As the Federal Reserve's September interest rate meeting approaches and expectations of a rate cut are building, the market is inexplicably panicking, as evidenced by the large amount of bearish sentiment and excessive short orders in the market.
The theory of rate cuts causing a collapse has begun to spread. Similar remarks are not only found in Chinese communities, but also on overseas English social platforms. To believe that the Fed will mess up at the operational level and that the US economy and even the dollar hegemony will collapse completely is obviously a tactical underestimation of the enemy. This kind of quick victory theory is absolutely unacceptable.
When you can't see the road ahead clearly, you might as well look back at the road you have come. Perhaps there is light at the end of the tunnel. This is the third interest rate cut in history.
The first time was from August 2000 to February 2003, when the Internet bubble burst and the US stock market plummeted. The Federal Reserve responded by cutting interest rates, but the speed was slow (nearly 3 years), and the terminal interest rate did not drop to 0.
The second time was from August 2007 to February 2009, during the subprime mortgage crisis, when the U.S. stock market really collapsed, with the low point even lower than the low point of the bursting of the Internet bubble. The Fed was still slow to cut interest rates, and after spending a year and a half to finally reduce the terminal interest rate to 0, the U.S. stock market bottomed out and rebounded, starting a decade-long bull market.
The third time was from January 2020 to March 2020, when the COVID-19 pandemic caused a series of circuit breakers in the U.S. stock market. This time, the Federal Reserve started to cut interest rates ahead of schedule, and cut interest rates at the speed of light when the U.S. stock market peaked and collapsed, and the interest rate was reduced to 0% in 2 months.
Zero-interest assets are also a hedge against negative real interest rates. When the real interest rate is positive, zero-interest assets fall. When the real interest rate is negative, zero-interest assets rise.
We can refer to the three interest rate hikes in the gold history. In the first half of the rate hike, gold fell synchronously, which actually caused the degree of real interest rate increase to be strengthened, far exceeding the increase in nominal interest rate. This directly caused the US stock market to collapse. In the second half, although the nominal interest rate was high and continued to rise, gold also began to rise rapidly, which is equivalent to saying that the real interest rate actually eased, so the US stock market bottomed out and recovered, and even hit a new high.
At this point, we can draw a conclusion. It is precisely because of the rise in zero-interest assets that the high nominal interest rate is offset, easing the pressure of high interest rates and promoting the bull market of risky assets. As for BTC, it is both a zero-interest asset and a risky asset.
The Fed’s goal seems to be to choose between “soft landing + dollar depreciation” and “strong dollar + hard landing”.
It is in such ever-changing circumstances that true investors use patience as their boat and wisdom as their sail and move forward steadily.
I won't say any more. I've been so busy lately. See you tomorrow morning! $BTC $ETH $BIFI
