Perhaps looking back many years later, March 3, 2020 is such a fault worthy of being recorded in the history of international finance.
On the evening of March 3, Beijing time, the Federal Reserve announced a sudden emergency interest rate cut of 50bp during the non interest rate meeting.
This is a very unusual move. The last “emergency interest rate cut” of the Federal Reserve dates back to October 2008 when the subprime mortgage crisis occurred, 12 years after today.
And you know, there’s usually nothing good going on after an “emergency rate cut.”.
Several emergency rate cuts in history occurred in the course of the outbreak of the US subprime crisis in 2008, after the collapse of the Lehman Brothers, the 911 terrorist attacks and the collapse of the technology bubble in 2001, and the Asian financial crisis in 1998.
It can be seen that the underlying cause of the global debt crisis is that it is hard to return to the global debt crisis.
As we all know, the global quantitative easing, which has lasted for 12 years, has accumulated and covered up too many problems, and this epidemic is just a straw that completely crushed it.
From the perspective of global debt, a big clean-up may be about to begin. For us, under the storm and in the challenges, there are also opportunities.
The decade long bull market in the US stock market has been completely ended
If you want to smell the smell of the coming storm, the U.S. stock market is the most suitable.
I have spent more time in the United States these years, and I deeply realize that the stock market is as important to Americans as the property market is to Chinese people.
A very large proportion of American people’s pension is placed in the stock market, which determines the pension account balance after retirement.
At the same time, most of the assets of middle-class American families are invested in stocks and funds, which determine the quality of their daily life.
American enterprises have to buy their own stocks even if they are in debt. The stock market determines the profitability of American companies.
Therefore, compared with China’s real estate market, the US stock market covers a much larger proportion of the population. If China’s property market is only a game for some of the rich and the middle class, the US stock market is a game for all Americans.
The 10-year slow bull of the US stock market has formed an expectation that the US stock market will rise forever and the life will be better forever. What the United States is most worried about is that this positive expectation will be terminated.
After the emergency interest rate cut, the recent performance of the US stock market is still difficult to resist the decline. Just now, the first US stock index futures circuit has appeared since 2008, and it is almost inevitable that the ten-year bull market of US stocks will be completely ended.
U.S. Treasury bond yields break record lows
The impact of us 10-year Treasury bonds on global finance is very large, because it is the anchor of global interest rates.
When the yield of 10-year Treasury bonds fell below the historical low of 1% on March 3, which was even the lowest point in 200 years, it caused a panic of public opinion. As of March 9, the yield of 10-year Treasury bond fell below 0.5%, which was astonishing and had a tendency to move towards zero yield.
Generally, if the U.S. economy is better, the return level of various investment products will increase, and the yield of US debt will also rise;
At present, it is obviously in the opposite direction.
This has clearly reflected investors’ concerns about the fragility of the global economy and financial markets.
The collapse of traditional financial assets leads to a turbulent period of global finance
It is not just US stocks and US bonds. In the past 10 days, except for the safe haven asset gold, all other varieties in the global financial market have collapsed.
Its financial assets are closely related to each other, or even can not be virtuous in any country today.
Perhaps, in the future, we will call this economic crisis “epidemic crisis”, but the younger sister is more inclined to think that it is the inevitable result of 12 years of quantitative easing policies in developed countries such as Europe and the United States beginning to lose efficacy and the economy falls into the liquidity trap.
After the U.S. subprime crisis in 2008, the United States used quantitative easing policy to borrow crazily, which forced down the impact of the U.S. subprime mortgage crisis. But at the same time, it inevitably took 12 years to blow up a huge asset bubble and coerced the world into it.
In 2015, the Federal Reserve tried to stop the process of blowing up the bubble by shrinking the scale. But after the enormous pressure of the American political economy and Trump’s repeated propaganda, it had to stop shrinking in 2018. It started the history of the fastest rhythm in 2019, and the trillion dollar of crazy injection continued to blow up the asset bubble.
When a balloon has been blown up, there are only two options:
Stop blowing and let the balloon collapse (which will lose a lot of short-term real benefits and the future of politicians);
Or, keep blowing until it explodes (that is, continue the dangerous state and pile the problem into the future).
The United States obviously chose the latter. The urgent interest rate cut has made people feel more and more close to the bubble burst. This is why the US stocks fell sharply after the interest rate reduction policy came out.
Where does money flow?
In the current market, funds have lost the feasible investment direction, so they can only take emergency refuge, buy national debt collectively, and seize the only safe investment product in traditional thinking.
After short-term risk aversion, some funds will continue to transfer to seek the best balance between risk and return.
So where will the money flow in the future?
In the coming financial turmoil, asset hedging will always be the main theme.
The three principles of safe assets are “global circulating assets, widely accepted by the world and not controlled by any single country”.
Obviously, gold is still a good choice. Although gold has experienced a sharp fall, the overall increase is still not small, which is a good confirmation.
The other important choice in line with these three principles will be bitcoin.
Many people like to regard bitcoin as digital gold. They think that bitcoin is more scarce than gold and has the characteristics of decentralization. Therefore, many people divide bitcoin into reserve assets and safe haven assets like gold.
It would be a bit far fetched to call bitcoin a safe haven now, because bitcoin’s price volatility is too high, which will frighten funds with low risk appetite.
But what if it is only used as a supplement to hedge assets, or as a risk hedging tool in the portfolio? In the current context of interest rate cuts and quantitative easing, this has become increasingly feasible.
Not surprisingly, 2020 is likely to be a year of dramatic transformation for institutional investors. A debt crisis will make traditional investors start to write digital currency into their asset portfolio as a reserve asset, instead of treating it as a venture capital as before.
Paul Krugman, the Nobel Laureate in economics, said that:
“Gold is dead, bitcoin is more practical than gold, and there is more room for appreciation in the future.”
Brian Armstrong, chief executive of coinbase, made similar remarks
“The slowdown in the global market economy will force central banks to take more extreme market stimulus measures in the coming months, which is likely to benefit crypto assets. Increasingly aggressive policies will allow countries to devalue their fiat currencies, hurting depositors and making scarce assets like bitcoin more attractive. “
The battle of the times for bitcoin is not an overnight battle
In the near future, in addition to gold, the digital currency represented by bitcoin has also declined along with other asset classes, showing no unique trend.
The little sister felt that such a performance was not unexpected.
After all, to judge the short-term price of digital currency is like throwing dice.
Any negative news, a whale smashing the plate, or even a rumor may make the short-term trend fluctuate greatly. Especially after the derivatives such as leverage and futures have replaced spot as the mainstream, the sharp rise and fall of various forces back and forth has become a common occurrence.
So why do I never suggest “speculating in currency”, which is very accidental. No matter how the short-term market goes up or down, it doesn’t matter from a medium to long-term perspective.
In contrast, the long-term trend of bitcoin is very clear, which can be effectively judged through logical analysis.
Bitcoin, with its 11 years of history, has proved that all those who have long been optimistic about it have been rewarded beyond imagination. As a result, early participants will form what I believe will remain the case for the next decade.
The “war of the times” between bitcoin and traditional finance has just begun. It is a protracted war, which can not be won overnight.
Only by looking at the long-term trend can we avoid being overshadowed by short-term fluctuations. As long as you do not use leverage to do futures, the recent decline of 1000-2000 points is only a small ripple in the long-term.
In addition, digital assets have not been incorporated into the mainstream asset allocation of global investment institutions on a large scale. Therefore, the effect of interest rate reduction can not be transmitted and reflected in the market rapidly. Bitcoin’s response to the interest rate cut will be limited in the short term. However, the real positive impact will gradually appear in the future, which is not a lot of suspense.
As the saying goes, good things do not go out, bad things spread far and wide. The positive influence is slow to transmit, but the panic can instantly spread throughout the financial world. The air force who want to be “big short” will not miss this opportunity. They will raise their sickles, raise their hands, and the contract market will be flooded with blood.
Every crisis is a redistribution of wealth
History is always repeating, financial crisis and inflation always appear periodically. All along, our response is nothing more than currency issuance and liquidity release.
Such a strategy can increase economic vitality and save a number of enterprises. But for a large number of ordinary people, the result of each crisis can only be real wealth shrinkage.
So, who are the few exceptions? It’s obviously those who understand the laws of finance.
In the final analysis, finance is also a game of continuous distribution of wealth. When each financial crisis comes, the speed of wealth transfer will reach its peak.
Every crisis is a redistribution of wealth, both for individuals, for enterprises and for the country.
As far as the country is concerned, judging from the epidemic situation and other emergencies and the economic development trend over the past decades, China has shown its unique advantages in the whole country system. I believe that for the black swan or financial crisis that may appear in the future, our country will have stronger confidence and ability to cope with the loss to the minimum.
For individuals and enterprises, how to grasp the value development trend of various assets in the crisis and turbulence period, so that their wealth can be preserved or even greatly increased in the asset value reorganization, is a subject everyone needs to think deeply.
Why is bitcoin born?
Nakamoto left a meaningful sentence in the creation block of bitcoin:
The times 03 / Jan / 2009 channel on brink of second bailout for banks.
And today’s scene happens to be very similar to that time.
Let everyone’s wealth be protected more fairly, which should be the original intention of Nakamoto’s creation of bitcoin.
The bull market of digital currency occurs once every 3-5 years, and the global financial crisis occurs about once every 10 years. This time, the time of the two coincides, so it is very likely that we will meet the rare scenario of the superposition of the two in 2020-2021.
The panic of the public is the opportunity for the few.
For the first time in the history of the digital currency and the financial crisis, we may as well jump out of the game and seriously think about whether to bet on the traditional financial world or the emerging digital assets? Only by seizing the opportunity to make a reasonable distribution of their own assets can we preserve our wealth in this financial turmoil and even overtake in a corner.
A wealth reshuffle is about to start. Are you really ready?
Editor in charge: CT