy. And what's strange and bad is that hedge funds that have branches in the Cayman Islands also buy American government bonds. But they are classified as foreign, even though they are actually American. And this proportion is also in the trillions of dollars. So, what does that mean? It means that in the end, those who hold and are stable are central banks, which have decreased. And those who buy and sell will increase. >> This will cause bond yields to fluctuate more violently and will not be stable like before. This will be a source of volatility, causing problems for the American economy and the global economy. >> To not miss any investment information and news, don't forget to like, share, and subscribe to all channels of One Money Chat.