It is worth mentioning here that when the stock market deviates too much from economic fundamentals, it will bring relatively large constraints to the Federal Reserve’s policy space.

The current bubble in the US stock market is already quite large. If the interest rate is cut too sharply, it will fuel the bubble. It will take at least several months for the real economy to feel the benefits of the interest rate cut, including reapplying for loans from banks and reissuing bonds with lower interest rates.

The stock market bubble is too big. Once it bursts, it will push the US economy into recession even faster.

Therefore, I personally believe that the Federal Reserve will not cut interest rates beyond expectations - 25bps is about the right amount.

We have said before that the Fed’s unexpected rate cut is only possible when the stock market falls sharply, with the index falling by 5%, or 25 basis points. The US stock market has rebounded sharply in the past two weeks, so it is impossible for the Fed to cut interest rates beyond expectations - unless there is a sharp drop in the next two weeks.

Investors and traders certainly hope that the Fed will cut interest rates more, such as by 50bp. The problem is that they are just trying to make money and don’t care about the US economy. Some people even know that the bubble will burst and hope that the Fed will give a "big gift" in the last wave.

As for what will happen to the US economy?

To be honest, I don’t know.

Many investors on Wall Street have recently said that it is too late for the US to cut interest rates and that the country will definitely experience a recession. However, consumption and unemployment data have repeatedly made the market believe that "this time is different."

Of course, given the frequent changes in US statistics, it would be difficult to detect a real recession...

Impact on assets

1) US Dollar

In any case, the Fed's policy shift will weaken the US dollar index.

This is also why I said: If you have previously converted foreign currency into US dollars for investment, you should now convert back to foreign currency.

A typical example is that some A-share listed companies do foreign trade and earn US dollars but do not convert them into RMB, earning 5% interest on US dollars. As the US dollar index weakens, they quickly exchange their money for RMB. This is another reason for the appreciation of RMB and Japanese yen in the future. As the cost of liabilities increases, many people have to exchange their money back to balance their accounts.

2) US Treasury bonds

I still recommend short-term US bonds, such as US Treasury bonds with a maturity of less than one year, which Buffett holds a large number of. After all, at a time when the US economic situation is uncertain, the risk-return ratio of this thing is quite good.

As for long-term U.S. Treasury bonds, it’s hard to say.

A few days ago, Harris released her economic policy. If she really gets elected, it will cost a lot of money to build affordable housing and provide housing subsidies. Where will the money come from?

If taxes are increased, such as capital gains tax, it will not be good for US stocks; if the taxes are not increased so severely and bonds are issued, the supply of US debt will increase significantly and the price of long-term bonds will fall.

3) US stocks

Many people have analyzed that the main reason for the Federal Reserve to cut interest rates in the early stages was that the previous high interest rate environment suppressed economic growth, and the interest rate cuts were due to fear of a "hard landing" or even a recession.

Most of the time, the stock market will fall at this stage.

Because there are indeed many investors whose logic is: The Fed cuts interest rates? Is there going to be a recession? Sell now!

Although many people are advocating that this time is different, Buffett's selling of Apple and Bank of America and holding a large amount of cash show that he thinks this time is no different.

I choose to believe in Buffett. After all, I may not make a lot of money by following his example, but I won’t lose everything. (Excerpt from Heige)