 Good day, fellow investors. As we all know, last week, the Fed increased interest rates and Janet Yellen said this, we are in a period of synchronized expansion. This is the first time in many years we've seen this. So Janet Yellen thinks that the world or the US is in a period of synchronized expansion, everybody is expanding, everybody is growing and everything is cool and there are really limited risks or she says that the risks are well weighted or balanced all over the world. However, my question is in 2007 Iceland went bankrupt first and then it triggered a chain of bankruptcies all around the world. So let's dig into the financial risks and potential instabilities of the current global environment by looking at the US, Japan, Europe and China and see what are the main risks. If we can individually, who will crack first, then we know how to protect ourselves or even short if we are in that game. So let's immediately start by looking at the financial stability and the risks of the US financial system. This is very important. If I look at total debt and GDP from 1991, we can clearly see a divergence. The blue line has been growing much faster than the real gross domestic product, which means that also the debt to GDP ratios has increased. Higher debt in relation to GDP means a higher debt burden. Of course, interest rates have been only declining, interest payments are lower and you can take on more debt. But this means or one, there will be a very painful deleveraging if interest rates raise or simply the Fed will keep interest rates low as long as possible or there will be inflation alongside the leveraging to pay off the debt or at least to keep the debt burden payable. Because if your interest rates rises and that's why I have a fixed mortgage for the next 20 years, then your debt burden increases significantly and then the trouble comes. As long as interest rates are low, you don't feel that trouble and the inflation is higher than interest rates. If we look closer at this figure, the GDP of the US doubled since 1991 from 8 trillion to 70 trillion, while the total debt increased four times from 14 trillion to 63 trillion. This means that the total debt to GDP ratio has increased from below 2 to the current 3.7. This is the interest rate, as you can see it has been declining only in the last 40 years, which makes it easy to take more debt. However, just a quick calculation shows me that if interest rates go up to 3.5%, this would at least double the interest expense for the economy and the 2% increase in the interest rates would increase interest costs on the above 64 trillion by 1.28 trillion or 7.5% of GDP. Of course, the 1.28 trillion of increased cost would rebalance across the system, but it would really hit a lot of institutions and a lot of households and create a terrible situation. So the Fed must be really, really careful if it will increase by how much interest rates. It's a very, very delicate situation. A situation this world has never been in, so nobody knows what will happen. However, the risk is there and one that we should all keep an eye on. Going back to the effective federal funds rate, in the past, whenever the Fed started increasing interest rates, a recession followed. Will it happen again? We don't know, but we really have to keep an eye on it and hedge ourselves accordingly. The situation in Europe, I can tell you immediately is much worse than the US. So if you're from the US, you can take a breath because Europe is really, really much riskier than the US. And the financial markets are distorted. Let's look why. This is the ECB, European Central Bank assets. And as you can see, they increased also almost four times in the last 10 years because the ECB is buying everything it can buy, especially bonds, even corporate bonds. And they are still buying and they just said they will continue to buy for the further year or maybe another two years. This monetary easing has created a distorted financial situation. This is the three year Italian treasury yield has been constantly declining for the past three years and now is as negative 0.27%. So Italy can borrow money for two years and return less money after two years. So if they borrow 100, they have to return 99.5, 99.4 after two years, which is something crazy. That's how big is the distortment of the financial markets in Europe. I think it's 20 times riskier that was going on in the US. And that is something that investors from Europe or US investors or global investors investing in Europe have to really take account of it. Even if it looks perfect now, everything is stable, economies are growing, really look at this risk. Negative interest rates cannot go on forever. Even with negative interest rates that I said you have to return less money than you borrow, the debt to GDP ratio in Italy has been constantly growing and is still growing, which is really crazy. So Italy is one country in the European Union. There are many more. So if one of those countries decides to do some crazy things like the Brexit we have seen last year or Italy exit or Frank exit or whatever exit, because some populist in politicians says that it's time to change, then we can really see cracks there. So it's really, really important to look at the political situation in Europe, because it's a very, very fragile financial situation, much more fragile than what is in the US. As we know, the United Kingdom is dealing with the Brexit. The Brexit has really, really put severe pressure on the pound. However, now it is recovering a little bit. Nevertheless, the debt to GDP ratio is 88%. And the Bank of England still has control over its currency, which allows maneuvering potential and protection of what's going on if you are from the UK. So not so risky as Europe, much more stability there, even if Scotland wants to get out. But that's a different story. Japan, a situation even worse than in Europe. However, Japan doesn't have the political risk that Europe has. So again, it's always very, very delicate, very difficult to predict. But if you know the risks, you can position yourself accordingly. If we look at the assets of the Bank of Japan, you can also see how they increased incredibly in relation to GDP. We are now about 50% of GDP, and those will continue increasing. The Bank of Japan also owns a lot 60 or more percent of all the ETFs that are related to the Japanese market. So again, a financial system that's extremely distorted. For now, as everybody was printing money, market sentiment and everything, the currencies are also well balanced around the world. But that currency risk, when something cracks in Europe, the Europe will be severely under pressure. The yen will be severely under pressure. So that's something to really look at to protect yourself. Which currency will become under pressure and position yourself accordingly into currencies? Because central banks will try to keep distorting the market. That's why we cannot really go and head something. Because even if there is a terrible situation, a stock might go up because central banks go in and buy. That's why shorting is very, very risky. Let's look at China. This is something incredible. The Chinese saving rate is extremely high. 40% of household income are going into savings that are later invested into real estate. So really crazy and something that nowhere in the world we have seen. However, in China there is also the 40 trillion shadow banking system that invests in different real estate projects and government projects, local projects, huge debt ratios, but there is still growth. However, the shadow banking system has one trillion in assets, maybe two and 40 trillion in debt. If interest rates in China crack, then again we will see the evaluation of the yuan, which is the main premise behind Kale Bass's theory that China will crack. Who will crack first? China, Europe, Japan, the U.S. unlikely, which we'll see then an appreciation of the dollar, especially with higher interest rates, if the U.S. economy manages to grow strongly. However, the global economy is really interconnected and if something happens in Japan, in Europe, it will be felt also in the U.S. So it depends on who has the most maneuvering power, who can print still much more money or lower interest rates to protect the economy and the system as is. It's very interesting. I would really see at currencies I will be digging deeper into hedging positions and I will be digging deeper into short positions. So just to protect ourselves to prepare for whatever happens as it should be done in an all-weather portfolio. Thank you for watching. Looking forward to your comments, ideas on hedges, shorts, protections, currencies, really share with us. I'm learning so much from you. My thoughts are better systemized and I think I can add more value later if you communicate with me. I'll see you in the next video. Thank you for watching. Click like, subscribe if you haven't and I wish you a very great day.