U.S. Stock Market Collapse Looming? Fed Rate Hike in Jeopardy?

The rhythm of the bull market reaching ten thousand points has been artificially disturbed. This leaves the capital market in confusion as it relies on expectations; with uncertainty looming, the market naturally becomes entangled. Many have begun to question the bull market at ten thousand points, which is quite normal, as the essence of action lies in the unexpected, disrupting your expectations—this is where its brilliance lies. The Federal Reserve has also played along, repeatedly signaling a potential pause in interest rate cuts, and even hinting at further rate hikes. This has left investors scratching their heads. I feel it is essential to provide an analysis for my followers to reinforce their convictions, ensuring they hold onto their stakes and are not easily misled.

First, the current trend in the world economy favors interest rate cuts rather than hikes. Is the U.S. really intent on going against the current? Firstly, the Federal Reserve, as a neutral entity, must base its decisions on employment and inflation data. For inflation, we can refer to the trends in gold prices. Since reaching a new high in September, gold has maintained a high level throughout October and November, buoyed by geopolitical tensions. However, gold has started to plummet, as making America great again clearly implies a strong dollar, which inevitably results in an increase in the dollar's value, thereby nullifying inflation expectations.

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Subsequently, heightened tensions with North Korea and Russia's ICBM launches have propelled gold prices, prompting many to revert to the inflation logic concerning the U.S. Last night, gold dropped by 3%, marking the official onset of its collapse. This has led to the plummeting of the two major commodities reflecting inflation indicators: crude oil and gold.

Notably, two of the three so-called hardest bubbles in the world—the Japanese national debt and Chinese real estate—have burst. Now, the last standing bubble, the U.S. stock market, is also starting to show signs of instability. It is highly probable that a collapse will occur in the coming days. The declines in gold prices and the collapse of asset bubbles both indicate that the notion of inflation has vanished, and the basis for interest rate hikes has dissipated.

I believe that the Federal Reserve would not act contrarily to trends, hence there are justifiable grounds to conclude that the U.S. will continue to reduce interest rates in December, possibly even a one-time cut exceeding 50 basis points. The impending collapse of the U.S. stock market will compel the Federal Reserve to adopt a more aggressive stance on interest rates. The harder the rhetoric now, the faster the turnaround will be.

Second, this point is somewhat of a cliché. The enormous U.S. debt means that the Federal Reserve will never miss an opportunity to cut rates. The so-called interest rate hikes are merely a scare tactic to keep capital flowing into the American markets and shouldn’t be taken too seriously. As the scale of U.S. debt continues to balloon, the sustained rate hikes over the past two years have significantly decreased the value of U.S. bonds, inflicting substantial losses on creditors. If expectations for further hikes persist, who will buy U.S. debt?

This presents a significant issue. This year, the Federal Reserve was forced to purchase a large volume of U.S. treasury bonds, marking the actions of the Fed as a necessary means of injecting liquidity into the economy. On one hand, the U.S. is raising rates to tighten liquidity; on the other hand, the Federal Reserve is effectively underwriting U.S. bonds to release liquidity into the market.

Isn’t this what we often refer to as stepping on one foot while taking off with the other? Thus, while the commodity rates did not experience significant drops during this round of rate hikes, gold reached new heights, because the core of the action lies here. What seems like a tightening of liquidity is, in fact, a release of liquidity. This maneuver has left some of the world’s top investment firms in a state of bewilderment, as classic economic theories fail to explain the economic phenomena witnessed over the past few years. Surely many have felt this dissonance; the commodity price movements of recent years cannot be adequately explained by traditional economic models.

Third, irrespective of whether the U.S. raises or lowers rates, there is no need for alarm. The most significant damage has already been inflicted, and the current skirmishes are merely verbal exchanges. The Federal Reserve's strategy of stepping on one foot while taking off has been recognized by many, and the power of interest rate hikes has diminished considerably. The recent adjustments can only be considered the first correction since the bull market kicked off around the ten thousand mark. Buying at lower prices is advisable; as the U.S. stock market crumbles, global liquidity will continue to flow into China, an unstoppable trend. Despite the Federal Reserve’s continuous scare tactics to deter international capital from flowing into Eastern powers, it can only be likened to attempting to stop a freight train with bare hands.

With the Central Economic Work Conference scheduled for December, a slew of stimulus policies is on the way, prompting the A-shares market to regain its expectations and commence a vigorous second wave. This is the trend of the world; one must firmly grasp their stakes as we embrace what could become the largest bull market in history.

Winter has arrived, but is spring far behind? Moreover, today’s investors have survived one of the rare historical bear markets. The bear market from 2021 to 2024 is unprecedented in human history, accompanied by the bursting of the real estate bubble and the onset of a local debt crisis. The Chinese government and its people displayed remarkable resilience, creatively navigating the crisis without excessive liquidity injections. If we can overcome such a significant crisis, can the Federal Reserve's mere rhetoric truly intimidate us?