Spiraling Stock Market Crash Ahead? | Andy Schectman

Key Concepts

• Yen Carry Trade Unwind: The potential for significant market disruption due to Japanese investors liquidating assets (US Treasuries, equities, crypto) as Japan raises interest rates, making the previously profitable carry trade uneconomical.
• Embridge Payment System: A cross-border payment system designed by China and other nations, facilitating direct settlement in local currencies and bypassing the US dollar, with a focus on precious metals markets.
• Quantum Computing Threat: The risk posed by advancements in quantum computing to current cryptographic systems, potentially impacting the security of cryptocurrencies like Ethereum and Bitcoin.
• Contrarian Investing: The strategy of investing against prevailing market sentiment, often involving buying undervalued assets when they are out of favor, as advocated by figures like Rick Rule.
• Authenticity of Precious Metals: The importance of verifying the genuineness of gold and silver, especially with increased public participation in the market, and the role of reputable dealers and testing methods.
• Reputable Dealers and Licensing: The significance of dealing with licensed and bonded precious metals dealers, who are held to higher standards and offer greater assurance of authenticity and integrity.

Market Update and Macroeconomic Indicators

1. COMEX Options Expiration and December Contract:

• The discussion begins with the COMEX options expiration for gold and silver on Monday, November 24th, 2025.
• A key focus is the December contract for large traders and their decision to either stand for delivery or roll over/sell their contracts.
• Key Point: The persistent backwardation in silver (cost of physical silver today is higher than future contracts) is highlighted as a sign of market stress and a greater demand for physical metal over paper contracts. This situation has been developing for some time and is considered a significant indicator.

2. Embridge and the Shift Away from the US Dollar:

• The Embridge cross-border payment system, initially designed by China, Hong Kong, Thailand, and UAE, with Saudi Arabia as a later participant, is discussed.
• Technical Term: Embridge is described as a "cross-border payment system."
• Key Point: A recent successful real-time test between the UAE and China is noted.
• Supporting Evidence: The UAE and China, along with Hong Kong, have advanced precious metals markets where gold is traded in local currencies. This allows Embridge members to convert trade surpluses directly into gold, bypassing the US dollar.
• Real-World Application: An example is given where the UAE could sell oil to China for digital E1 over Embridge, settling in 7 seconds with a 98% reduction in fees, no US or Western intermediary banks, and no SWIFT. Settlement can occur directly in gold balances without dollar conversion, with physical possession in Hong Kong.
• Future Development: A second vault is under construction or planned in Saudi Arabia, indicating the expansion of this system.
• Significance: This development is seen as a crucial step in a plan to move away from dollar dominance, supported by the Shanghai Metals Exchange's expanded vaulting system, particularly the one in Hong Kong which is essential for moving gold out of China.

3. Bank Price Targets and Institutional Sentiment:

• The credibility of bank price targets, specifically mentioning UBS raising its mid-year gold price target to $4,500 from $4,200, is questioned.
• Argument: The speaker expresses skepticism about these targets, calling them "as useful as a mud wall" due to their historical inaccuracy.
• Counter-Argument/Observation: Despite the skepticism towards public pronouncements, the speaker points to the actions and statements of top analysts like Michael Hartnett (Chief Analyst at Bank of America) and Jeffrey Gundlach (the "bond king").
• Supporting Evidence: These high-level analysts are suggesting significant allocations to gold (e.g., 20% or 25% not being overweight).
• Key Distinction: The speaker differentiates between the advice given to retail money managers and the insights shared with massive institutional traders who are involved in bringing metal into the US. The latter group is seen as indicating that gold and silver are being "reintegrated into the system."
• Actionable Insight: Investors are advised to "pay attention to what they're doing unless you're listening to the very very top analysts who are speaking to the institutional traders."

4. Quantum Computing and Cryptographic Vulnerability:

• The founder of Ethereum, Vitalik Buterin, is cited for highlighting quantum resistance as a key element of Ethereum's long-term roadmap.
• Technical Term: "Quantum resistance" refers to the ability of cryptographic systems to withstand attacks from quantum computers.
• Key Point: Buterin warns that cryptography securing Ethereum and Bitcoin could be vulnerable to quantum computing breakthroughs by 2028.
• Supporting Evidence: This warning is linked to a test conducted by Google Quantum AI using their Willow quantum processor.
• Fact/Figure: The Willow chip is noted for its potential to perform calculations in under five minutes that would take the world's fastest supercomputer 10 subillion years (10^25).
• Argument: The speaker uses this information as a reason to consider assets "outside the matrix, outside the system," given the potential vulnerability of the digital financial infrastructure.

5. The Yen Carry Trade Unwind:

• This is presented as a highly significant and potentially systemic issue.
• Concept: The "carry trade" involves borrowing in a low-interest-rate currency (historically the Japanese Yen at near 0%) and investing in higher-yielding assets elsewhere.
• Historical Context: For years, investors borrowed Yen in trillions, converted it to dollars, and invested in US stocks, bonds, or emerging market assets, earning profits from dividends and interest with minimal borrowing costs.
• Current Situation: Japan has begun raising interest rates, making the Yen carry trade uneconomical.
• Key Figures:
  • 1.1 trillion in Japanese pension funds are affected.
  • 1 trillion in US Treasuries are held by Japanese investors.
• Mechanism of Unwind:
  1. As Japan raises rates, the Yen strengthens.
  2. Japanese investors need to buy Yen at a higher rate to cover their positions.
  3. They are liquidating US Treasuries to bring money back.
  4. This liquidation will push US interest rates up.
  5. The increased demand for Yen will further push its value higher.
• Consequences: This creates a "chain reaction" and a "big big problem" for the global economy due to the impact of higher rates.
• Argument: The unwinding of money poured into Treasuries, crypto, and equities is beginning.
• Prediction: "Selling pressure will trigger falling prices," leading to a "spiraling" effect. The speaker believes "we're right there right now."
• Supporting Evidence: The Yen trade represents trillions globally, with hundreds of billions in the US stock market alone.
• Future Outlook: Japan's next meeting is in December, with a strong possibility of further rate hikes, which could lead to "massive fireworks" leading into the end of the year.

6. The Problem of Artificially Suppressed Interest Rates:

• This section elaborates on the consequences of decades of artificially low global interest rates.
• Argument: The "unnatural behaviors" of monetary authorities have led to "tremendous distortions" in asset allocation and decision-making by businesses and individuals.
• Consequence: When the "game board shifts," these distortions can cause "disproportionate and unexpected and unprecedented unnatural lashback or snapback."
• Critique of Institutional Behavior: Many insurance executives and pension fund managers are criticized for their "normalcy bias," believing that what has worked for decades will continue. They are seen as unprepared for rapid changes.
• Japanese Bond Market Data: The 40-year Japanese bond is at its highest rate since inception, around 3.5%. This is contrasted with the US 30-year Treasury rate being around 4%.
• Economic Rationale: The speaker suggests that at some point, Japanese investors will find it more attractive to buy their own bonds rather than US Treasuries, especially when considering fees.
• Fed's Dilemma: The Federal Reserve's efforts to lower rates are being counteracted by global selling of Treasuries, particularly from Japan, preventing the 10-year Treasury from moving significantly.

7. Contrarian Investing vs. Herd Mentality:

• This section contrasts the strategies of contrarian investors with the behavior of the general public.
• Rick Rule's Philosophy: Rick Rule is presented as a proponent of contrarian investing, advocating for positioning in "out of favor things that are hated where he sees intrinsic value."
• "Little Man Rule": Ordinary people are described as waiting for validation from financial advisors and bank CIOs before investing, by which time the trend is already well-established.
• Risk Assessment: The risk is lowest when sentiment is lowest and increases as the crowd piles in and sentiment becomes high.
• Challenges of Contrarianism:
  • Requires conviction to go against the crowd.
  • Demands time and effort to analyze and build conviction.
  • Most people are unwilling to invest the time to protect their money as much as they do to earn it.
• Conflict of Interest: The speaker questions the value of advice from financial advisors whose global outlook differs from an investor's own concerns about the dollar, markets, or geopolitics.
• Success of Gold and Silver: Despite mainstream skepticism, gold and silver have outperformed mainstream investments over the years.
• The Effort of Research: The speaker emphasizes that they and others like them do the research for the audience, but individuals still need to invest time and effort to formulate their own opinions and build conviction.
• Separating from the Herd: Success in investing is linked to the ability to separate oneself from the herd and do the work to form an independent opinion.

8. Authenticity and Verification of Precious Metals:

• This topic is addressed due to client inquiries and the increasing public interest in precious metals.
• Miles Franklin's Stance: Miles Franklin stands "100% behind the authenticity of everything that we sell."
• Importance of Reputable Dealers: The primary recommendation is to "buy from a reputable dealer, period."
• Technical Equipment: The machinery used for testing is expensive, but accessible for those who need it.
• Difficulty of Counterfeiting Coins: Gold and silver coins are described as "very hard to mimic" due to their physical properties. It would require significant metallurgical skill to hollow them out and make them appear authentic.
• Bars vs. Coins: Counterfeiting is more common with bars (e.g., 400-ounce gold bars) than with 1-ounce coins, partly due to counterfeiting laws related to legal tender.
• Numismatics: Authenticating numismatic coins (collectible coins) can be harder as they are certified. Checking serial numbers with PCGS or NGC is suggested.
• "Pennywise and Pound Foolish": The advice is to avoid deals that are "too good to be true," as they likely are.
• Example: A client was told by another dealer that their metals were fake, but upon returning them to Miles Franklin, they were verified as authentic, highlighting varying levels of expertise and equipment among dealers.
• Licensing and Bonding: Miles Franklin's differentiator is being licensed, bonded, and background-checked in Minnesota, a state with stringent requirements that many companies avoid. This higher standard is presented as a key factor in ensuring legitimacy.
• Reputation and Accreditation: The focus should be on reputation and accreditation rather than solely on price.

Conclusion and Takeaways

The discussion highlights significant potential disruptions in the financial markets, particularly stemming from the unwinding of the Yen carry trade and the broader shift away from dollar dominance facilitated by systems like Embridge. The increasing interest in precious metals is met with a warning about the emergence of counterfeit products, underscoring the critical importance of dealing with reputable, licensed, and bonded dealers. The conversation also touches upon the long-term threat of quantum computing to digital assets and advocates for a contrarian investment approach, emphasizing independent research and conviction over following the herd. Ultimately, the message is to be informed, vigilant, and to prioritize authenticity and trust in financial dealings, especially in the precious metals market.