"US Rate Cut of 50 Basis Points: Like Diarrhea, Hard to Stop Once Started"

The United States has cut interest rates, with a significant impact that could be described as exceeding expectations. I was planning to discuss this topic yesterday, but I decided to wait and see how the U.S. stock market performs.

Because the smartest entity in the world is not an individual's judgment, but rather the collective behavior of capital. No matter how eloquently one speaks, if the U.S. stock market crashes, it's a resounding slap in the face.

Last night, the U.S. stock market performed exceptionally well, and equity assets worldwide also showed promising results. We can now say: the U.S. interest rate cut is a positive development for the entire world.

The only one who seems dissatisfied with this is the former U.S. President, and current presidential candidate, Trump. Trump did not wish for an interest rate cut before the election, or at least not one with such a strong impact. Yet, the Federal Reserve still went against his wishes.

If you say the Federal Reserve has no political inclinations or positions, I will just smile and remain silent.

Many friends are most concerned about the subsequent performance of Chinese assets, as there is a consensus that once the U.S. cuts interest rates, our situation might improve. For example, will the stock market rise, will housing prices increase, and how will the Chinese yuan exchange rate behave, etc.

One must not be too hasty; this requires patience.

Although capital moves quickly, forming a trend is not a matter of a short period. What we need to do is to follow the trend, not to hastily chase after the movements of smart capital in the short term. That is called speculation.

When it comes to speculation, ordinary people should better not entertain such thoughts, because your opponents are too powerful. It's like fighting a tank with a wooden stick; you basically have no chance of winning. You just have to wait for the trend and then you can ride along with it.There is some news that I believe it's time to share: by the end of the second quarter of this year, the "national team" collectively held a market value of A-shares amounting to 3.19 trillion yuan, reaching a five-year high for the same period and approaching the historical peak. If we include insurance funds, social security funds, and pension funds in the statistics, the total market value held by these patient capitals reaches 4.61 trillion yuan, also approaching the historical peak level for the same period.

Chart source: Gelonghui

In the past two years when we have been cursing the A-shares, there have been those who quietly worked without making a sound; these are the smart funds.

What I truly admire about the national team is during the 2015 stock market crash when Central Huijin, China Securities Finance Corporation, and major securities firms invested a large amount of funds in waves of buying, only to be trapped. Later, social security funds and pension funds also got caught in the trap.

This trap lasted for three years, and no one dared to look at the losses on paper.

In fact, the small bull market from 2019 to 2021 was not significant, but the national team, the funds that were initially used to save the market, all made profits, not just small profits, but all made a killing, coming out with full coffers and well-fed.

They feasted on the flesh and blood of those retail investors who had cut their losses early, but that was also deserved. If you've already cut your losses, you can't prevent others from feasting, right? That wouldn't be reasonable.

Now, these main force funds are beginning the next phase of their layout, and they are already well-prepared. Some people might be excited and ask, according to what you're saying, is the stock market about to start rising?

My answer is: I don't know. No one knows when A-shares will rise. However, the U.S. interest rate cut is indeed good news, and we can consider it as a signal for a rise, which is the greatest significance of the American rate cut for our A-shares.The funds of the national team are extremely patient, starting with a minimum of three years, which is what I said in the episode before this year's Spring Festival when I went all-in. When I entered this time, I had already set aside three years' worth of living expenses. At the very least, I am prepared to stick with it for three years, and I can also accept five years.

If you do not have this level of patience, it is best to stay away from these equity assets. Save money and live well, do not think about these things that are not there, you are not suitable for it, and it is best not to think too much about money that does not belong to you.

As for the exchange rate of the Renminbi, it will definitely appreciate, which is common sense and not worth discussing much. However, we need to understand one thing: the central bank has the ability to fine-tune the exchange rate of the Renminbi.

Considering foreign trade, it may appreciate slower than other currencies during the appreciation process. For example, if the Euro appreciates by 5 points against the US dollar, the Renminbi might only appreciate by 3 points, effectively depreciating by 2 points against the Euro.

This situation will definitely happen, so there is no need to have too high expectations for the appreciation of the Renminbi. It is not very relevant to the lives of ordinary people. It is just very important for foreign trade, as they still need to make a living.

Overall, the US interest rate cut represents a reversal of the trend, which is a significant signal and good news. We cannot deny it, even if we are not convinced, because the US dollar is still the world's largest currency, and its monetary policy can affect the globe.

Do not worry about whether the US will make a feint anymore. Once it cuts interest rates, it means the trend has begun to reverse, and it is impossible to go back within a cycle of at least three to five years.

This is because it is like diarrhea - once it starts, it cannot be stopped. This analogy might be crude, but it is definitely a case of rough words but sound reasoning.

Another hot topic is whether the US interest rate cut means we have won the financial war. I have discussed this topic before, but I do not think that just because the US has cut interest rates, the financial war is considered over.The notion of a quick victory is essentially the same as that of surrender; the financial war is far from over. The United States did not wait for a collapse in Chinese assets before lowering interest rates. At most, we can only consider that the overt financial war has temporarily achieved victory, but this is only on the surface. The covert financial war has not yet seen any moves from the other side; it has not even begun.

For instance, driving oil prices into negative territory, causing you to lose your principal and even owe more money, is also a form of financial warfare. How quickly we forget! Or consider the practice of disconnecting your internet in the foreign exchange futures market; this has been done before, just not yet against China. Dare we assume they won't resort to such tactics against us?

Ultimately, we must focus on domestic issues. China's internal problems cannot be resolved simply by a rate cut in the United States, as the root of our issues is not directly related to U.S. interest rates.

The fundamental cause of our current situation lies in the high debt growth of the past two decades, where the economic potential of the majority of the population has been exhausted.

The term "economic cycle" is more scientific; in layman's terms, it means that consumer power has been drained. At the same time, the reform of the distribution system has not kept pace, and the potential of the populace, once depleted, is not being replenished in a timely manner. This is what has led to the current state of affairs.

Originally, when U.S. interest rates were low, this was not so apparent. Both international and domestic capital were abundant, and the economy could barely sustain itself by borrowing new debts to repay old ones. The U.S. interest rate hike was merely a triggering factor, starting with the overseas debts of real estate companies and then spreading domestically. Once the debt chain is interrupted, the entire economic cycle is at risk.

A fly does not land on an egg without a crack. The U.S. interest rate hike is drawing funds from around the world, not just from China. If you cannot withstand the pressure, you must first look for reasons within yourself.

By the same token, if the root cause of your problems has not been addressed, then even if the U.S. lowers interest rates, your situation will at best be alleviated, not fundamentally changed.

Therefore, do not expect too much positive change from the U.S. rate cut; at most, it will provide some relief.However, what we urgently need now is a period of respite. We have been on edge for so long that China has been preoccupied with putting out fires, making it difficult to address the fundamental issues. A few years of relief would be beneficial, at the very least, to replace the pillar of the national economy and defuse the biggest threat first.

All countries in this world, for more than forty years, have been passively waiting for the judgment of the United States, enduring wave after wave of dollar tides, hoping that this time they won't be taken away.

Including China.

Including this time as well.

The good news is that we no longer have to passively wait for the next wave of dollar judgment. After this wave of dollar tides, our industrial upgrading has been able to replace real estate and form a new pillar industry. Not to mention other things, just the independent automotive industry has already achieved one-third of the real estate replacement.

The next arduous task is to improve the distribution system and perfect the comprehensive social security system. These two major actions can elevate our domestic consumer market to an order of magnitude, becoming the largest and most comprehensive consumer market in the world.

This is not only about solving our own problems but also bringing growth to other countries, especially third-world countries, making their economic ties with China even closer.

And this is also the only way for the whole world to completely get rid of the dollar tide.

When it comes to dollar interest rate hikes and cuts, we need to see the more far-reaching and profound impacts, rather than just focusing on these few dozen basis points, which would be quite boring.