Editor's Note: This article comes fromBlockVC（ID：blockvcfund）, reprinted by Odaily with authorization.
Editor's Note: This article comes from
Choose the Lesser of Two Evils
, reprinted by Odaily with authorization.
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Living in an era that is constantly witnessing history, I don't know whether it should be counted as a lucky or unfortunate thing. In other words, the real historical turning point is always silent. When you notice it, the great changes of the times have already hit your head.
On March 3, 2020, we may have witnessed history again in a daze. After 12 years, the Federal Reserve announced a sudden emergency rate cut of 50BP at the time of the non-interest rate meeting. Since 1994, there have been 9 emergency rate cuts in the history of the Fed. , The last emergency rate cut dates back to October 2008 during the economic crisis.
If you have no idea about the historical significance of emergency interest rate cuts, you can take a look at the timing of previous emergency interest rate cuts, including the 2008 subprime mortgage crisis, economic recession and the collapse of Lehman Brothers, the September 11 terrorist attacks in 2001, and the 2001 technology crisis. After the stock bubble burst and the Russian financial crisis and the collapse of Long-Term Capital Management in 1998, etc., every emergency interest rate cut is a huge reshuffle of wealth and a major event that can be recorded in global economic history. It just happened on the eve of the eve, and it will also be recorded in the annals of global economic history.
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Data source: Federal Reserve
This emergency rate cut is also the Federal Reserve's response to the rapid spread of the new crown epidemic in the world after the People's Bank of China. In the past two years, we have fantasized about the possibility of countless US stock market crashes and global stock market crashes, or the leverage ratio of the corporate sector, or The ETF liquidity crisis, or the fundamentals turned into recession, but the only thing that could not be predicted was that everything was kicked off by a virus epidemic sweeping the world.
Last week, the major US stock indexes all fell violently. US stocks suffered the largest weekly sell-off in ten years. The VIX has soared to the 99th percentile level since July 2014. Affected by the rapid spread of the epidemic around the world and concerns about the disruption of the global supply chain, the stock markets of Japan, South Korea, Italy and other countries in the hardest-hit areas led the decline in the Asia-Pacific and European markets. The commodity market was also unable to escape the bloodbath. The crude oil market saw its largest weekly decline in 10 years. Even gold, a recognized safe-haven asset, was suppressed and sold by institutions to make up for the margin in the equity market.
After the Federal Reserve announced an emergency rate cut, the central banks of Japan, Canada, Australia and other countries quickly followed suit. The probability of rate cuts by the European Central Bank and the Bank of England soared. The central banks and finance ministers of the Group of Seven (G7) stated in a joint statement that they would "use all appropriate tools" ( use all appropriate policy) to hedge downside risks, the global "water race" seems to have started.
The most direct impact of the Fed's interest rate cut is the depreciation of the US dollar, the rise of US bonds, and the short-term recovery of stocks but the increase in volatility. Let alone whether the depreciation of the US dollar and the decline in interest rates will lead to a large amount of capital flight, just observe the Dow Jones index and the S & P index after previous interest rate cuts In terms of performance - emergency interest rate cuts seem to mean that everything is just beginning, combined with the decline in profits in the first quarter, the pressure of continuous adjustment of US stocks is not optimistic. Except for 1998, after all emergency interest rate cuts, the US stock market has inertial decline in the next 6 months , hit a new low, which can not help but make many investors worry about whether the Fed has begun to sound the alarm for the coming recession.
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Data source: Bloomberg Internet
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The U.S. ten-year treasury bond yield officially fell below 1% historically, puncturing the last 100bp careers of many bond traders. Japan and Europe have been trapped in "negative interest rates" for a long time, and the effect of interest rate cuts has been very limited, including The monetary policy tool space of developed countries including the United States will soon not even have the "last 1bp of their careers". Moreover, considering the exchange loss of less than 1% of the nominal return on U.S. debt, how much investment value is there? If Changes in the pricing logic of U.S. debt may affect the valuation logic of major global asset classes.
Data source: Bloomberg
From the chart below of the Federal Reserve's 10-year treasury bond interest rate trend and the Dow Jones Index, it can be found that the decline in interest rates and the increase in asset prices in the past three decades have a very clear negative correlation.
Data source: Bloomberg
In the past quite a long period of "paradigm", investors became excited when they heard the interest rate cut, and often equated the release of water with asset bubbles. It is true that the reduction of interest rates by the central bank can lower the risk-free interest rate, which will increase the discounted present value of assets and increase asset prices.
Image source: Internet
Data source: Bloomberg
In contrast, since 2019, China has cut interest rates and reserve requirements several times in a row. Although the ten-year government bond yield has fallen to the low point in 2016, there is still a lot of policy space in name, and the interest rate gap between China and the United States has widened instead. The Chinese yuan has also moved sharply higher, which investors may have gotten a feel for from USDT’s sharp drop. China's manufacturing PMI fell to 35.7 in February, which was lower than 38.8 in November 2008 when the financial crisis broke out. The combination of policy and active fiscal policy” is basically a clear sign that China’s stock market and bond market will have greater room for growth under such a space. .
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Data source: Bloomberg
The new crown pneumonia epidemic has evolved into an expanding global public health crisis. The spread of the epidemic will deepen the downward trend of economic growth. At present, it is impossible to predict the persistence and severity of the epidemic's impact on overseas countries. The current interest rate cut is only to deal with the first wave of the epidemic. , The impact of the epidemic on the overseas real economy will release a second wave of shocks, and the follow-up results are still unpredictable.
However, the central bank’s interest rate tools have been exhausted just to deal with short-term financial market fluctuations. Under such conditions, we are likely to see the nominal interest rates of central banks including the United States compressed to zero soon. The big meal belongs to QE (quantitative easing) and the monetization of fiscal deficits. Governments of all countries are bound to end it in person and stimulate aggregate demand through government spending—but the scale of government debt is already quite large, and deficits and interest payments are tight. Therefore, governments want to issue further national debt To increase the deficit rate, the central bank must cooperate with the issuance of banknotes to purchase treasury bonds, refinance the government at low cost, stimulate aggregate demand and guide the depreciation of the dollar, so as to promote upward inflation and achieve a closed loop of reducing real debt—this also means that the real interest rate will continue to rise. This is also the direction in which Europe and Japan continue to advance, and it will also be the direction in which countries around the world will converge.
1) The low economic growth has become the ceiling of the low-yield return on assets, and at the same time may face the pressure of high inflation;
2) The decline in long-term real interest rates and the proliferation of liquidity have pushed up the valuation of large categories of assets and suppressed risk premiums;
Interest rates are at a new low, where are the funds?
Data source: Bloomberg
Gold is a very good choice. It can be seen from the figure below that the actual interest rate of gold and the U.S. 30-year treasury bond (the coordinates are switched between positive and negative), gold cannot be narrowly defined as a "safe-haven asset", and gold is used as a store of value. For tools and commodities, there has been a perfect negative correlation between gold and US real interest rates in the past 30 years. During the process of falling real interest rates, the price of gold has continued to rise, and there will still be a very broad room for allocation in the future.
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Data source: Bloomberg
If there is a better option than gold, it is Bitcoin. Bitcoin, like gold, is a non-interest-bearing asset. It has become more attractive to investors in the era of negative interest rates in major economies around the world. Therefore, Bitcoin and gold also have the property of resisting the decline of real interest rates. Under the keynote environment of low-cost long-term funds and abundant liquidity, smart funds will use ultra-low interest financing, and seek to extract as much yield as possible from Bitcoin, an asset with a high risk premium. The asset portfolio is in an obviously under-allocated position, and the asset allocation funds will continue to push up the price and the expected positive feedback, which will become an important driving force for the price of Bitcoin in this economic environment. Recently, the Supreme Court of India announced the overturn of the previous ban on cryptocurrency trading and the South Korean Congress passed a special financial law to give the green light to the encryption asset exchange license system. There is no doubt that Bitcoin will welcome global investors with a new attitude.
The financial underpinnings of the contemporary world are being tested like never before. There have been jokes in the industry that U.S. stocks, Japanese debt, China Real Estate, and Deutsche Bank are the four major bubbles in the world. Little do they know that Deutsche Bank is already facing bankruptcy, U.S. stocks are deeply in crisis caused by the epidemic, and Chinese real estate is subject to the constraints of "housing is not for speculation". Japanese debt is also undergoing the test of depreciation of the dollar and appreciation of the yen. At this time, can investors still think that the "grey rhinoceros" is still far away as they have been in the past two decades? If in the complicated "black swan" event, the world really breaks out a severe economic recession and debt crisis - "grey rhinoceros", can investors think of the "Safe Box" digital gold bitcoin of the global financial and monetary system?
Judging from the price performance of the secondary market, Bitcoin is currently in the process of consolidation after a 45-day unilateral rise starting in January 2020, and the adjustment will not be completed until at least the middle and late March in terms of time. The monthly market will be the most important turning point in the market in 2020-2021.
The figure below shows the weekly and monthly logarithmic trend chart of Bitcoin. From the figure, it can be clearly seen that whether it is at the weekly level or the monthly level, Bitcoin is running towards the end of the finishing triangle. It is expected to choose a breakthrough direction at the end of April. Once it goes up A breakthrough can form a New Year's Eve Bull that lasts for more than one year.
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Data source: Tradingview BlockVC Strategy Research
From a short-term perspective, the price of Bitcoin has begun to approach the center of the finishing triangle. Since the $8,500 line is a platform that has been repeatedly tested in the early stage, the support is relatively considerable. In the short-term, Bitcoin will start a short-term rebound at the $8,500 line, and the lower track around $8,500 The shock will build a bottom, and it will resume its upward trend for a period of time in the future, and may even complete an upward breakthrough with the approach of halving.
