So the Bank of England, which had been consistent with its poker face, resumed

It’s so much fun to watch the Asian Cup. I woke up to watch the match against Australia because the kids cheered loudly at dawn, but I watched it since the loose time in the second half. It’s like I just picked the core. It was quite fun, and Son Heung-min’s free-kick trajectory is really… Wow, there’s a reason why it’s Wolkle. Nevertheless, I can really relate to the interview of Lee Young-pyo, who was a national college student in the past, and the biggest meaning of this Asian Cup is the upward leveling of Asian soccer.

Personally, I agree with you 100 percent. Just as Korea was able to play alongside Uruguay and Portugal in the last World Cup, Jordan, Bahrain, and Malaysia are showing performance that is not overwhelmed by Korea. As Korea narrows its gap with a soccer powerhouse… If other countries close its gap with Korea… It will lead to an upward leveling of soccer around the world. I don’t think that upward leveling is just limited to soccer. It is also emerging in the investment market. Looking at individual investors armed with more knowledge and experience, the investment market also becomes a place where you can never relax and if you let your guard down, you will become a goal in an instant. The difficulty level increases… Giddy changes must be a typical trend, unexpected changes, and the flow of asset prices that is constantly concentrated on one side… I think this also represents the increased difficulty level.

There was the FOMC last week. I posted about my review early that morning, and I had a lot of things to say about this FOMC, but I cut it down. I’ll continue to talk about it gradually, and today I’ll start with this assumption. It’s about anxiety in the short-term money market. … Everyone’s worried about that. What if there’s a problem in the repo market, like in September 2019? There are even calls for the Fed to stop QT right away to address that anxiety.

The short-term money market is about to collapse as soon as the market opens next week. So how do you think the market will react? Will the market show a sharp decline and everyone will panic? Or… It’s a lame imagination… Look, now that the repo is shaken, the Fed has no choice but to surrender. It’s a package to cut March and stop quantitative tightening… Will they cheer for it like this? If you look at the patterns so far, you look a little nervous for two to three days, and then this creates a market perception that this is a big boon that leads to the Fed’s monetary easing. Currently, the Fed’s base rate is 5.25% to 5.5%. If you lower it by 0.25%, you can lower it by 0% 22 times. There are 22 rice cakes in the Fed basket. The tiger named the market can receive rice cakes every time you meet him in 22 nods. It’s a question of whether the Fed can’t give or not… If you can’t, there’s no answer… There are 22… If you don’t give it to me, I’ll have to come up with all the ideas that I can get.

The Fed has a lot of gifts to offer. The more gifts it has, the more it can release. Then, the more learned the market will expect a stronger gift. You can’t hide your satisfaction at the thought that every negative event occurs, the gift bundle bursts out. Here, if the actual Fed doesn’t stop QT… even if it doesn’t cut interest rates much, what if it suggests a pace control of QT, or if it suggests a faster rate cut? As market expectations turn to confidence, there may be a stronger shift. What has changed from the past… is market confidence. And there are more gifts that the Fed can give. So that means that there is a lot to receive, that it is so good to receive. The market has already learned from more than 10 years of experience since the financial crisis.

This is an analogy from before. The financial markets like hostage taking. In the early days of the 22-year rate hike, growth was hostage, demanding that they delay or give up raising interest rates. If you raise interest rates… Growth is going to die!!!! But then the fearless Fed says, “You can give up growth.” And the market was in August of that year. And at that point, in Jackson Hole, Powell declared that he wouldn’t mind taking hostage by taking growth with just eight minutes of speech. And the market’s shaking has been pretty dramatic.

I see signs of change here. … Under the financial situation that became so difficult, the British government bond market began to falter completely. So the Bank of England, which had been consistent with its poker face, resumed quantitative easing and began to appease the market. And the market got a hint. If growth is not going to work, we can take hostage the collapse of the financial system. And the story of taking hostage the collapse of that financial system is being reproduced through the SVB bankruptcy in March 23, and more recently through the instability of short-term financial markets, through the rise of the debt ceiling in the United States, and through the return of the regional banking instability series.

What’s interesting is that there are so many different kinds of materials for these kinds of hostage situations. And there are so many things that can be created in the future. Let’s take an example. So, the Fed is now trying to control the faltering growth because prices are taking hold. So is the hostage situation where growth is taken hostage going to take effect again? The Fed knows that growth that it’s been giving up for some time is still alive, and it’s trying to somehow save it. So it has another source of hostage situations.

I see. If high interest rates remain high for a long time, the weak link will become very difficult. Now, the gap between the rich and the poor is very wide. For example, there is an imbalance between the United States and other countries. As growth in countries other than the United States falters, anxiety may escalate. Then the U.S. is not bad… We need to cut interest rates because other countries’ anxiety may shake U.S. growth. Wouldn’t it be possible to suggest that… Yes, in 2019, the market actually got three interest rate cuts based on this story.

And the imbalance between the big banks and the small banks is really bad. And there’s still a lot of local banks in the U.S., not just the community banks in New York, that could be the source of the hostage crisis then. And there’s also a significant imbalance in the savings of individuals in the U.S. The top 20 percent of savings have barely disappeared, but other people’s savings have been greatly reduced, and so on are very burdened by the burden of living. And the economy is very slow, and so on, so the so-called day-to-day lives. And the economy is really slowing down, and the top 20 percent of the U.S., or the big banks, or the M7, are going to be forever in the spring. These are very good conditions, but because of the instability on the other side, the Fed is releasing the money again.

The Fed will also be prepared for this. In all of his remarks just before the FOMC press conference, Powell says that inflation will eventually hit lower-income earners harder. He is clearly aware of the side effects of being too dragged into that hostage crisis and going into a rate cut, which is why inflationary stagnation can occur. Nevertheless, the subject of the reckless hostage crisis is too diverse. The Fed’s gift bags are so large that market expectations may continue.

So what does the Fed think on the other side? I’m sure the Fed is also clearly aware of this situation. If we release money in response to the hostage crisis, the market will cheer and fuel the asset bubble, and if we push it the other way around, the weak link will shake, and we will not be able to stop it with a hoe. The way is to get the effect of a rate cut without a rate cut. There are some very strong… What are you talking about? Take a look.

In fact, Powell hinted at a rate cut. He indicated a cautious cut, and even though the dot plot had about three cuts within the year, the market is not listening at all. He expects six cuts within the year. Then even if we announce three cuts, the market will react with six cuts. The rate cut is more than… more than twice as strong as the Fed’s intention. Let’s think that the car’s Excel has become more than twice as strong. It may seem interesting, but wouldn’t it be a little slow to step on it? In particular, we need to get out of the narrow path between inflation and deflation like we are doing now. If we have to step on the accelerated Excel…it could be too much of a fear.

But if you think about it the other way around, the Fed has double the power of Excel. No, it’s more than double the power, because it can keep financial markets this hot without cutting interest rates. And the Fed can stimulate the hidden liquidity without actually cutting interest rates. And that means the money will flow out in no time.

Let’s take an example. One of the things that started to create a fear atmosphere at the end of last year was the maturity of corporate bonds. The first half of 2021 was when interest rates were all-time low. Thanks to the hot market environment at that time, a lot of three-year corporate bonds were issued… The maturity of those corporate bonds is expected to hit in the first half of this year. In the process of extending maturity, interest rates on corporate bonds will rise, which could increase interest burdens on companies. Wouldn’t that cause significant confusion in the financial market? We’re trying to attract more funds at higher interest rates. There would be a serious liquidity shortage in the financial market. And if that explodes in conjunction with the turmoil in the short-term financial market… It’s a scenario like, “Big billion….” I don’t think even a rate cut would be able to stop this. It’s because it’s too large a scale… But… There’s news like this.

“Company Bonds Popular on Pivot Expectations… Highest U.S. Company Issuance in 7 Years” (Asia Economy, 24.1. 31)

“Build it up in advance when you’re flocking money” … Corporate bond issuance surged due to falling interest rates (Economic Review, 24.2.3)

“The burning U.S. corporate bond market… Blue-chip companies issued more than 200 trillion won this year” (Chosun Biz, 24.1.22)

I think I can understand the atmosphere roughly.