36 Trillion Forced Out of Market

Regardless of the Federal Reserve's choices, currently, the U.S. financial market is on the eve of a storm, amidst record uncertainty, two self-fulfilling prophecies are emerging.

As the latest U.S. retail sales and industrial production data released on September 17th were better than expected, reducing the probability of a 50 basis point cut by the Fed, the Fed has sent out the latest harvest cycle signal, responding to the market's pressure and laying its cards on the table.

The journalist, dubbed the "New Fed Mouthpiece," wrote on September 18th that the Fed is about to cut rates, but the magnitude of the first cut is still in question.

The Fed usually prefers to act in increments of 25 basis points, but this time, the situation has become complicated.

This indicates that at the critical moment before the Fed's upcoming rate cut, this article is the latest forward-looking conference signal authorized by Fed Chairman Powell to be sent to the market.

It is highly likely that the Fed will cut rates by 50 basis points at the September meeting.

We have noticed that Bloomberg and the Financial Times published an article on September 15th titled "The World Prepares for a Fed Rate Cut" and a Fed rate cut preview article, both revealing signals that Fed Chairman Powell supports a 50 basis point rate cut.

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Immediately following, on September 17th, the influential former president of the New York Fed, Bill Dudley, even stated that "there is ample reason to implement 50 rate cuts," further boosting hopes that the Fed will carry out a more significant rate cut rather than adopting a slower wait-and-see approach.

These latest signals suggest that in the process of the Fed's previous aggressive rate hikes, the Fed may have overdone it, leading to the U.S. economy potentially evolving into a recession storm.

It is evident that the Fed is now preparing to start selling off the huge financial and debt bubbles accumulated since the subprime mortgage crisis.

The U.S. is about to pass the buck, not fearing a substantial rate cut during the U.S. election year, preparing to defend the job market and ensure a soft landing, officially issuing a war signal.

Currently, the U.S. economy is falling into a recession, and regardless of whether the Fed is willing, a recession may come.

This factor has already sounded the alarm in the U.S. stock market, as well as in various employment sectors and the real estate field in the U.S.

When the two-year and ten-year U.S. Treasury yield curve suddenly ended its inversion and turned positive last week, it clearly signaled to the Fed that the U.S. is about to fall into a recession.

In response, Jeffrey Gundlach, the founder of DoubleLine Capital and the new bond king, stated on September 18th that the U.S. economy has already fallen into a recession, and the Fed has maintained high interest rates for too long.

Monetary policy has fallen far behind the yield curve, and he urged the Fed to act quickly and bet on a 50 basis point rate cut, a total reduction of 125 basis points by the end of the year.

If the Fed does not start a substantial rate cut, the U.S. will face severe consequences.

Our financial research team has noticed that on September 18th, the U.S. dollar Libor, which is more important than the Fed's rate cut expectations, has exceeded the peak of the 2008 financial tsunami to 5.30%, and has soared by 42.9% since last June.

As we reported last week, the cumulative interest on U.S. debt in the first 11 months of the 2024 fiscal year has exceeded one trillion U.S. dollars, a historical high, and will reach 1.2 trillion U.S. dollars for the full year.

This indicates that the cost of U.S. debt borrowing has soared, making it more difficult for the U.S. federal government and corporations to obtain low-cost funds.

Such a huge and soaring debt increases the risk that the U.S. will eventually be unable to repay the principal and interest of the debt, further weakening the role of the U.S. dollar as the cornerstone of the global financial order and undermining the consensus of U.S. Treasury bonds as the anchor of global asset prices.

At the same time, it also weakens the Fed's ability to help finance the U.S. federal government, causing difficulties for the U.S. economy in "borrowing new to repay old, eating the morning grain in the evening," and this is also one of the logics behind the Fed's possible substantial rate cut.

Immediately following, Wall Street prophet Peter Schiff further analyzed in a report published on September 17th that the Fed will make a major policy mistake, and following the rate cut will be the return of quantitative easing, which will produce more debt and deficits and push inflation to soar again, crushing the U.S. dollar and U.S. Treasury bonds.

This indicates that the U.S. has once again become a self-fulfilling prophecy of historical debt defaults and economic recessions.

Combined with the historical experience of two technical defaults in the U.S., under the background of the Fed's latest war harvest cycle signal, it will further accelerate the speed of smart money turning, at least possibly causing the 36 trillion U.S. dollars of international funds participating in this squeeze on the Fed to adopt aggressive rate cuts to withdraw from the U.S. market within a few years.

This includes iconic U.S. assets such as U.S. Treasury bonds, U.S. securities, the U.S. real estate market, and U.S. bank deposits.

For example, under the expectation that the Fed is about to press the flood beast-like printing press gate and substantially cut interest rates, the nearly 7 trillion U.S. dollars of money funds in the U.S. banking system are also looking eastward to avoid losses in this hurricane-style U.S. wealth harvest cycle feast storm.

This indicates that Wall Street has heard the sound of the U.S. financial market bubble bursting under the expectation of a U.S. economic recession, because once the Fed cuts interest rates by 50 basis points beyond expectations and sends out the latest harvest cycle signal, it will be seen by the market as the Fed officially acknowledging the fact of a U.S. recession.

This indicates that Wall Street's "buy on expectation, sell on fact" will be confirmed, and the U.S. financial market may be cleared again, reaching the most dangerous time.

Because Wall Street believes that the Fed's rate cut action is too late, and it has made a mistake again.

Coupled with the hawkish rate hike expectations of the Bank of Japan, the harvest effect of trillions of yen carry trade transactions on the U.S. financial market may have a "flood beast"-like tidal harvest effect on the U.S. financial market.

This kind of shift impact will drive funds to flow back from the U.S. and European markets, accelerating the sale of U.S. debt and stocks, and harvesting the U.S. in reverse.

However, even if the Fed does not cut interest rates by 50 basis points, the risk to the market is even more uncontrollable and will bring turmoil to the U.S. financial market, because historical data shows that after the Fed officially started the rate cut cycle, the performance of the U.S. stock market, U.S. debt, and the U.S. dollar may mainly depend on this factor of the health of the U.S. economy.

In a report published on September 18th, Goldman Sachs further warned the market that the current market pricing is more aggressive, there is a risk of unfulfilled expectations, which may have a negative impact on market sentiment and asset prices, and the subsequent pace of rate cuts may be slower than market expectations.

This indicates that if the Fed cuts interest rates by 25 basis points, the U.S. asset market, including U.S. stocks and U.S. debt, will face a long period of selling.

It is worth noting that former U.S. Treasury Secretary Lawrence Summers said that the only thing he is worried about now is that people on Wall Street have no fear, because for Wall Street, this is the Fed's latest harvest cycle tidal signal.

What kind of financial storm will be experienced in the future, perhaps no one can predict, no one can run away, and the next major adjustment of the U.S. financial market may be about to come.

Up to now, U.S. debt has broken through the 35 trillion U.S. dollar mark for the first time in history and is still expanding.

This indicates that the next recession in the U.S. may not only be an economic cyclical recession but may also trigger a debt crisis in the U.S.

The game of Americans living on borrowed money may end prematurely, and at the same time, the U.S. dollar will also start a new round of depreciation.

Readers and friends are advised to prepare in advance.