The United States: Who dares to underestimate it under the three highs? What will retail investors face after the madness? Recommended reading: ★★★★★
The three highs: U.S. stocks, U.S. bonds, and U.S. index have a powerful siphoning effect, sucking away not only the market liquidity but also the lifeblood of allies.
Under the expectation management of the United States, a situation finally came. While the Federal Reserve said it would not cut interest rates, the risk market went in the opposite direction and the US stock market rose. I originally thought that this was just the market's disbelief in the Fed's "broken waist" mouth, reflecting the most real state, but I saw the media hype over the weekend.
This week, Wall Street traders invested $2.1 billion in the U.S. technology sector, the highest figure since March. This action directly led to the U.S. stock market rising again and also guided the flow of funds from retail investors in the market.
Markets are ignoring the Fed’s comments on interest rates - this is a headline from a Bloomberg Economics front page article.
The article mentioned that since the Federal Reserve stated that there would only be one interest rate cut in 2024, this would have caused setbacks in risk markets.
"Never go against the Fed" was a creed circulating on Wall Street. Now it has been broken. Faced with the Fed's move to continue to maintain high interest rates for a longer period of time, the risk market, or perhaps Wall Street, has taken a contradictory move and increased its investment in U.S. technology stocks, which was interpreted as funds flowing into the stock market with relatively low borrowing costs.
Wall Street investment banks said that the market no longer believes that the Federal Reserve will not make more interest rate cut concessions under the influence of inflation and the labor market. In fact, we have been thinking this way recently, and there is nothing wrong with it.
However, the view expressed in the second half of the article is that funds are pouring into U.S. stocks, which represents strong expectations for the future of the U.S. economy, because expectations of interest rate cuts lead to rising stock returns, which has happened many times in history, but the premise is that the economy has not entered a recession, such as this interest rate cut.
This is the gist of the original text in the article, which means that people are currently pouring into U.S. stocks, and U.S. stocks continue to remain strong. This is because the U.S. economy is not facing a future recession, and the market has given the most realistic response.
Is this really true?
Another topic we discussed this week is that the price of 10-year US Treasury bonds continued to rise, and the demand for US Treasury bonds increased. However, looking at US Treasury bonds, we can see that the market's risk aversion demand has increased and the market's risk appetite has changed. We regard this action as a result of the increase in expectations of a future US economic recession, which has led to a warming of the bond market.
Let me ask, is there any economy with such a good economic outlook and such a hot bond market?
Of course, there is another scenario that triggers this situation - the economic recovery stage. If we substitute the current US economy into the economic recovery, this situation can indeed be confirmed. At the same time, the Atlas Fed economic model predicts that the US economic growth rate in the second quarter will increase from 1.3% in the first quarter to 3.1%. If the data is true, then the US economy is still in a rapid growth stage. But who will pay for the US inflation under this situation?
I tried to figure out a route, many of which are just guesses, so you can just use them for reference:
1. Although maintaining high interest rates will lead to a rebound in inflation, as long as measures to control inflation are taken consistently, inflation will not worsen.
2. Maintaining high interest rates will cause some economies around the world to collapse, causing individual economies to fall into recession.
3. As the world's largest consumer and importer, the United States can pass on part of its own inflation to exporting countries through high interest rates, leading to increased inflation in exporting countries.
4. Through high interest rates, siphon global funds into US dollar assets, US stocks, US dollar bonds,
5. Start cutting interest rates or even releasing money, releasing global dollar liquidity, causing global short-term inflation to rebound faster.
6. Accelerate the siphoning of global capital into US dollar capital.
7. For defeated or exploded economies, US dollar capital with lower interest rates can pick up chips around the world.
So sometimes I wonder, is inflation important to the United States?
important, because it would expose America's own economic or financial crisis.
It doesn’t matter, because inflation can be paid for by the whole world, or inflation is fine as long as it does not cause its own crisis
Many people may think that this kind of gameplay is like walking on a tightrope, but if we look back over the years, for the United States, which has always been at the top of the pyramid in economic strategy, walking on a tightrope seems to be a tried and tested method.
In the end, I hope that what I said is just speculation, because if this happens, it is difficult for me to imagine how a retail investor in the risk market will face it, and I even doubt how I will face it. Finally, I want to say that it is not like selling anxiety. You can actually read it as a story and wish all the best in the world!
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