Market risks, uncertainties, and long-term opportunities
Source: Talking about Li and Talking about the Outside
In the current market phase, it seems that people are only focused on the macroeconomic situation. Although on-chain data shows that the supply of stablecoins is continuously increasing, the cautious sentiment among investors seems to be more pronounced due to many uncertainties that still exist.
I remember in an article last month (March 26), we discussed the uncertainties and opportunities in the market from an investment perspective. Next, we will continue to talk about this topic from a macro perspective.
From a historical perspective:
Since 1971, President Nixon ended the Bretton Woods system, shifting from wildly exporting dollars to the world to withdrawing dollars from other countries, thus ushering the global monetary system into the era of floating exchange rates.
Subsequently, the U.S. began to create export demand opportunities for other countries (Japan, Germany, China, etc.) through its trade deficits at that time. The reason the U.S. could do this is largely because the dollar had already become the dominant world currency.
This is why other countries are very afraid of trade deficits, while the U.S. is the opposite; as long as the U.S. keeps printing money (dollars) and continues to create export demand for other countries, it is fine.
For example, a Japanese merchant exports seafood products to the U.S., which buys them with printed dollars. After earning dollars, the Japanese can continue to invest in U.S. assets like government bonds, thus the dollars return to the U.S. government, which can then continue to buy from other countries.
The result is that other countries just need to work hard to produce and sell their goods to the U.S. The U.S. is not afraid of trade deficits, but this premise is based on dollar transactions (dollar hegemony). If any country dares to bypass the dollar for private transactions or attempts to establish an alternative settlement system, ruining this good situation for the U.S., the result could be something like what happened in Iraq.
It can be said that the U.S. is, so far, the only country in human history that will not collapse due to deficits. Moreover, not only will it not collapse, but it is also becoming stronger because dollar hegemony makes the whole world pay for it. (Historically, the British Empire, Roman Empire, and Spanish Empire ultimately collapsed due to deficits.)
Therefore, fundamentally, what the U.S. fears the most right now is one thing: the dollar losing its monopoly status. If anyone tries to change the existing dollar-dominated international payment system, it is tantamount to killing the U.S. (cutting off the roots of the U.S.).
However, over the years, the U.S. seems to have slowly felt a crisis, as a certain Eastern power is attempting to establish a new international payment system to replace the dollar. Although this is just a sign (not yet having formed an actual impact), from the U.S. perspective, it is absolutely unacceptable for this situation to occur, and the U.S. must find a way to nip this momentum in the bud.
So what will the U.S. do?
In fact, in recent years, we have already seen some actions from the U.S., such as: economic warfare (such as the restrictions on Huawei and other Chinese companies that began a few years ago), threats of war (Taiwan issue, and stirring up neighboring countries of China, etc.), and so on.
Even cryptocurrencies that may pose a threat to the dollar must be fully Americanized (which has basically formed) and firmly controlled in their hands.
In short, any attempt to replace dollar hegemony will be seen by the U.S. as the greatest hostile act against itself, either to be directly nipped in the bud or directly incorporated, even if it means hurting itself to harm the enemy. This is what the U.S. truly desires. The series of targeted actions by the U.S., including current tariffs and other policies, seem to be aimed at achieving this ultimate core goal.
It is not an exaggeration to say that a new round of "war" between global nations seems to have already begun, especially the direct game between major powers. This kind of war can be metaphorically referred to as the "dollar war" or "digital war," or "new cold war." As for hot wars, they will only occur in specific countries or regions; the probability of large-scale global wars like World War I or II seems very low.
Of course, as a Chinese person, I sincerely hope that we can ultimately win, and that the renminbi will replace the dollar as the new global currency, but this path seems long and arduous. As ordinary people, we just need to manage our own finances well for now.
From Trump's perspective:
Logically speaking, Trump's tariff policy has indeed affected global trade leverage, triggering a new round of economic slowdown (and many people have already begun to shout about an economic crisis), but we still maintain the viewpoint from previous articles: what Trump wants should only be a controllable economic slowdown (as a bargaining chip for various negotiations), not a truly uncontrollable economic crisis.
For example, through tariff measures, global trade can be tightened, thereby actively causing a certain degree of economic slowdown (manually controllable), while also addressing some government revenue issues and protecting U.S. manufacturing. If this year Trump can use this artificially created economic issue to promote a series of new monetary easing (where forcing the Fed to cut interest rates is only an indirect cause of the tariff policy, not the sole goal), and achieve some actual benefits in trade (referring to the U.S. government, such as some manufacturing returning, trade deficit issues, etc.), then the current so-called crisis can be resolved, while also achieving another important goal, which is refinancing government debt.
But the main problem now is that Trump's appetite seems a bit large; he belongs to the type of person who wants both. It remains to be seen how he will continue to negotiate internally and externally and find a new balance.
However, crises often also nurture new opportunities. In the short term, it seems that risks are everywhere. But in the long term, as long as the current risks can be eliminated or there are response plans to mitigate risks in the future, they will transform into new opportunities.
From the Fed's perspective:
So far, the Fed does not seem to be in a hurry to cut interest rates, but rather wants to observe a bit longer or implement a slow rate cut.
Although Trump claims to understand interest rates better than Powell, unfortunately, Powell does not seem to intend to give Trump face. So now there are two possibilities:
- Trump finds a way to make Powell leave quickly.
- Trump forces the Fed to cut interest rates (easing policy) through other means.
Based on past experience, the Fed's decision to cut interest rates (initiating a new round of easing cycle) is mainly based on some economic data, such as a continuous rise in unemployment rates, inflation stabilizing below 3% (the Fed's long-term inflation target is 2%), economic slowdown, and persistent severe fluctuations in financial markets…
From the latest observational data, the Fed's first rate cut this year may (only may) occur in June or July, as shown in the figure below. Of course, some analysts believe that the rate cut may happen in September and December, which we may need to continue to monitor for changes in data to make judgments and guesses.
But no matter when the rate cut occurs, it can be said that the Fed cutting rates will definitely happen; it is just a matter of time.
However, we also need to remind ourselves that we should not simply think that as long as the Fed cuts rates, the market will keep rising. The relationship between rate cuts and market rises is not as simple as we imagine. For example, once the market clarifies the expectation of a rate cut, even if the cut has not officially occurred, the market is likely to experience a wave of rises. Conversely, when the official rate cut arrives, although the policy has eased, the market may also experience a new round of declines or pullbacks early on.
In summary, rate cuts are definitely beneficial for the market, but do not directly equate rate cuts with price increases, as the market is always dynamic and fluctuating.
From the trader's perspective:
Currently, it seems that the two core dominoes that can reverse the market are Trump's policies (mainly focused on the U.S.-China tariff war) and the Fed's rate cuts.
Once Trump's tariff policies come to an end (completely reversing is basically impossible, but Trump may adjust and implement easing measures for certain goods or sectors), and the Fed also begins to take some positive actions, then, theoretically, the improvement in the situation + low interest rates on the dollar will encourage more liquidity to return to the market (not just the U.S. stock market, but also the crypto market), and we are likely to welcome new phase opportunities.
If we look back at the current or upcoming market from the perspective of future outcomes, we might find that we are currently facing various relatively cheap assets; it just depends on whether you can continue to pick up treasures.
Of course, the cheapness here is relative; cheap does not mean low price. If you still want to accurately buy at the lowest price, it depends solely on your personal judgment, and we cannot provide any advice on this point.
In summary, the current macro environment seems quite poor, but we seem to have experienced similar scripts before. Although through recent series of articles from Talking about Li and Talking about the Outside, everyone can see that we continue to maintain a long-term optimistic attitude, we are also prepared for the worst possible short-term scenarios.
Market cycles are essentially a series of repetitions; sometimes bubbles grow larger and then shrink repeatedly, and sometimes bubbles burst directly and then are re-inflated… Although each cycle will have its unique aspects (such as different lengths of time, varying policy impacts, different narratives, etc.), as long as we understand the basic relationship between the market and liquidity, such as the relationship between policy, inflation, and money printing, we can always find some commonalities in the market, which is where we can amplify and utilize.
If you continue to be in the crypto field, then for you, this may be the worst "era," but it is also the best "era." The market is full of uncertainties, which is why there are various opportunities. Only those who can endure various uncertainties are likely to win the final victory.
At the end of the article, let me leave a question:
Now most people are bearish, but some are optimistic that there will still be a bull market opportunity in the second half of this year. However, different viewpoints are merely different probability issues. So, will we experience a larger-scale economic recession starting this summer? Or will we welcome a new round of phase increases starting this summer? Which view do you lean towards, and what reasons support your view? Have you prepared for both outcomes?
