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Howard Marx: The Fed will not return to the "ultra-low interest rate" and should buy corporate bonds now.

It is still unclear whether the Fed will cut interest rates in 2024. When the market is eager for the Fed to start cutting interest rates as soon as possible, Howard Marks, co-founder of Oak Capital, said that the Fed will cut interest rates sooner or later, but it will not reduce interest rates to the previous ultra-low level. On Tuesday, April 23rd, Max accepted an interview with the media, saying that the current interest rate level of the Federal Reserve is an urgent measure to cool down the economy and inflation. "One day, we will announce the victory over inflation, and the Federal Reserve will reduce the interest rate to a moderate and sustainable level, which I think will be around 3%." Marx believes that low interest rates are unnecessary stimulus to the economy. Maintaining interest rates at a low level and creating a permanent stimulus situation will bring great disadvantages. The Fed will not lower interest rates to 0, 0.5% or 1%: "I think that is unnecessary stimulation, and permanent stimulation is not a good thing. I think the interest rate should be determined by the free market in most cases. In other words, borrowers and lenders should reach an interest rate agreement through free negotiation, instead of the central bank telling people what the interest rate should be. I hope we can go back to that environment. " Max has repeatedly pointed out that "an era of great changes has come", and loose money has basically ended. Marx believes that the effects of ultra-low interest rates include: excessive stimulus to the economy makes inflation worse, but the risk premium of risky assets is not compensated enough, and the capital supply fluctuates too much: On the one hand, the Fed may want to avoid stimulating the economy for a long time to prevent high inflation from coming back. On the other hand, one of the most important tasks of the Fed is to stimulate the economy when the economy is in recession, which is mainly achieved by lowering interest rates. If interest rates are close to zero, this policy tool of the Fed will be invalid. In addition, we seem to be experiencing anti-globalization and the improvement of labor bargaining power, which indicates that inflation may be higher in the near future than before 2021. Therefore, I will stick to my guess that in the next few years, the interest rate will be between 2-4% instead of 0-2%. Max said that in the new environment, bonds should play an "important role" in most people's portfolios, and the current high interest rate environment has created a very good opportunity for investors who focus on bond investment, especially high-yield bonds: In the low interest rate environment in the past, the yield of bonds was very low, but today, the yield of subprime investment-grade credit instruments (such as high-yield bonds, preferential loans, mezzanine financing, etc.) can approach or exceed the historical average return of stocks (about 10%). It is a great advantage that you can't enjoy in the previous low interest rate environment to get similar returns from debt investment that provides fixed income. Risk warning and exemption clause The market is risky and investment needs to be cautious. This paper does not constitute personal investment advice, nor does it take into account the special investment objectives, financial situation or needs of individual users. Users should consider whether any opinions, viewpoints or conclusions in this article are in line with their specific situation. Invest accordingly at your own risk.

The possibility of the Fed raising interest rates within one year rises to 20%! Investors are no longer

The yield of US bonds is soaring, and the S&P 500 has fallen for six days in a row. Will the Fed raise interest rates again this year? According to media reports on Tuesday, as the US economic data continued to be strong and Fed officials made hawkish remarks, investors began to bet that the Fed might raise interest rates again. This prospect was once considered unimaginable. Analysts pointed out that investors' expectations for the Fed to raise interest rates again continue to heat up. The option market currently shows that the possibility of raising interest rates in the United States in the next 12 months is about 20%, which is a sharp increase from the beginning of the year. Ed Al-Hussainy, interest rate strategist at Columbia Threadneedle, pointed out that option pricing reflects that the possibility of raising interest rates this year is about 20%. Benson Durham, Head of Global Policy and Asset Allocation at Piper Sandler, analyzed that the probability of interest rate increase in the next 12 months is close to 25%, while the analysis of option data of Barclays Bank shows that the probability is 29%. This expected change has had an impact on the bond market. The yield of interest-sensitive two-year US bonds once climbed to 5.01%, reaching the highest point in five months, while US stocks experienced the longest losing streak in 18 months before rising sharply on Monday. The next step is to cut interest rates or raise interest rates? With the inflation in the United States exceeding expectations for three consecutive months, investors in the options market began to seriously consider the possibility of the Fed raising interest rates. Summers, former US Treasury Secretary, said that the persistent inflationary pressure shown by the latest data indicates that the Fed's next policy action may be to raise interest rates rather than cut interest rates. Summers believes that the probability that the Fed will raise interest rates next is as high as 15%. Richard Clarida, Pimco economic adviser and former vice chairman of the Federal Reserve, pointed out: If the data continues to disappoint, I think the Fed will have to reconsider raising interest rates. Although raising interest rates is not his basic situation, once the core inflation rate rises above 3%, the possibility of raising interest rates will increase. At present, the market generally expects that the core PCE index in March, the most favored inflation indicator of the Federal Reserve, may reach 2.7%. In this regard, Greg Peters, co-chief investment officer of PGIM, said: Considering that raising interest rates is completely reasonable, compared with the beginning of the year, I feel more optimistic about the pricing of the market. At that time, I would only cut interest rates under extreme circumstances. Williams, president of the new york Fed, pointed out earlier that the current economic situation means that there is no need to cut interest rates. At the same time, he added, "If the data shows that we need higher interest rates to achieve our goals, then we will obviously consider this move". In addition, although the market is using options to hedge the risk of raising interest rates or profit from it, there is still the possibility of cutting interest rates quickly. Interest rate cuts are still the basic scenario forecast. According to the futures market pricing, traders expect to cut interest rates by 25 basis points once or twice this year, which is lower than the six or seven expectations in January. Risk warning and exemption clause The market is risky and investment needs to be cautious. This paper does not constitute personal investment advice, nor does it take into account the special investment objectives, financial situation or needs of individual users. Users should consider whether any opinions, viewpoints or conclusions in this article are in line with their specific situation. Invest accordingly at your own risk.

The first batch of VCs that invested in big models began to sell old stocks?

Whether to invest in a big model or not is still in dispute, and whether to retreat is put on the agenda of VC early. Recently, an investor revealed that the management of a big head model company has decided to sell its old shares after this round of valuation. Hearing this, my first question is, has the big model of financing progress pressed the acceleration button entered the exit period so soon? However, after talking with several big model investors, I found that the phenomenon of "big model selling old stocks and quitting" exists, but it is really far from being "phenomenal" and does not have universality. David (a pseudonym), a big model investor, told me that only the management of the above-mentioned companies chose to quit now. Because the company was established early, it was not a big model route at the beginning, and the early valuation was not high. Now the income is rising, and the fund invested at the beginning is estimated to expire soon. It is reasonable to quit at this time. In addition, even if the head model company enters in the first round, the valuation increase is actually limited, and the book income is about 2 times. Investors aiming at the valuation prospect of 10 billion and 100 billion US dollars will naturally not stop there. An investor also told me that "I just met with many friends who voted for the big model recently, and I didn't hear that I would return it." However, the exit of the big model is still a topic worthy of attention. In addition to whether it should be returned, there are questions about whether it can be returned, how to return it, and who to return it to. New trends appear overseas. Last month, Microsoft hired two co-founders of artificial intelligence startup Influence AI. This unicorn was once one of the most well-funded competitors of OpenAI, but after accumulating more than one million active users, it was finally hollowed out by the giants by digging people because it could not find an effective business model. In fact, in this wave of generative AI craze, the FOMO sentiment of large technology companies even surpassed that of VC, and Microsoft, Google and Amazon were among the best. The domestic situation is somewhat similar. Internet giants are active and quite generous, and Ali is the most widely bet, followed by Tencent and Meituan. At present, among several large model companies with the highest valuation in China, Zhipu AI, Minimax, Dark Side of the Moon, Baichuan Intelligent, and Ten Thousand Things, Ali all participated in the investment. In February of this year, Alibaba led the financing of $1 billion from the dark side of the moon and about $600 million from Minimax. Tencent is a shareholder of Zhipu AI, Minimax, and Baichuan Intelligent, among which it exclusively invested in a round of financing of Minimax of 250 million US dollars; In addition to the acquisition of Lightyear, Meituan also holds the dark side of the moon and the intellectual spectrum AI, among which it led the A1 round of financing of the dark side of the moon. This can't help but remind people that in the era of mobile internet, big manufacturers are competing for investment and the subsequent wave of mergers and acquisitions, so the question is coming. For investors, is it a decent ending to be acquired by big manufacturers? The answer is probably: this time is different from the past. At one time, if you were hungry, 9.5 billion dollars was sold to Ali, and investors quit with great grace. But today's big manufacturers are undoubtedly more careful when purchasing the target. Recently, when China Investment Network communicated this issue with Allen Zhu, he made it clear that no big factory would buy it at this price today. "Microsoft's acquisition of Influence AI gave investors the principal plus interest. Such a company with deep pockets of 3 trillion US dollars went to acquire a startup and put a lot of money in it, which is just this logic." Rolling financing There are many people who are as pessimistic as Allen Zhu. Li Gangqiang, who specializes in exit, thinks that you can speculate on the value of the big model, but you also need to take the opportunity to quit. In an article, he listed the following reasons: technology is seriously behind foreign competitors, potential risks of foreign open source, domestic investment institutions have no money to afford valuation, capital expenditure is a bottomless pit and so on. All these will greatly affect the confidence of investors, making it increasingly difficult for large model companies to raise funds later. These articles mentioned by Mr. Li basically cover the main situations in which large model investors consider withdrawing. First of all, from a technical point of view, a typical view is that as long as there is still a relatively large room for improvement in technology, open source will never catch up with closed source, and there will still be a big gap between China and foreign countries. "GPT-5 is said to reach 125 trillion parameters, and GPT-4 contains 1.8 trillion parameters. There is still a huge gap. 125 trillion. Is there another 1250 trillion? If there is, OpenAI with closed source is still far ahead. If it is over, China will catch up soon. " David told me. In addition, continuing to burn money is also a common problem for big model companies. Kimi on the dark side of the moon is on fire, and ali tong Yida Model quickly added a long text dialogue service with an upper limit of 10 million words. I don't know how many technical and product barriers there are, but there is no doubt that the rich capital has an advantage. "The real big model may not appear among us, but may come from the government or a giant. Because the money we need far exceeds our imagination, the money we can get may not be enough to pay the electricity bill. " At a salon event held recently, a representative of a well-known robot manufacturer confided in whether to invest in a full-size model. In such a state, disclosing financing information to the outside world is tantamount to creating pressure on opponents. In February, the dark side of the moon announced that it had received $1 billion Series A financing from Ali, Sequoia China, Xiaohongshu, Meituan Longzhu and Lisi Capital; At the beginning of March, Minimax also heard the news of obtaining $600 million in strategic financing from Ali and others. Some friends in the investment circle analyzed with me that the dark side of the moon did not have a very radical financing plan before. "It was also under the pressure of MiniMax financing that Ali took such a large sum of money." It is difficult to judge the right or wrong of such views. It can only be said that from the results, the head camp announced large amounts of financing one after another. Subsequently, Zhipu also announced the completion of a new round of financing in early 2024 after a media communication meeting, with the participation of Beijing Artificial Intelligence Industry Investment Fund; Recently, Baichuan Intelligent also reported the completion of a new round of financing. But the question is, who else can afford such a high valuation? According to the accepted statement, the valuation of the dark side of the moon and Minimax has reached 2.5 billion dollars. Last year, Zhipu reported that it was talking about a valuation of 20 billion yuan. Even if it was later rumored by the enterprise, it always reached 10 billion yuan. The valuation of Baichuan Smart's second round of financing is said to have reached 13 billion yuan. In the big model financing boom in full swing, the US dollar, state-owned assets, market-oriented RMB funds ... several waves of money with different attributes have been bet on them. For the start-up companies of the first echelon, the next financing, the single investment of more than 100 million US dollars is only the foundation, but there are not many options. Some VCS who didn't bet in the early stage are even more reluctant to join the war now. Investor James (a pseudonym) provided me with an idea to observe this field: if we look at the big model with "impossible trinity", then there are many players in this track and the entry threshold is high, which determines its limited market size. The big head model is a game for a few people, but the "Hundred Models Battle" is not empty talk. At present, the number of large models released in China exceeds 300, and at the same time, more than 40 AI large model products have been filed for approval. These products cover many enterprises and application fields, including but not limited to education, e-commerce, digital people, Q&A community and so on. Fierce competition has doomed that it is not easy for large model companies to commercialize, especially for privatization deployment. "There are dozens of to B customers in the head of the country, and a list is at most several million, and the market space is very limited. Therefore, if the income wants to explode, it still depends on the C end. " If we look at it from a more comprehensive perspective, James thinks that the competition of big models is ultimately a matter of national security. In this sense, at least one big model will come out in China. "Now everyone is betting on this odds, but different institutions have different betting strategies. But for us, the odds are too low at this stage. Even if you invest tens of millions of dollars and win the bet, you may earn two or three times, which is of little significance. " The above viewpoints are very representative and describe the mentality that many people are unwilling and afraid to make a move. Worse still, in the past, there were many large-scale foreign-funded PEs active in the China market, which could take over the market in subsequent rounds, such as Tiger, Blackstone and DST. Now, these foreign capitals have restrained their tactics regardless of cost, and their sales in China have obviously slowed down. Of course, Middle East capital is also regarded as a possible takeover. I heard before that a large model unicorn has gone to the Middle East to look for money, but the situation is unclear and there is still no result. However, it should not be ignored that the subtle geopolitical relationship has enhanced the uncertainty of all this. A Middle Eastern capital that has been active in China in recent years clearly told me that they would not invest in AI projects in China. As for state-owned assets, "a single local government can't afford so much money. All I can think of is that state-owned assets are holding a group." David analysis. When will the financing war be fought? On the one hand, it depends on how many people can afford it, and on the other hand, it depends on how long AI's scaling law can last. If the technology has not seen a bottleneck, it needs capital to continue blood transfusion. At least for now, the big head model is still rolling financing, and the financing window continues to open. A large amount of financing may quickly change the war situation. For example, last year, I couldn't see the dark side of the moon at the card grabbing table, but I couldn't hold the dark side of the moon, riding the east wind of a huge financing of 1 billion US dollars, and I was able to better connect the product characteristics and landing time with the idealism expressed by founder Yang Zhilin, so that "kimi can bring goods to Big A" (see Kimi, the Light of VC this year). advice from others Of course, no matter what the big environment is, there are always people with stunts who can make money. If you have the ability to invest in it at the earliest stage, then investing in a big model will at least not be a loss-making business. David's organization invested in a large model project that was bet in the early days, and now it has a book return of about 10 times. The valuation of a large model company invested by Li Gangqiang's previous organization has also increased sharply. "The last round of investment institutions has nearly 10 times the return on investment and still holds more than 6% of the equity ratio." In addition, the situation may not be as bad as imagined, and optimistic people still exist. An investor told me that some dollar funds that didn't invest in the big model in the previous round will seek opportunities to make up their guns later. "Interested investors also include institutions that have been delayed before investing light years away." It is not difficult to understand that, in addition to the consideration of financial benefits, if a dollar fund misses the big head model, the pressure from LP will probably follow. On the other hand, some VC's that invested in the big model in the early stage are constantly added in each subsequent round of financing. "What everyone believes is not entirely a story, but a judgment based on actual value." David told me. At present, the exit strategies of various funds are different. The first principle of his institution is to return the principal as much as possible to ensure the basic DPI. The remaining part that may bring higher returns is not in a hurry to quit. In the era of winning percentage of investment, this is more likely to get excess returns. Recently, the managing partner of a dual-currency fund told China Investment Network in an exchange that in today's background, there may be only two paths for VC to obtain high absolute returns: One is that a large amount of money was invested at the beginning, and the company continued to develop iteratively in a state of relative winning numbers; On the other hand, if you invest in it very early, invest 20 to 30 million yuan in the early stage, and then dig out the winner, keep adding more money to the investment, and protect the original stock ratio, and eventually it will become an investment of several hundred million yuan. From this point of view, the big model and its derived commercialization opportunities are still a "stress strategy" of VC at the moment when the investment theme is exhausted. However, firstly, Mr. Zhu said, "China VC has never made money by consensus"; Secondly, if we look at it on the other hand, VC is not the best choice for big model companies when the financing war has developed to the present. Of course, money is very important, but it is best to match computing power, data, scenarios, and government relations ... These factors other than capital are equally important to large model companies. It's cool and hot around the world. Foreign media revealed last month that a political veteran is about to join OpenAI as an executive to deal with government and public relations issues. This person is a politician of Clinton and a former policy director of Airbnb. When the dragon slayer grows up, he always has to worry about similar things, and the money from VC can provide too little added value. Most of the financing of the dark side of the moon comes from Ali, which also illustrates this point. Needless to say, the giants can also provide the final exit path. Even in the United States, there are no venture capitalists who can afford those big head model companies. Up to now, the development at home and abroad has reached the stage of "fighting dad". Needless to mention the deep relationship between Microsoft and OpenAI, last month, Amazon also announced that it would invest an additional $2.75 billion in Anthropic and expand the cooperative relationship between the two companies. After the additional investment, Amazon's total investment in Anthropic will reach 4 billion US dollars, making it the largest external investment in its history in the past 30 years. Again, startups receive blood transfusions from giants in the process of staking the land, and they must also accept the fate of being incorporated by these giants when they can't continue to grow. Therefore, talking about whether VC should invest in a big model is actually a question of whether it can be done. In the words of Yan Yan of Safran Fund, "how much money is available to do big things". As for whether to retire or not, it is actually similar. One is that selling old stocks at present is not universal, and it can only "rush"; Second, whether it is an IPO or a merger, what VC can decide may only be his belief in running with him. More optimistic, such as David, "This track certainly needs long-distance running, depending on the founder's ambition, endurance and financing ability. However, the head enterprises have piled up so much money and accumulated a lot of capabilities. Even if they don't find a commercialization scene for a while, these enterprises are valuable to big factories. From the perspective of listing, for such enterprises involved in big country competitions, the current restrictions on profitability may not be a problem in the future. " Pessimists such as Mr. Zhu, "We can't expect to get a good return by selling to big factories today. That was the investment logic three or five years ago. If you think that this wealth code still exists today and you are still thinking about selling billions of dollars to Ali, I think you are deceiving yourself and investors. This wealth password did fail. " I don't know if this is a prejudice, and besides, he really didn't cast a big model. However, if you still set your eyes on a faster step overseas, you will find that Mr. Zhu is indeed closer to reality. Foreign media revealed that Microsoft recently paid Inflection AI 6.5 million US dollars in cash, so the first round of investors got about 1.5 times the return on investment. Many overseas scripts have been written, so it's up to us to "adapt" them locally. Risk warning and exemption clause The market is risky and investment needs to be cautious. This paper does not constitute personal investment advice, nor does it take into account the special investment objectives, financial situation or needs of individual users. Users should consider whether any opinions, viewpoints or conclusions in this article are in line with their specific situation. Invest accordingly at your own risk.

Led by the three leaders of the Federal Reserve, senior officials began to mention

On Thursday, new york Fed President William, who is known as the "third-in-command of the Fed" and enjoys the permanent voting rights of the FOMC, gave a speech, warning that if the data shows that the Fed needs to raise interest rates to achieve its goal, it will. However, Williams stressed that the above-mentioned "interest rate hike" is not his expected baseline situation. He reiterated that the Federal Reserve's monetary policy is in a good position, and said that he did not feel the urgency of cutting interest rates, even though it would eventually be cut. Economic data will determine the timing of interest rate cuts. It is worth noting that Williams' latest speech is obviously hawkish than his earlier comments in the last week. In his latest speech, he focused on the upward risk of inflation. In sharp contrast, Williams said a few days ago that he did not think the recent US inflation data was a turning point, and he emphasized the prospect of interest rate cuts. "If inflation continues to fall gradually, the Fed may start to cut interest rates this year." After Williams only mentioned the possibility of raising interest rates, the short-term rebound in the US Treasury bond market came to an abrupt end, and the S&P Nasdaq also retreated from early trading: The yield of two-year US Treasury bonds climbed 5 basis points to nearly 4.99%, which is close to the high end of the recent range. This week, the yield of two-year US bonds sensitive to monetary policy once hit a level slightly higher than 5%, the highest since November last year. The yield of US 10-year Treasury bonds rose more than 5 basis points in intraday trading, and rose to 4.653% in the early morning of Friday, Beijing time. The pricing of the swap market shows that the Federal Reserve cut interest rates by 38 basis points at its policy meeting in December, and as of Wednesday's close, the rate cut was 43 basis points; The market still expects that the Federal Reserve's November policy meeting is expected to open the first 25 basis points interest rate cut this year. The possibility of raising interest rates implied by the market is still close to zero. However, in the interest rate option market, the protection of interest rate hikes has become popular. S&P and Nasdaq fell for five consecutive days. The "shift" of Williams' speech position occurred after Federal Reserve Chairman Powell made a public speech this week. Powell said this week that inflation lacks further progress and it may be appropriate to let high interest rates work for a longer period of time. The "New Fed News Agency" commented that the Fed's outlook has changed significantly, which seems to have broken their hope of "preemptive" interest rate cuts. Wall Street's website mentioned that when Powell dampened the market's interest rate cut expectations this week, US stocks showed considerable resilience. One of the main reasons was that, as the "New Federal Reserve News Agency" said, Powell hinted that if inflation continues to be higher than 2%, interest rates may be kept at a high level for a longer period of time, which means that if inflation is slightly higher than expected, it is unlikely to raise interest rates. Therefore, compared with Powell's speech, the "three hands of the Federal Reserve" mentioned the scenario of raising interest rates, which was relatively more lethal to the market. The above analysis also mentioned that the market trend was relatively stable on the day of Powell's speech, which was related to the fact that many senior officials of the Federal Reserve had given the market a "preventive shot". In addition, corporate profits have replaced monetary policy as the main driving force for the volatility of US stocks. After the US stock market closed on Thursday, Bostic, president of Atlanta Federal Reserve, also indicated that he was open to raising interest rates if inflation in the United States rose. This means that more and more senior Fed officials have mentioned the scene of "raising interest rates", which is completely different from the previous months. Bostic also said on the same day that the current interest rate policy of the Federal Reserve is restrictive. The American economy is slowing down, but the speed is slow. Salary growth is faster than inflation. Inflation is on the right track of falling towards the 2% target. The Fed is in no hurry to reduce inflation to 2% and can be patient. It should be noted that with the change of the overall attitude of the Federal Reserve, the yield of US bonds has soared recently, and Wall Street warned of "returning to the 5% era" in the short term. Vanguard believes that the 10-year yield of US debt exceeds the 4.75% mark, which may trigger a large-scale sell-off. Judging from the latest trend of US debt, it is already at this warning line. Risk warning and exemption clause The market is risky and investment needs to be cautious. This paper does not constitute personal investment advice, nor does it take into account the special investment objectives, financial situation or needs of individual users. Users should consider whether any opinions, viewpoints or conclusions in this article are in line with their specific situation. Invest accordingly at your own risk.

The "three pillars" of high inflation in the United States: housing price, insurance and energy.

In 2024, American inflation should have fallen to 2%, the Federal Reserve will start to cut interest rates, and the high interest rate will fall from the high point in 20 years, but the reality has not followed the preset script. Due to the resilience of the economy and the labor market, inflation today is more stubborn than expected a few months ago. In March, the CPI of the United States rebounded to 3.5% year-on-year. Although the ——PCE index, the most favored inflation indicator of the Federal Reserve, is closer to the target of 2%, the progress in the decline of inflation has also stagnated. Inflation remains high, and housing prices, insurance and energy are the three main factors. The shortage of housing supply is one of the reasons, in addition to the resumption of commodity prices and the rise of automobile insurance premiums. At the same time, some people also accused Powell of prematurely suggesting a rate cut, which ignited optimism in the financial market and stimulated economic activities. On Tuesday, Powell once again suppressed the expectation of interest rate cuts, pointing out that persistent inflation means that borrowing costs will remain high for a longer time than previously expected, which is a change in tone and indicates a "cautious reset" of interest rate cuts. Inflation Pillars: House Price, Insurance and Energy Housing and insurance are important components of CPI, of which housing accounts for about one third, and it has proved to be the most stubborn factor. Although some more timely data show that the rent growth of new leases is declining, the corresponding part of CPI has not yet reflected this trend. One of the reasons for the delay is that most tenants will not move for a year, especially during the epidemic, many homeowners locked in lower mortgage interest rates. In addition, the way the index is constructed also affects the speed of reflecting rent changes. The cost of insurance is another factor driving inflation. The growth rate of tenant and family insurance is the fastest in nine years, and the cost of car insurance has soared by 22.2% in one year. The complexity of automobile technology leads to the increase of repair cost. In terms of commodities, energy prices, especially oil, rose in the first quarter, and the escalation of the Middle East conflict may further push up prices, while gasoline and electricity prices also climbed. The soaring prices of oil and other raw materials have led to more expensive transportation and commodity costs, and gasoline and housing contributed more than half of the monthly increase in CPI in March. Will the "black swan" come without cutting interest rates? At present, traders expect to cut interest rates once or twice this year, ranging from the current 5.25% to 5.5%. This is far from the six interest rate cuts they expected in early 2024, and the three interest rate cuts expected by Fed officials a month ago. Some investors and economists are even considering the possibility of not cutting interest rates at all this year. Although Fed officials insist that inflation is generally on the decline, they also stress that borrowing costs will not decrease unless they have more confidence in this trend. Stephen Stanley, chief American economist of Santander, pointed out: The Fed misjudged the inflation situation. The mistake they made was that they were too superstitious about the combination of strong growth and moderate inflation that we saw in the second half of last year. Risk warning and exemption clause The market is risky and investment needs to be cautious. This paper does not constitute personal investment advice, nor does it take into account the special investment objectives, financial situation or needs of individual users. Users should consider whether any opinions, viewpoints or conclusions in this article are in line with their specific situation. Invest accordingly at your own risk.

The IMF raised the global GDP growth forecast this year, rarely criticizing the unsustainable fiscal policy of the United States.

On Tuesday, April 16th, the International Monetary Fund (IMF) released the World Economic Outlook report and a report on the risks of financial stability. The IMF slightly raised its forecast for global economic growth this year, citing the strong performance of the United States and some emerging markets. However, the IMF also warned that its outlook for the future is still cautious because of inflation and geopolitical risks. The IMF pointed out that high borrowing costs and the withdrawal of financial support measures are putting pressure on short-term economic growth. Due to low productivity and global trade tensions, the medium-term prospects are still the weakest in decades. On the specific forecast data: The IMF expects global economic activity to grow by 3.2% this year, 0.1 percentage point higher than the forecast of 3.1% in January. The IMF's forecast for global economic growth in 2025 remains unchanged at 3.2%. The IMF raised the US economic growth forecast in 2024 from 2.1% in January to 2.7%, and slightly lowered the euro zone economic growth forecast. The IMF predicts that the global average consumer price may rise by 5.9% this year and 4.5% next year, both of which are 0.1 percentage points higher than the forecast in January. Although the market generally expects the Fed to cut interest rates sharply recently, the IMF still expects major developed economies to start cutting interest rates sometime in the second half of this year. It is worth mentioning that in Tuesday's report, the IMF made a rare and direct criticism of American policymakers, saying that the United States has performed well in developed economies recently, but this is partly driven by unsustainable fiscal policies: The recent outstanding performance of the United States is really impressive and an important driving force for global growth. But it also reflects strong demand factors, including fiscal policies that run counter to long-term fiscal sustainability. Excessive spending in the United States may rekindle inflation, and by pushing up global financing costs, it will pose a long-term fiscal and financial imbalance risk to the global economy. Based on the situation in the United States, the IMF warned that something must always be compromised. Pierre-Olivier Gourinchas, chief economist of IMF, said that there are still many challenges and decisive actions are needed. He also pointed out that although the situation in the Middle East has led to an increase in oil prices, it is still too early to judge whether this increase will continue, which is not the benchmark scenario expected by the IMF. In the IMF's report on financial stability risks, Tobias Adrian, its official in charge of capital markets, warned that the recovery of consumer price growth poses a threat: Investors seem to believe that when inflation slows further, data-dependent central banks will loosen monetary policy. However, if inflation remains high, this high expectation may be overturned, which may lead to the sale of related assets, from bonds to stocks to encrypted assets. The consequences of this situation may include tightening financial conditions, some investors suffering losses, and rising bond yields. Rising bond yields will make it more difficult for borrowers to repay their debts. The IMF also said that Russian enterprises have strong investment, Russia's strong private consumption has promoted economic growth, and Russia's expenditure on security has also supported the country's economy. In addition, the IMF predicts that the British economy will become one of the winners of the artificial intelligence (AI) prosperity. Risk warning and exemption clause The market is risky and investment needs to be cautious. This paper does not constitute personal investment advice, nor does it take into account the special investment objectives, financial situation or needs of individual users. Users should consider whether any opinions, viewpoints or conclusions in this article are in line with their specific situation. Invest accordingly at your own risk.

If the Fed doesn't cut interest rates, what will happen to the US debt?

Last week, off the charts CPI data in the United States triggered the market to sell US debt in succession. After the auction of 10-year Treasury bonds by the US Treasury was cold, investors' selling of US debt further intensified, pushing the 10-year US debt to a high of 4.5%. If the Federal Reserve does not cut interest rates all the time, the environment for the US government to issue bonds for financing will further deteriorate. Interest on debt may become the biggest financial burden of the US government. Last week's CPI data in the United States gave investors the first impression that inflation has not been completely contained, and the Fed may keep high interest rates unchanged in the next few months or even years. James Aubin, chief investment officer of Sierra Mutual Funds, said: "The unexpected CPI data of the United States in March changed investors' views on the direction of the Fed's policy, and the narrative logic of the market changed." High interest rates, for the federal government of the United States, mean that the interest cost of borrowing new debt has been high. According to the Congressional Budget Office (CBO), the expenditure of debt interest in fiscal year 2023 was as high as $659 billion. The trend of rising interest on US debt will even continue. It is predicted that the total US government expenditure on debt interest will reach a record $12.4 trillion in the next decade. Michael Hartnett, an analyst at Bank of America, even predicted that the interest on American debt would reach $1.6 trillion by the end of 2024, surpassing social security expenditure and becoming the largest single government expenditure. According to Torsten Slok, chief economist of Apollo Global Management, in 2024 alone, a record $8.9 trillion of national debt (about one-third of the outstanding debt in the United States) will mature. Under the high interest rate environment, the US government is under great pressure to pay its debts. The supply of American treasury bonds is increasing, and it is becoming more and more difficult to sell! The rising debt and interest, combined with the persistent fiscal deficit, forced the US government to continue to issue bonds and borrow money to fill the hole, and the Fed's delay in cutting interest rates will make the US government debt problem worse. Bill Merz, head of capital market research at Bank of America, said: "Because of the deficit of the US federal government for years, it can only be made up by issuing bonds. The current high interest rate level leads to the rising interest cost, forcing the US government to continuously increase the issuance of national debt to finance. " Since 2020, the United States has continuously released itself on the road of issuing bonds, and almost every quarter, it will send a $4 trillion pressure shock. In the first quarter of this year, the United States issued $7.2 trillion in national debt, the highest quarterly debt issuance record ever. At that time, it didn't issue so much debt to cope with the impact of the COVID-19 epidemic. With the acceleration of US debt issuance and even signs of oversupply, investors are almost unable to buy it. This is also one of the reasons why the auction of treasury bonds in the United States will be cold recently. The Federal Reserve, Japan and Europe are all basic buyers of US debt. Although the recent auction of US debt was cold, some investors chose to wait and see, but the basic disk for buying US debt has always been there, such as the Federal Reserve, as well as investors from Japan and Europe. Of the US$ 34 trillion in debt, about 22% is government debt, and the remaining 78% is public debt. Among these public debts, American creditors account for about 70% and international creditors account for about 30%. Among American creditors, the Federal Reserve is the biggest player, and the rest are mutual funds, pension funds, banks and insurance companies. The traditional artistic ability of the Federal Reserve is to use QE and QT to control the bond purchase plan, and then adjust the balance sheet to achieve the purpose of controlling market liquidity. Due to the signal released in the minutes of the recent Federal Reserve meeting in March to slow down the scale reduction, FOMC members generally agree to halve the scale of monthly scale reduction. This is a small positive for supporting the price of US debt. International investors such as Japan and Europe like to buy American debt. On the one hand, because Japan and many countries in the euro zone have a long-term trade surplus with the United States, there is nowhere to put the dollars with current account surplus. The most convenient thing is to go back to the United States to buy American debt and get some interest while doing a good job in international relations. On the other hand, Japan and the European Central Bank's perennial zero interest rate or even negative interest rate policy make their own bond yields far less than those of US Treasury bonds, and their own bonds fail to live up to expectations, so they can only go to the United States to invest. In particular, after nearly two years of interest rate hike cycle in the United States, the yield of 10-year US debt has exceeded 4%, and the US debt suddenly became fragrant. The U.S. Treasury Department is expected to announce its plan for issuing bonds in the third quarter at the end of April, and then we can see if the appetite for issuing bonds in the United States has increased again. Risk warning and exemption clause The market is risky and investment needs to be cautious. This paper does not constitute personal investment advice, nor does it take into account the special investment objectives, financial situation or needs of individual users. Users should consider whether any opinions, viewpoints or conclusions in this article are in line with their specific situation. Invest accordingly at your own risk.

Business opportunities of Hong Kong's digital economy speed-up camp will increase greatly.

  Photo: Chen Maobo (left) said that scientific and technological innovation has become an important production kinetic energy, and data is an indispensable element. Scientific and technological innovation has become an important production kinetic energy, and data is an indispensable factor. The Financial Secretary, Chen Maobo, pointed out in his blog yesterday that Hong Kong is in a wave of scientific and technological changes, and it is necessary to create new productivity with innovation as the core to promote high-quality economic development. In fact, Hong Kong's digital economy is accelerating, and the development of science and technology is also bringing more business opportunities. In addition, Chen Maobo put forward the idea of future sustainable development in five areas: optimizing digital policy, strengthening digital infrastructure, accelerating digital transformation, sustainable digital talent strategy, and promoting local and cross-border data flow. Chen Maobo said that while R&D, innovation and application of science and technology are important, proper data collection, classification, labeling, management and application are equally crucial. The full implementation of digital operation in different industries and enterprises is not only related to the operating efficiency and competitiveness of enterprises in the future, but also related to the innovation of products, services and business models, as well as providing more personalized services to consumers or corporate customers. He emphasized that scientific and technological innovation has become an important production kinetic energy, and data is an indispensable element. New-quality productivity with innovation as the core is the key connotation to promote the high-quality development of Hong Kong's economy. Set up a digital policy office this year. In 2022, the SAR Government set up the Digital Economy Development Committee, under which several groups conducted in-depth research on cross-border data flow, digital infrastructure, digital transformation and talent development, and collected opinions from the industry and stakeholders. Earlier, the Committee submitted 12 core recommendations to the Government, covering five major areas, providing important reference for the future work of the SAR Government. Some of the recommendations have been reflected in the policy address and the Budget. In his blog, Chen Maobo further elaborated on the five areas of the Committee. The first is to optimize Hong Kong's overall digital policy. He pointed out that the top-level structure and laws and regulations of policy, governance and implementation are the key. When the Legislative Council completes the relevant deliberation procedures, the SAR Government will set up a "Digital Policy Office" in the middle of this year to comprehensively formulate and implement policies to promote the development of digital economy and smart cities. The second is to strengthen the digital infrastructure. In addition to enhancing the use and coverage of 5G networks, it will also encourage the construction of efficient computing centers and data centers, further promote electronic payment, and launch corporate digital identity (Corp ID). The SAR Government has also announced the establishment of an enterprise version of "Smart Convenience", so that enterprises can safely and conveniently authenticate their identities and check their signatures when conducting online transactions or using e-government services, thus avoiding complicated procedures. The "Digital Enterprise Identity" platform is expected to be gradually launched from 2026. The third is to promote local and cross-border data flow, encourage local public and private sectors to open more information, and expand the scope of "business data link" to make it easier for banks to obtain their data under the authorization of enterprises and facilitate the loan approval of SMEs. The fourth is to accelerate the digital transformation. In supporting the digital transformation of SMEs, Cyberport launched the "Digital Transformation Support Pilot Program" at the end of March to help catering SMEs purchase ready-made basic digital eucalyptus. The fifth is to formulate a sustainable digital talent strategy, cultivate and retain digital talents through strengthening education and training, and attract talents and technology enterprises from outside Hong Kong. Tan Yueheng: Hong Kong can give full play to its scientific research advantages. With regard to the development of innovation and technology in Hong Kong, Tan Yueheng, a member of the Chinese People's Political Consultative Conference and a member of the Legislative Council, said that "vigorously promoting the construction of a modern industrial system and accelerating the development of new quality productivity" is the top ten tasks in this year's government work report. Hong Kong is the forefront of the country's development of "new quality productivity", and it can give full play to its scientific research advantages, accelerate the formation of the development layout of "South Finance and North Innovation" through the construction of an international innovation center, and provide a strong impetus for "new quality productivity". Tan Yueheng also said that it is necessary to strengthen financial support for new technologies, new tracks and new markets in the future; Promote financial resources to invest more in the key development direction of the national strategy, and do a good job in five major articles: technology and finance, green finance, inclusive finance, pension finance and digital finance.

VC ETF that can be bought by retail investors, Mujie announced that ARKVX invested in OpenAI.

After Tesla, Sister Mu targeted OpenAI again! Ark Investment, which she manages, said on platform X on Thursday: "Ark Venture Fund has invested in OpenAI, the leader of artificial intelligence". The specific amount of investment has not been announced yet, but according to Mujie's consistent all in style, it will only be more than less. The party OpenAI has not made any statement on this matter. In the past two years, ChatGPT developed by OpenAI has caused a great sensation. With the soaring valuation of the company and the attention of the industry, it is only a matter of time before Mujie takes an eye on OpenAI. This time, Mujie invested in OpenAI through its Ark Venture Fund(ARKVX), which was established in September 2022. Just look at its positions, and you will know that this fund has invested in all technology giants and technology startups, such as SpaceX of Musk, social platform giant X, game companies Epic Games, Discord, Shield AI, etc., all of which Mujie likes. Moreover, the slogan of Ark Venture Fund is also very exciting: it is to make the venture capital that looks tall and civilian, so that all investors can participate in the investment opportunities with the most development potential. It means a lot to advance and retreat with a group of retail investors.

New Federal Reserve News Agency: The question now is not when to cut interest rates, but whether to cut them.

After the CPI data of the United States in March exceeded expectations, Nick Timiraos, a reporter from the Wall Street Journal, who is known as the "New Fed News Agency", wrote that in view of the strong job market and the fact that the inflation rate may stabilize at a level higher than the Fed's target, the outside world may question whether the Fed can cut interest rates later this year without evidence that the economy has slowed down significantly. Timiraos wrote in an article on Wednesday night local time: Higher-than-expected price increases for the third month in a row may return Fed officials to an uneasy wait-and-see state, that is, wait for a few more months to see if there are better inflation data or obvious signs of economic weakness that they hope to avoid. "This will definitely make them lose confidence in the goal of returning inflation to 2%," said Alan Detmeister, a UBS economist who was in charge of the Fed's inflation forecasting department. Bump down or stagnate? As early as the beginning of the year, the Fed was quite optimistic about the inflation situation in the United States. Considering that the inflation rate dropped faster than expected at the end of last year, despite the strong employment and economic growth, they still believe that it will not be too difficult for inflation to fall back to 2%. However, with the CPI data exceeding expectations for three consecutive months, the focus is turning to whether inflation is going down a bumpy road or staying near the current level of nearly 3%. Timiraos believes that the former means that the Fed may postpone interest rate cuts and slow down the pace of interest rate cuts. In the second scenario, if the economy does not slow down significantly, the Fed will probably not be able to cut interest rates. "Basic inflation has declined. We have made progress. Frankly speaking, we have made more progress than I expected a year ago, "said Jason Furman, an economist at Harvard University. "But the progress made now is less than anyone expected three months ago." Timiraos also pointed out that the inflation report in March itself was not noteworthy. Excluding volatile food and energy prices, the inflation rate in March was almost the same as that in February. However, because the inflation data in the first two months were higher than expected, the data once again deviated from expectations, which caused more thorny problems, including whether people misjudged the inflation situation again. Besides, what will happen if the Fed fails to cut interest rates this year? What if investors are too optimistic about the Fed's ability to achieve a soft landing? Will the Fed cut interest rates again this year? "Investors think they can cope with the current situation with ease, which is a bit self-righteous, and I think it is actually quite dangerous," said Peter Berezin, chief global strategist of BCA Research. "The current pricing of the market is based on the expectation of a soft landing, but if there is a second wave of inflation, or the unemployment rate rises and causes a recession, the market will experience a very, very serious sell-off." According to FactSet data, futures contracts linked to the federal funds rate show that traders expect the interest rate to be around 5% by the end of this year, which means that there will only be one or two interest rate cuts of 25 basis points this year. In early January, traders will cut interest rates six or seven times this year. After the unexpected inflation data was released, the Wall Street banks adjusted the interest rate cut forecast for the first time, and canceled the forecast of the first interest rate cut in June. Now, Goldman Sachs and UBS predict that the Fed will cut interest rates in July and September respectively, and only cut interest rates twice this year. Barclays expects the Fed to cut interest rates only once in September this year. Blake Gwinn, interest rate strategist at RBC Capital Markets, said: "The interest rate cut in June is the key to our expectation of three interest rate cuts. If this expectation fails, we think the first rate cut can easily be postponed to December. " Former US Treasury Secretary and "high inflation whistleblower" Summers even said that the possibility of the Fed raising interest rates must be seriously considered. Risk warning and exemption clause The market is risky and investment needs to be cautious. This paper does not constitute personal investment advice, nor does it take into account the special investment objectives, financial situation or needs of individual users. Users should consider whether any opinions, viewpoints or conclusions in this article are in line with their specific situation. Invest accordingly at your own risk.


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