 Good day, film investors! Finally some volatility in the stock market, especially in emerging markets. So let's discuss what's going on and explain the forces that are impacting stock prices, impacting investors' mentality, impacting investors, perhaps even fear at this point in the market. Today I wish to talk about, of course, about the SAP 500, NASDAQ and emerging markets putting things into perspective, a long-term perspective, how economic data is great, perhaps overheating. The job report just came out extremely low, unemployment lowest since 1969, but the new jobs that were added were not that great. Then it's critical to understand treasuries and how that impacts the media and stock markets asset prices, the correlation, of course, between assets and yields, asset prices and yields and how to position your stock portfolio at this moment in time, how Buffett does it and how do I do it and how can you see what's best for yourself. So on first day the stock market was down a bit and news headlines were selling panic. When I was reading a little bit, this is the Bloomberg headline, Europe's stock struggle after Asian technology route. The NASDAQ 100 had its worst day since June, oh my god, and Bloomberg's report, the China infiltrated US firms with hardware hacks. Then the world's richest lose 63 billion on trade tensions, stock slide, Lenovo plunges 23%. So doom and gloom on Bloomberg on Friday morning, however, the SAP 500 is still up 7.5, 7.7, 7.8% as I'm filming this, but if things continue as they have been going on for the last two days, the yearly gain might be gone very, very quickly. Let's see what happens. The NASDAQ 100 is up even more, still double digits in this year, even if the volatility there is bigger and it's downward for the week as I'm filming this, we never know it's still an hour, two hour till the market closes. However, emerging markets are the hardest hit and they are down 15%, what, 13, 15, 14% for the year and that's something important. That's a big divergence because higher interest rates, higher yields, higher yields on treasuries have impacted emerging markets, but not yet the SAP 500 and the NASDAQ, but that might be changing as we speak now and this might be the start of something bigger. Will it be, will it not be, we will see, however, the only thing is we can be prepared, we can do what Buffett does because to this divergence between the SAP 500 and emerging markets cannot last long because we are in a global economy. However, the US economy, economic numbers are great, job report just came in, great unemployment, the lowest since 1969, but the number of added jobs raises some concern, concerns just 130,000 well below expectations. You can't hire any more people when it is so low, which limits the growth of the economy. Plus, as wages are increasing, the Fed is forced to increase interest rates at a faster pace to prevent inflation and that is then a double whammy for the economy and usually leads to a recession somewhere down the line, perhaps in the next few quarters, perhaps in the next two years, but we are there in the late part of the economic cycle and we are in the late part of the economic cycle when things look best. So this is my thinking, the US economy is doing great, but it's all based on debt. We have seen budget stimulus, fiscal stimulus, we have seen increasing budget deficits in the late part of the economic cycle, consumer credit is spiking and interest rates are going up, so that can go on for a while, but not for a long time. The Fed is rising fast, they are tightening and as we said in the daily crisis video, the top is usually reached when the Fed rises rates the fastest. Unemployment rate low, you need to hire people to grow, there is nobody to hire, so where are you going to find them? With higher interest rates from the Fed, it usually leads, it's usually close to a recession, so when things are best, it's usually the best time to look at different things. As it was the case in 1999 and 2005, 2007. Going on to treasuries, this is very important to look at, the 10-year treasuries. The bond issued by the US government, where the government pays you the interest and the principle at the end, the yield of the treasuries has spiked to 3.21 and that already happened on Wednesday, nobody cared that much, but on Thursday it sent shivers through the market and we have seen stocks going down. So why is this so important for asset prices? Let's start with emerging markets. Yields are higher in emerging markets and when you see that you can borrow in dollars at a small spread to the treasury, you do that. For example, emerging markets were thinking, okay look, the interest rate on the 10-year treasury in the US is 1.5, that was when in 2016, and then you say American investors are looking for yield, they are desperate for yield, Europeans are desperate for yield, if this is 1.5 they're going to request 3%. But then, then the yield jumps to 3% in the US and everybody's happy with 3% and they want 5, 6, 7, 8% from emerging markets and that's a problem. Further, as interest rates go up in the US, the US dollar strengthens and then emerging markets get into trouble because of that, what you have seen going on in Argentina, in Turkey and with some companies. Further, the dollar gets stronger but the emerging markets' currencies get weaker and that's a triple whammy for emerging markets. However, okay this is what's brewing now, but higher interest rates for the US dollar, a strong dollar means not good things for the US economy, it means better things for emerging markets and these things always balance themselves up and down, back and forth. So, in a few quarters emerging market dollar might be getting too strong, the tightening might have to be reversed, slowed down if there is a recession and then emerging markets will catch a break and this might revert. So, that's one way of seeing things but if you look at the long term that might really happen. The dollar cannot go on forever and interest rates in the US cannot go up forever because it's already dawning on the economy. Look at this, the 30-year fixed rate mortgage in the United States. In 2016 September it was 3.4%. Now it's closing to 5% and that's a big difference when you want to buy a house, when you want to buy a car, when you want to do whatever. Similarly, companies have to borrow at higher interest rates less investments which leads to a new downturn in the cycle and that's normal natural things. So, we are in the late part of the cycle, everything is developing as planned and now the question is what to do? We have higher interest rates that will slow down consumption, you cannot borrow that much, higher interest rates will increase the payments for the US government which again can lead into trouble, higher budget deficits, higher borrowing costs and that's again not good. Stronger dollar because everybody's chasing the higher yield, again not good for importing, exporting from the US. So, the key is now what to do. There are two options, if you are a US investor and I'll make a few videos in the next week about what should European and Swiss investors do because that's a completely different story. So, US investors they can do what Buffett does because he is extremely domestically biased, US, US, US, he's been doing good the last 60 years doing that or you can look a little bit abroad and buy those cheap emerging markets for a bit of diversification as your dollar is strong and emerging markets are cheap. 2016 the dollar was strong, cheap, so that was a smart thing to do. 2017 dollar was a little bit weaker, emerging markets were booming, sell a little bit that go back, back and forth and you rebalance the risk accordingly and then things get a lot easier and calm in your portfolio. So, let's see what is Buffett doing. This is Berkshire Hathaway's last balance sheet. If you look at cash and cash equivalents 57.9 billion dollars of which 41.6 billion as of June 30, 2018 are in US treasury bills with maturities of three months of less, so short-term treasury bills. If we look at the complete cash on his balance sheet, we have 45 billion in short-term investments in US treasury bills on top of the short-term three months, so a lot of short-term treasuries there. We have some fixed maturity securities and of course investment in equity securities. If I sum that up, 118 million in cash bonds, 174 million in stocks, total portfolio, the rest is long-term holdings that he will never sell due to taxes, he gets the dividends, total 292 million, so he is 40% in cash by cash short-term treasuries. So, that's Warren Buffett and you might think to make a portfolio similar to you because let's say that other properties are his job that brings him dividends to buy more stocks and this is your stock market portfolio, so think about what Buffett is doing. The other option is, okay, I have a strong dollar, let's buy a little bit into China, let's buy a little bit into Brazil, let's buy a little bit into Argentina, let's buy a little bit of gold that is now cheap but might spike in the future and let's diversify a little bit and then rebalance that diversification. Check my stock market research platform for my portfolio to give you some investment ideas in that rebalancing across the world investment strategy. Thank you for watching, looking forward to your comments and I'll see you in the next video.