1. Preface
On September 21, 2022, for investors holding US stocks or Taiwan stocks, it is mostly an unexpected disaster; because the US Federal Reserve (Fed) raised interest rates three times once more; FOMC (Federal Funds Rate), this is the fourth three-yard rate hike. So far, on September 21, 2022, in order to stop inflation, the Fed has raised a total of 12 yards of interest; so far, the FOMC interest rate has been raised to between 3% and 3.25%.
2. If you understand that this is still the application of the Phillips curve, there will be no Over Reaction and panic!
This strategy was originally in line with financial market expectations; but on the same dayDow JonesThe stock price index had a stable trend, but it smashed 522.45 points at the end of the session. The main reasons why it is so abrupt are: 1. The Fed also significantly increased the IOER (excess deposit reserve ratio) from 2.4% to 3.15%; . That is to make the strongest tightening policy, continue to raise the deposit reserve ratio, reduce the speed of currency circulation, and make the flood of funds continue to return to the financial system. 2. In his public speech on raising interest rates, Chairman Powell added a shot at the end of his speech; he said: This must be quite painful, and even so, not only did he not expect a soft landing of the economy (Soft Landing) ). He also told the bulls: The U.S. economy is still at risk of a hard landing. 3. After the chairman’s announcement, the Fed also announced all members, most of which expected the highest interest rate this year to fall above 4.25%. The Fed also does not hesitate to estimate that the GDP of the United States in 2022 will be 0.2%, which is much lower than the forecast value in July; the forecast in July 2022 at that time is: 1.7%. At the same time, the Fed also reduced the GDP growth rate to 1.2% in 2023 and 1.7% in 2024. Seeing the bad economy as “very excited”? Fourth, in other words, under the Fed’s tightening currency, whether it is to force a retreat, or to let the entire economic development decline, the financial market eliminates inflation expectations. The Fed seems to have eaten its weight and its heart: it is regarding sacrificing economic growth!
Regardless of what investors think? It may directly “criticize” the Fed, which is simply a “short seller” in the financial market. Since the Taiwan stock price index fell below 15,000 points, the analysis of the Fed’s policies in this article is more positive than negative; even so, we still have to say at this moment that the Fed is the correct strategy and announcement; The Fed will cut inflation, completely destroy rising prices, and still be full of high confidence. Over the past few months, this article has repeatedly emphasized that the Fed’s future drama will revolve around the “Philips Curve Theory” (Philips Curve Theory), at the expense of economic growth; in fact, it is to deliberately increase the unemployment rate , so that most people no longer have the expectation of a salary increase, and even deliberately ignite the risk of unemployment, intimidating everyone to prepare for the war, to survive the cold winter, and not to chase real estate and the stock market if you have money. Enterprises also need to have the “deliberate” of inventory products in the Qing Dynasty; in this way, inflation can be eliminated invisibly by taking a multi-pronged approach to both supply and demand.
In the past month or so, this article has actually conveyed a lot of positive and useful information regarding the Fed’s tightening policy interpretation: 1. When these tightening policies force the unemployment rate to drop significantly from the current rate close to the “Nature Rate” When the 3.6% level rises to 4% or more than 4.5%, it is actually the moment when the Fed will complete the eradication of inflation; it is also the time when inflation has bottomed out, and it must also be the bottom of the stock price and a good time to buy. When the industry begins to be pessimistic regarding cleaning product inventory, and even feels extremely pessimistic, even desperate; when manufacturers face consumers and feel cold winds attacking themselves, their jobs may not be guaranteed, and there is no hope for employers to raise wages, consumption Demand continues to cool, and consumer confidence continues to drop. This will force manufacturers to have to cut the price of products, jump off the building and auction, and significantly reduce the selling price of products, and then the disappearance of inflation will be pushed along with the flow and will disappear invisibly. Second, the Fed On the one hand, it must first cut off the rigid expectation of downward wages, force the consumer confidence index to decline, let the hot demand cool down in time, and let the currency phenomenon disappear. At the same time, the production of manufacturers is forced to cool down and product prices are reduced; from a quantitative point of view, that is, the PMI manufacturing production index and the ISM purchasing manager index have dropped below 50, and then continue to move towards 45. After the trend has been formed, it is actually the supply-side Cost Push Inflation is coming to an end. 3. The above pictures are almost similar to the TV series “Inverted World”; the positive statement under the nib of this article must make most people bewildered; why at this moment when inflation is hot, the stock market is regarding to collapse Put the cart before the horse, not be afraid of slander, take all the Fed’s actions, “benefit for profit”, and be shameless? Instead of economic growth, praise the extremely negative economic data?
3. Reverse thinking logic of Phillips curve theory under inflation!
This tests, following reading the overall economic theory or financial theory, whether it can fully absorb and flexibly apply the two aspects of positive and negative, completely different logic; and can it be applied lively and flexibly in the real world? In this way, the “Eagle Song” that the Fed sings in a high-profile manner will be heard thoroughly and integrated into the actual market trend judgment. Participants in the financial market must have the ability and professionalism for the “Phillips Curve Theory”, and need to be able to flexibly use two situations: one is to ease the money in the face of a bad economy and the leading indicator is at the bottom. How will the policy, through what path and realistic phenomenon, stimulate the economic prosperity to the prosperity. Second, when the overall economic prosperity is in the heat of inflation, how can the Fed and a central bank use a tightening monetary policy to cool down inflation? This kind of flexible analysis of forward and reverse requires a deep dive into various schools of economics. The derivation of the “Phillips Curve Theory”, especially in the face of positive slopes, negative slopes, and even curves perpendicular to the X-axis, can Only when fully understood can one have a deep understanding and expertise to articulate the Fed’s motivations for using monetary policy. 3. Interpret monetary policy with the concept of symmetry, especially how to use the “Philips Chart Theory” to suppress inflation. In fact, as long as you focus on inflation, you can understand why the Fed is so “comfortable” and “free and easy” regarding the “recession” of the economy? It was even quite stable,Dow JonesThe industrial stock price index, following Fed Powell said that the Federal Reserve will decide to raise interest rates by 3 yards, actually added that it is very difficult for the overall economy of the United States to “soft-land”. fall!
The price of Ball’s words is too high,Dow JonesThe stock price index not only killed 522.45 points at the end of the day, but also forcedUS dollar indexIt rose to above 110 once more; and the stock market continued to go down on the second and third trading days, almost killing the eyes. In this atmosphere, of course, central banks around the world are affected, and they have to follow up the Fed’s tightening immediately, and then quickly raise interest rates by 1 yard to digital, which also immediately raises the dividend “Discount Rate” of future listed companies. , causing the “theoretical stock price” of listed companies in various countries to drop suddenly, causing the stock price that was originally in the old gods to suddenly panic and lose control, the buying order was closed, and the selling order was spilled, becoming the last straw that overwhelmed the long camels.
This of course also made the subsequent opening of the Taiwan stock market rumbling, especially pessimistic to the point that even investors shouted that the rate hike like the Fed and the decline of the US stock market will make Taiwan stocks come from where they came from, and the low price will go up. “One Piece” and “Kinguo Mountain”, will return there in the future. This kind of statement seems quite sensational in this article, but following all, it also shows that the panic of Taiwan stocks is inexplicable and permeating the financial market; this also means: 1. Evergreen Shipping will drop from 185 yuan/share to 17 yuan/share , and TSMC may drop from 450 yuan / share to 180 yuan / share. This kind of rumbling, nonsensical judgment, and rumors spread to the entire stock market, it is difficult for the stock price not to fall. 2. This also means that TSMC’s stock price will drop from the current 455 yuan/share to more than 200 yuan/share in the future; this is an atmosphere of terror that has never existed. But if you can calmly respond with the logic of “reverse thinking”, then it is “the market is always shattered in longing” “but always born in panic”, and the market is regarding to be unpopular. It is indeed confirmed : People in this mountain do not see the true face of Mount Lu. With these overwhelming “inflation-clearing strategies”, if the Fed does not fully understand the “Philips Curve Theory”, it will surely fall into a state of disorientation and become a noise trader.
Wu, conclusion: think hard! Should I buy or continue to sell like this?
For ordinary investors, everyone can understand how to identify the impact of loose monetary policy on economic growth and the soaring stock market; but it may be difficult to imagine the Fed’s reverse operation logic. But for a professional fund manager or a savvy stock investor; he or it must not only understand the loose monetary policy, especially when the stock price is at a low-end bearish attack time, such as the Covid 19 in March 2020, which swept the world. At the same time, it is even more important to understand how the Fed will use various drastic measures to push back inflation when inflation comes. It is also necessary to be able to recognize when inflation is regarding to end, because it is related to when to enter the market to buy stocks. Field time. Judging by our sidelines and limited professional knowledge, we have actually foreseen inflation, which has fallen into the claws of the Fed, and is regarding to be swallowed up and wiped out; The interest rate hikes one following the other will push the stock price down and create a bottom area below 14,000 points that is commensurate with June 16. In the future, there will be a bottom area with a W-shaped weekly candlestick chart; this It is a long hope, and this hope is most likely to be realized in the near future, because the market always starts when no one is optimistic!
(Note: This article fully analyzes the Fed’s policy operation intentions with theory. The market was born when everyone was desperate, and this article is full of hope for the market. The article is shared by academic research, and does not endorse readers’ investment gains and losses.)
