1. The Pre-Fed-Rate-Cut “Trash Time”
I had already qualified this phenomenon as the “trash time” in August, and I believe the market participants’ experiences are quite palpable. Currently, the capital market is facing a scarcity of liquidity, a lack of compelling narratives, and a recession in the fundamentals.
Before a new cycle begins, the market transitions from a tightening to an easing cycle. Regarding liquidity expectations, a return to rationality has occurred, meaning that most expectations have already been priced in.
2. Global Economic Recession
In reality, the global economy has already been in recession, although U.S. data may be manipulated. The artificial intelligence industry cycle, coupled with the Federal Reserve’s expectation management, has smoothed the cycle to a certain extent.
Recession: Does it usher in a bear market?
I have previously analyzed the characteristics of cycles. The U.S. stock market and the A-share market are very different. The U.S. market is a reservoir for excess capital. The biggest bearish factor for the U.S. market is stagflation. This is the most challenging phase for the dollar system, where its capital advantage is not reflected; the more money is printed, the higher inflation gets. Without printing money, the economy declines. Therefore, the dollar system fears stagflation the most. A recession, for the dollar system, is at most a mid-term adjustment and does not constitute a major bear market unless it turns into a great depression.
The current economic characteristics of the U.S. indicate a soft landing, with a controllable recession. When the market trades in a recessionary cycle, the financial market must first enter a weak equilibrium phase. That is, the negative impact of the recession and the positive impact of liquidity form a reason to find a balance point. The market is constantly speculating where this point is. Therefore, both the stock market and the crypto market are waiting for the inflection point of weak equilibrium.
3. The Next Phase
Investors need to have foresight. In June and July, I conducted an analysis. Before the U.S. dollar system’s election and rate cut, it is a period of turmoil. The overall strategy is to retain liquidity and wait patiently. In fact, both the U.S. stock market and the crypto market have provided many opportunities to release liquidity at high levels. However, why are investors unwilling to release liquidity? It is due to trading habits and a lack of understanding of macroeconomics.
The next phase sees the U.S. dollar entering a rate-cutting cycle and the global economy entering a recessionary cycle. Is this phase optimistic or pessimistic? If it is a non-U.S. system, I am neutral or even pessimistic. But for the U.S. dollar’s home front, I am definitely optimistic. People’s first reaction to recession is a bear market. This is an extremely erroneous way of thinking. The United States has experienced many recessions of varying sizes in the past. Only a major financial crisis leads to a significant recession and collapse. Financial crises never occur during recessions but are born out of irrational exuberance at the end of the tightening cycle. So, has the destructive power of the tightening cycle on the U.S. financial system passed? Is the future a period of loose liquidity?
Has systemic risk emerged? Is there a bubble? Artificial intelligence does have some bubble, but is it comparable to the 2001 dot-com bubble, the 2008 subprime crisis, and the pandemic’s massive money printing? Even if there is a local bubble, it has not reached a level of madness. At the same time, most industries in the U.S. stock market are still in a reasonable area. A deep understanding of the cycle will make it clear that most economic crises are the result of the reflexivity of financial crises that collapse the market. Subprime, the bursting of the dot-com bubble (not just the craziness in technology, but also in pharmaceuticals and consumer goods), and the irresistible force of the pandemic. These are huge gray rhinos that can collapse the dollar system. Even war, as long as it does not hit the U.S. mainland, is not a major crisis. Therefore, the dollar system does not have the conditions for a hard landing, and investors should not be afraid of recession.
4. Deconstructing the Cycle
From the recession phase to the bubble phase.
In the early stages of a recession, the economy is heading downward, and liquidity is neutral and has not yet shifted (as was the case with the U.S. stock market from May to September).
In the later stages of a recession, the economy is still declining, but liquidity is on the rise, and this period may be relatively long, requiring liquidity to hedge against the downward economy.
In the early stages of recovery, the economy is weakly upward, and liquidity is also on the rise, which is the best time.
In the later stages of recovery, the economy is upward, and liquidity is neutral.
In the overheating phase, the economy is overheating, and liquidity is on the decline.
In the stagflation phase, the economy stops, and liquidity is on the decline (this is the real bear market).
Undoubtedly, the worst time is the stagflation phase.
What has the Federal Reserve been regulating over the past three years?
From 2022 to 2024, over three years, the world was in stagflation, and liquidity was tight.
This is the truth.
However, the rise of the U.S. stock market has made the world mistakenly believe that we are in an economic upswing.
The real situation is that the U.S. technology industry has created an illusion of economic prosperity, and during the pandemic, the U.S. distributed money, while avoiding Chinese manufacturing, and the Russia-Ukraine war forced capital back to the U.S.
Multiple factors have driven the U.S. from the stagflation phase to the prosperity phase in an instant.
In fact, European data is the most representative.
The whole of Europe was first in the stagflation phase, then in a major recession, but the stock market followed the U.S. stock market in rising.
It can be understood that European and Japanese stock markets are manipulated by U.S. capital and do not fully reflect the characteristics of their own countries, but the characteristics of the U.S. dollar system.
The domestic market is even worse, without the stagflation phase, but the real estate was collapsed and entered a systemic recession. On the contrary, China, without U.S. dollar capital, the stock market most truly reflects deflation and recession.
Why did the U.S. stock market rise after a year of decline in the stagflation phase?
Because global liquidity returned to the U.S. mainland, focusing on U.S. Treasuries and U.S. technology stocks.
This is not in line with the normal cycle, a special prosperity phase.
Therefore, excluding U.S. technology stocks.
Back to the normal cycle.
The U.S. stock market is actually very much in line with the characteristics of the Merrill Lynch clock.
In the early stages of a recession, the economy is in decline, and liquidity has not yet shifted, and most industries’ stocks are also at the bottom.
The next phase is the late stages of a recession, where the economy is declining, and liquidity is beginning to rise.
This brings us back to the first question: the dangerous moment is the eve of the U.S. dollar rate cut.
The market is waiting to see if there are any black swan events?
Afraid of recession and afraid of black swans.
The reason for the U.S. rate cut is only the appearance of a recession and black swan events.
But what I want to say is the truth.
The U.S. data has been in recession half a year ago, but inflation has not come down.
And artificial intelligence, and the White House’s data manipulation, and the Federal Reserve’s daily expectation management.
Help the U.S. through the most difficult stage, that is, inflation does not come down, and the economy is stagnant.
If it were the previous cycle, the U.S. stock market should have fallen in 2024. But the Federal Reserve’s ability to manage human nature is too strong.
This is people who understand finance, managing finance.
Is the U.S. dollar system dangerous now?
You are very wrong, the U.S. is not afraid of recession, the U.S. is afraid of recession, and inflation still can’t come down, and there is no way to cut interest rates to stimulate the economy, and the stock market will collapse.
Therefore, now the whole world sees the U.S. dollar in recession, is this also a crisis?
Isn’t this a stupid way of thinking?
Can the whole world be smart and understand the U.S. recession?
How did the dot-com bubble and the subprime crisis come about?
It’s invisible recession, systemic sudden collapse under irrational exuberance.
And the U.S. stock market, the most likely to have a black swan event, should be when interest rates are the highest, and the data is in recession.
But at that time, data manipulation, coupled with artificial intelligence, and the Federal Reserve is running the train every day.
I have always said that the greatest value of artificial intelligence is to help the United States through the largest interest rate hike cycle in U.S. history. In fact, the end of 2022 was the most dangerous moment for the U.S. stock market. Without artificial intelligence, it would be like the A-share market, falling