Author: editor

The initiation of a global rate cut cycle is usually an important signal of macroeconomic adjustment, which has a profound impact on the rotation of major asset classes. To understand how these assets rotate, it is crucial to conduct a deep analysis of the macroeconomic background, interest rate changes, inflation trends, and market sentiment.

Based on historical references, the typical asset rotation path during a global rate cut cycle is as follows:

Stock Market: From Defensive to Growth

Early Stage (Defensive Sectors Lead):

• When a rate cut cycle begins, market sentiment may still be cautious, and funds initially flow into defensive sectors, especially companies with stable cash flows and high dividends. Common defensive sectors include utilities, consumer staples, and healthcare.
• During this phase, investors tend to look for stocks that provide stable returns, particularly when inflation remains high and economic growth has not yet shown a significant rebound.

Mid Stage (Growth Sectors Begin to Perform):

• As the rate cut policy gradually transmits to the real economy and financing costs decrease, business and consumer activities begin to recover, and growth sectors (such as technology and consumer discretionary) start to benefit.
• In a low-interest-rate environment, the future cash flow discount rate for growth companies is higher, which leads to faster valuation increases. The technology sector, in particular, benefits because its high growth and innovation capabilities make it more attractive in a low-interest environment.

Late Stage (Cyclical Sectors Rise):

• If the rate cut policy successfully stimulates economic recovery, cyclical sectors (such as finance, energy, and industrials) will begin to lead the market. Economic activity strengthens, demand increases, especially driven by capital expenditure and consumer recovery, which enhances the profitability of cyclical sectors.
• During this stage, investors start to gradually exit defensive sectors and shift toward cyclical stocks that directly benefit from economic expansion.

Bond Market: From Long Bonds to Short Bonds

• Long-Term Bonds Benefit First:
  In the early stages of a rate cut, the bond market often performs better than the stock market, especially long-term government bonds. As interest rates fall, long-term bond yields decrease, and their prices rise, making them the preferred choice for risk-averse investors.
• High-Yield and Corporate Bonds Rise:
  As the market grows more optimistic about economic recovery, investors may be more willing to take on risks, and funds shift from government bonds to high-yield bonds and corporate bonds in pursuit of higher returns. Due to lower interest rates, corporate financing costs decrease, credit spreads narrow, and the appeal of credit bonds increases.
• Short-Term and Floating-Rate Bonds Become More Attractive:
  Towards the end of the rate cut cycle, as the market expects future interest rates to bottom out or even rise, investors gradually turn to short-term or floating-rate bonds to reduce the price risks caused by interest rate fluctuations.

Commodities: Rotation from Precious Metals to Industrial Metals

• Precious Metals (e.g., Gold) Lead the Way:
  In the early stages of a rate cut cycle, especially if the rate cuts are accompanied by currency depreciation, investors often turn to precious metals like gold for hedging. Low interest rates and a weak dollar typically push up gold prices because the opportunity cost of holding gold decreases, and it is priced in dollars.
• Energy and Industrial Metals Follow:
  As the global economy gradually recovers and demand rises, the demand for energy and industrial metals also increases. The prices of commodities closely linked to industrial production, such as oil and copper, begin to rise.
• Agricultural Products and Other Soft Commodities:
  Economic recovery drives consumption growth, particularly in developing countries, which may push up the prices of agricultural products. Additionally, global rate cuts may stimulate global consumption, thereby increasing demand for commodities and driving up related prices.

Forex Market: US Dollar Weakens, Non-USD Currencies Strengthen

• Dollar Depreciation Expectations:
  A global rate cut cycle is typically accompanied by an expansionary monetary policy. If the Federal Reserve enters a rate cut cycle, the US dollar may weaken. A weaker dollar boosts the relative strength of other major currencies, such as the euro, yen, and Swiss franc.
• Opportunities for Emerging Market Currencies:
  Currencies of emerging market countries may benefit from capital inflows as investors seek higher returns in high-yield markets. Particularly for those emerging markets with relatively high interest rates and stable economic fundamentals, their currencies may strengthen.
• Flow of Funds to High-Interest Differential Currencies:
  Investors may tend to hold currencies with higher interest rate differentials (such as the Australian dollar or New Zealand dollar), as these currencies can still offer relatively high yields in a rate cut environment.

Real Estate Market: From Residential to Commercial Real Estate

• Residential Real Estate Benefits First:
  Rate cuts directly drive down mortgage rates, increasing demand for home purchases. In the early stages of a rate cut cycle, the residential market (especially first-time and upgrading housing markets) generally recovers first.
• Commercial Real Estate Follows:
  As the economy recovers, business activity increases, and the demand for commercial real estate (such as office buildings, retail space, and industrial properties) rises. Commercial real estate markets, particularly those sensitive to interest rates, may see significant growth.

Summary of Major Asset Rotation

The onset of a global rate cut cycle usually triggers a systematic rotation of major asset classes:

• Early Stage: Bonds and gold benefit first, especially long-term government bonds and safe-haven assets. Defensive sectors in the stock market perform better.
• Mid Stage: Growth stocks (e.g., technology, consumer discretionary) start to lead, while high-yield and corporate bonds are favored. Precious metals prices continue to rise.
• Late Stage: Cyclical sectors (e.g., finance, energy, industrials) take over the stock market, and demand for industrial commodities increases. Meanwhile, investment opportunities in real estate shift from residential to commercial properties.

Throughout this rotation, investors need to adjust their asset allocations based on the macroeconomic context, monitor the transitions in the economic cycle, and identify which asset classes and sectors will emerge as winners at each stage.

Recently, “Apollo Go”, an online car hailing service for driverless people, has become popular in Wuhan.

A user in Wuhan claimed that he didn’t want to wait for the bus after work. He directly asked Apollo Go to experience driverless driving for the first time, and the fare was very cheap.

It is said that the fare for a 10 kilometer journey is only 4-16 yuan, while ordinary ride hailing services like Didi cost around 18-30 yuan.

In addition, Apollo Go still operates around the clock in 7 × 24 hours, and users need not worry about not getting a car in the middle of the night.

Joe was very tempted to see this and couldn’t help but want to give it a try. The place where I used to go to school was quite remote, it was 2-3 kilometers away from the nearest subway station, and every time I took a Didi, it cost at least 15-18 yuan!

Apollo Go is an automatic driving travel service platform under Baidu, which is based on the automatic driving technology of Baidu Apollo. The platform was launched in August 2021 and provides autonomous vehicle travel services in multiple cities. Users can book a taxi through the app or mini program.

In recent years, driverless technology has also gradually come into our vision. Among many driverless platforms, Apollo Go has quickly become a leader in the market with its unique technical advantages and operation mode. So, what makes it so special?

Compared with other platforms, Apollo Go has obvious advantages in the following aspects:

Leading technology: Apollo Go uses the most advanced artificial intelligence and sensor technology to ensure that the vehicle can run safely under complex road conditions.

1. Large model driven autopilot: Baidu Apollo ADFM (Autonomous Driving Foundation Model) is the first large model in the world to support L4 level autopilot. Based on the large model technology, auto drive system can be reconstructed to give consideration to the safety and generalization of technology.

2. City level comprehensive coverage of complex scenes: This technology can achieve coverage of city level comprehensive complex scenes, ensuring safety and reliability in various complex environments.

3. Intelligent obstacle avoidance and prediction: Apollo ADFM simulates human driving behavior, improves the perception ability of autonomous vehicles, and can achieve more difficult driving actions such as intelligent obstacle avoidance, gaming, and prediction.

4. Hardware configuration and safety redundancy design: the hardware configuration and safety redundancy design have been significantly improved, ensuring the high safety of the auto drive system.

In addition, Baidu has also released the sixth generation unmanned vehicle, which fully applies the “Baidu Apollo ADFM big model+hardware products+safety architecture” solution, ensuring the stability of the vehicle through a 10 fold safety redundancy scheme and a 6-fold MRC safety strategy.

User experience: The platform focuses on user experience, continuously optimizing algorithms and interface design to make passengers feel comfortable and convenient while riding in autonomous vehicles.

Safety guarantee: Apollo Go has invested heavily in vehicle safety. It not only uses the best materials in hardware, but also provides multi-level safety protection in software.

Affordable price: For example, only 4 yuan is needed for 6 kilometers, which makes it affordable for many ordinary citizens and further enhances its popularity.

Data shows that by April 2024, Apollo Go has provided more than 6 million cumulative units in developing roads, ranking the world’s largest automated travel service provider. In addition, Wuhan citizens generally have a high level of satisfaction with ride hailing services using autonomous vehicles, and the number of orders is also constantly increasing.

Self driving safety comes first

According to statistics, over 90% of road traffic accidents in 2023 are related to human error.

So, like Joe, we must have thought about the safety and reliability of driverless driving. What measures has Apollo Go taken in this regard?

1. Strict safety measures: Through strict safety measures, the occurrence of traffic accidents caused by human error has been greatly reduced.

2. Safety training system: A safety education and training system has been established that covers the main responsible persons, safety management personnel, safety officers, and all employees. Combined with actual operational situations, rich, flexible, diverse, and targeted safety training has been organized and carried out.

3. Safety Production Month Activity: Conduct the “Baidu Apollo Safety Production Month” activity nationwide, ensuring the safety of autonomous driving through various forms such as safety lectures, education and training, hidden danger investigation and management, and emergency drills.

4. Vehicle reliability inspection and daily maintenance: Pay close attention to vehicle operation safety, carry out vehicle reliability inspection and daily maintenance, and promote standardized management of vehicle operations.

5. Preset safety algorithm: In case of emergencies, such as severe weather such as rainstorm, the driverless taxi will judge according to the preset safety algorithm, temporarily choose to stop at the roadside, and wait for the weather to improve to ensure the safety of passengers.

6. Technical testing and application: Tested and applied in multiple scenarios, demonstrating good stability and reliability, capable of completing established tasks in various road conditions.

7. Passenger safety definition: Baidu has achieved that autonomous driving is safer than human driving, and the new definition of unmanned vehicles for passenger safety further enhances safety.

65 cities in 5 years

Apollo Go plans to expand its service to 65 cities by 2025 and 100 cities by 2030. Mainly includes the following strategies and objectives:

1. Multi scenario coverage: Baidu Apollo’s layout strategy is multi scenario coverage, not only focusing on Robotaxi business, but also achieving multi scenario layout through joint ventures and partnerships.
2. Number of cities to expand: According to Baidu Apollo’s operation plan, Apollo Go will expand to 65 cities by 2025 and 100 cities by 2030. This goal demonstrates Baidu’s ambitious vision in the field of autonomous driving.
3. Commercialization pilot and all unmanned automatic driving service: Apollo Go has carried out the commercialization pilot of automatic driving in Beijing pilot area, and has carried out the test of all unmanned automatic driving travel service in several cities such as Beijing, Wuhan, Chongqing, Shenzhen, Shanghai, etc. For example, by 2024, full coverage of Wuhan will be achieved and 1000 sixth generation mass-produced unmanned vehicles will be put into operation.
4. Scale effect and cost reduction: With the increase of advertising volume, the operating cost of bicycles will significantly decrease, and scale effect may be reflected. It is expected to achieve breakeven in Wuhan by the end of 2024 and profitability by 2025.
5. Policy support and market acceptance: Benefiting from policy support, Apollo Go has made remarkable achievements in Beijing and other places, and has a high acceptance among young people.

Apollo Go plans to cover 65 cities in the next five years through multi scene coverage, expanding the number of cities, commercial pilot and all unmanned automatic driving services, scale effect and cost reduction strategies, and ultimately achieve profitability and promote the popularization of automatic driving technology.

Looking at the Future from the Perspective of Technological Revolution

The advancement of technology has not only changed our way of life, but also profoundly influenced human thinking and behavior patterns. Looking back, every technological revolution has had a profound impact on human society:

• Industrial Revolution: During the Industrial Revolution, steam engines and mechanized production required workers on factory assembly lines to repeatedly perform monotonous, mechanical work. Although this mode greatly improves production efficiency, it also makes workers’ work monotonous and repetitive like machines.
• Information revolution: The computer and Internet revolution in the second half of the 20th century made people’s work and life highly dependent on computers and network systems. Many office and management tasks have been replaced by computer programs and systems. In the process of using computers, people need to constantly adapt and learn the operation of various software and systems, just like an “information processor”.

Nowadays, the fourth technological revolution represented by artificial intelligence and autonomous driving is attempting to make “machines look like humans”. This is not only a technological advancement, but also a redefinition of human abilities and lifestyles.

The technological revolution of the past made humans look like machines, and now machines become like humans. “This is not only a description of technological progress, but also a vision for the future of humanity. With the continuous development of Apollo Go and other platforms, we have reason to believe that a more intelligent and convenient future is coming to us. We hope that through this article, you can have a more comprehensive understanding of Apollo Go and look forward to more surprises and convenience it will bring us in the future.

1. Federal Reserve Policy: The Easing Cycle is About to Begin

As inflation moves in the right direction, Federal Reserve officials are now more sensitive to the downside risks in the labor market. The unexpected rise in the unemployment rate in July has strengthened expectations of a rate cut in September, with the possibility of further cuts later this year. Over the past two and a half years, inflation has been the core guiding policy, but as the Fed approaches its goal of price stability, it has become increasingly focused on maximum employment.

Last week, the Fed kept the policy rate unchanged at 5.25% – 5.50% but adjusted its statement to reflect the potential for a rate cut in September. Chairman Powell stated at a press conference that although work on inflation is not finished, the Fed can begin to gradually ease the restrictions on policy rates. With inflation moving in the right direction, officials are more sensitive to labor market risks and expect the Fed to cut rates two to three times this year. Since June, inflation has been below the Fed’s 2.8% year-end forecast, while the unemployment rate has risen to 4.3%, above the 4.0% forecast.

2. Labor Market: Jobs Are Still Being Added, But July’s Weak Report Raises Doubts

The U.S. labor market has been cooling for several months, but this slowdown is seen as a normalization of an overheated situation, which has been welcomed by the market. However, the July employment report showed that the U.S. economy added only 114,000 jobs, lower than the expected 175,000, while the unemployment rate rose to 4.3%, and wage growth slowed to 3.6%, the smallest increase in over three years. We believe the labor market is adjusting to slower economic growth, and the July data suggests this adjustment may be happening more quickly than expected, reinforcing expectations for a rate cut in September.

It’s important to note that the rise in the unemployment rate to 4.3% is not just a part of monthly fluctuations—it triggered the “Sahm Rule.” According to this rule, a significant rise in unemployment could signal the onset of a recession. This further strengthens the market’s expectations that the Fed will cut rates in September and beyond.

Nevertheless, the 4.3% unemployment rate is still historically low, and the rise in unemployment is largely due to an increase in the labor force, not a reduction in employment. Moreover, job vacancies still far outnumber unemployed individuals. Despite these changes, we still describe the labor market as healthy.

3. Yield Curve: Bonds Are Making a Comeback, and the Longest Inversion in History May End Soon

The yield curve has been inverted for more than two years, which is typically a negative signal for the financial market, indicating that short-term bond yields are higher than long-term bond yields. The Fed has hinted at easing rate restrictions, and last week’s data highlighted downside risks to the economy. The bond market has begun to price in a more aggressive easing cycle, driving bond prices up and yields down. We believe the decline in short-term yields will outpace that of long-term yields, helping the yield curve normalize.

We recommend slightly increasing the duration relative to investment-grade bond benchmarks, with a preference for medium- and long-term bonds. Although short-term certificates of deposit and money market rates may still be attractive in the near term, as the Fed enters a rate-cutting cycle, yields will gradually decline, so investors should be mindful of reinvestment risks.

4. Market Leadership: AI Will Continue to Thrive, but Technology Is No Longer the Only Game in Town

Tech giants reported strong growth this week, but due to high expectations, their prices failed to continue rising, and the tech and semiconductor sectors are undergoing adjustments. The Nasdaq has entered a correction zone, and investors are growing impatient with the returns on massive AI spending. We believe artificial intelligence will experience rapid growth over the next five to ten years, bringing returns to companies that are heavily investing today.

Beyond the tech sector, earnings growth for the S&P 500 index is expected to accelerate, with the biggest positive surprises coming from cyclical and defensive sectors. These shifts align with our expectations that leadership will broaden as the Fed’s rate-cutting cycle approaches. We recommend focusing on defensive sectors that are inversely related to bond yields during risk-off periods to provide portfolio stability while maintaining proper diversification.

5. Volatility: Even as Market Volatility Increases, the Bull Market Could Continue

Volatility was low in the first half of the year, but it has significantly increased in the first few weeks of the second half. Last Thursday, the stock market experienced the largest intraday volatility since the end of 2022. The S&P 500 rose 0.8% in the morning but then dropped 2% before partially recovering. Concerns about the Fed cutting rates too late and election-related uncertainties could be catalysts for increased volatility.

Historically, August to October is the worst period for stock market performance, but in a strong upward trend, the negative seasonal effects are smaller. When the S&P 500 has risen by 10% or more in the first six months, it has averaged a 7% gain in the second half. We believe that although volatility may reach a turning point, short-term pullbacks will not change the relatively positive outlook. Inflation is close to the target, the economy continues to expand, albeit at a slower pace, productivity is rising, and corporate earnings are increasing, so the bull market is likely to continue.

As these shifts in Fed policy, the labor market, the yield curve, market leadership, and volatility unfold, these factors will determine the market’s performance in the coming months and quarters. We recommend taking advantage of pullback opportunities for rebalancing, diversification, and deploying new capital to mitigate the impacts of these turning points.

Is there any hope for interest rate cuts as economic data continues to remain weak?

The sustained weak economic data has indeed increased the possibility of the Federal Reserve cutting interest rates. Combined with a series of recently released US economic data, we can see that the US economy has slowed down significantly. We can see several key factors and signs:

1. Non farm employment data: Although the non farm employment growth in June was higher than expected, the data for the first two months was significantly lowered, and the unemployment rate rose to 4.1%, the highest level since November 2021. This indicates that the labor market may be slowing down.

2. ISM Manufacturing and Services Index: The June ISM Manufacturing Index was 48.5, below the expansion/contraction threshold of 50, indicating that the manufacturing industry is contracting. The service sector PMI also fell to 48.8, the lowest level in four years, further indicating a weakening of economic activity.

3. The yield of two-year treasury bond declined: the yield of two-year treasury bond declined significantly, reflecting the market’s concern about the future economic prospects and the enhanced expectation of the Federal Reserve’s interest rate cut. Although the yield of 10-year treasury bond has also declined, the range is small, which shows that the market is relatively optimistic about long-term economic growth.

4. Market expectation: According to Bloomberg data, the probability of the Federal Reserve cutting interest rates in September has risen to 81%, far higher than the previous 68%. This indicates that investors widely believe that the Federal Reserve may take interest rate cuts in the short term to address the economic slowdown.

5. Other economic indicators: Including initial jobless claims and ADP employment data, also indicate a slowdown in the labor market and overall economic activity. These data support the argument that the Federal Reserve may adopt a loose monetary policy.

The sustained weakness in economic data has strengthened market expectations for the Federal Reserve to cut interest rates. Although the specific timing and magnitude of the interest rate cut are still uncertain, the current economic situation and market expectations indicate that the Federal Reserve may take action in the coming months to support economic growth and address potential downside risks.

According to the latest June non farm payroll report released by the Bureau of Labor Statistics (BLS), total non farm employment increased by 206000 and the unemployment rate rose to 4.1%. The following is an analysis of key data and trends:

1. Employment growth: The total non farm employment increased by 206000 in June, slightly lower than the average monthly growth of 220000 in the past 12 months. The government, healthcare, social assistance, and construction industries have contributed the majority of employment growth.

2. Rising unemployment rate: The unemployment rate has risen from 4.0% last month to 4.1%, the highest level since November 2021. The number of long-term unemployed (unemployed for 27 weeks or longer) increased by 166000, reaching 1.5 million, accounting for 22.2% of the total unemployed population.

3. Industry performance: Government employment increased by 70000, mainly concentrated in local governments (excluding education) and state governments. The healthcare industry added 49000 jobs, social assistance increased by 34000, and the construction industry increased by 27000. The employment changes in retail trade and professional business services are not significant.

4. Wages and working hours: In June, the average hourly wage of all employees in the private non-agricultural industry increased by 10 cents to $35.00, a year-on-year increase of 3.9%. The average working hours in the manufacturing industry remained unchanged at 40.2 hours, while the average working hours in the private non-agricultural industry remained at 34.3 hours for the third consecutive month.

5. Economic outlook: Continued weak economic data, including sluggish manufacturing and service sector indices, rising unemployment rates, and lowered employment data for the first two months, further strengthen market expectations for the Federal Reserve’s interest rate cuts. According to market data, the probability of a rate cut in September has increased from 68% last week to 81%.

Overall, the weak economic data has increased the likelihood of the Federal Reserve cutting interest rates, which could have a significant impact on the market.

The number of new non farm employment in April was revised down from 165000 to 108000; The number of new non farm employment in May decreased from 272000 to 218000. After the revision, the total number of new jobs added in April and May decreased by 111000 compared to before the revision. In the past 5 months, the number of employed people has been revised downwards for 4 months. Regularly revised, if we consider the downward revision in April and May, the average number of employed people in the three months of April, May, and June has actually significantly declined.

After correction, the average number of non farm new jobs added in April, May, and June was 177333. This shows a significant decline in employment growth compared to the initial reported figures, with the 3-month moving average already showing a significant decline, and employment in the United States is continuing to decline.

The average hourly wage in June increased by 0.3% month on month, meeting expectations, but decreased slightly from the previous value of 0.4%; The year-on-year growth rate was 3.9%, unchanged from expectations, and fell below 4% for the first time since 2021.

The sustained weakness in economic data has indeed opened up greater operational space for the Federal Reserve to cut interest rates in the coming months. The Fed has seen the data and trends they want to see:

1. Non farm employment data and unemployment rate

• Non farm employment data: Although the non farm employment population increased by 206000 in June, exceeding the expected 190000, it still decreased significantly from 272000 in May. And the data for April and May have also been revised down to 108000 and 218000 people, respectively. These data indicate that the job market is significantly slowing down.

• Unemployment rate: The unemployment rate unexpectedly rose to 4.1% in June, the highest level since November 2021. The rising unemployment rate indicates increased pressure on the labor market, which may further drive the Federal Reserve to adopt loose policies.

2. Relieve the pressure of wage inflation

• Salary growth: The average hourly wage in June increased by 0.3% month on month, with a year-on-year growth rate of 3.9%, marking the first time since 2021 that it has fallen below 4%. This indicates that wage inflation pressure is easing, reducing concerns about inflation.

3. Labor force participation rate

• Labor force participation rate: The labor force participation rate slightly increased from 62.5% in May to 62.6% in June. Although the increase is limited, it shows some signs of recovery in the labor market.

4. Expectations of interest rate cuts

• Market reaction: After the data was released, the futures of the three major stock indexes in the US stock market rose in the short term, while the yields of US bonds fell across the board, and the US dollar index fell in the short term. These market reactions indicate that investors’ expectations for the Federal Reserve’s interest rate cuts have increased.

• Futures market: According to the Chicago Mercantile Exchange’s FedWatch tool, investors expect a 71.8% chance of the Federal Reserve cutting interest rates for the first time of the year in September, higher than the 66.5% before the report was released, and the possibility of the first rate cut in November has also increased.

According to the latest CME interest rate cut expectations, there will be a first rate cut in September and a second rate cut in December. The annual rate cut will be 50 basis points, and the market will officially enter the rate cut cycle trading in the third quarter.

Rubeela Farooqi, Chief US Economist at High Frequency Economics, stated that slowing wage growth, rising unemployment rates, and a slower growth path have strengthened the reasons for interest rate cuts, and the Federal Reserve may begin cutting rates in September Seema Shah, Chief Global Strategist at Principal Asset Management, pointed out that the downward revision of data and the rise in unemployment rate have increased the possibility of a rate cut in September, but also expressed concerns about the outlook for the US economy.

Overall, the persistently weak economic data and rising unemployment rate have strengthened market expectations for the Federal Reserve to cut interest rates. If economic data continues to show a slowdown in the coming months, the possibility of the Federal Reserve cutting interest rates in September will further increase. These factors all indicate that the Federal Reserve may begin discussing and implementing interest rate cuts at the upcoming FOMC meeting to support economic growth and alleviate pressure on the labor market.

How should we adjust our investment strategy when interest rate cuts come?

The impact of interest rate cuts on investment strategies is multifaceted, as different asset classes and industries respond differently to changes in inflation. Here are some key impacts and recommendations:

1. Fixed income market

Long term bonds

• Impact: When inflation decreases, the real interest rate (nominal interest rate minus inflation rate) increases, making the real yield of bonds more attractive. Bond prices typically rise as yields decrease.

• Strategy: Increase the allocation of long-term treasury bond and investment grade corporate bonds to capture the opportunity of price rise and obtain stable returns.

Inflation Protected Bonds (TIPS)

• Impact: Although TIPS’ returns are tied to inflation, their attractiveness may weaken when inflation expectations decrease.

• Strategy: Reduce the allocation of TIPS and shift towards traditional fixed income products.

2. Stock market

Growth stocks

• Impact: In a low inflation and low interest rate environment, growth stocks (such as technology stocks) typically perform well because the present value of future returns is higher.

• Strategy: Increase investment in high growth technology stocks and other growth stocks that have high profit potential in a low inflation environment.

defensive stock

• Impact: Defensive stocks, such as consumer goods, healthcare, and utilities, perform relatively stably during periods of economic uncertainty.

• Strategy: Maintain appropriate allocation of defensive stocks to balance risks in the investment portfolio.

3. Commodity market

gold

• Impact: Gold is often seen as a tool to hedge against inflation. When inflation expectations decrease, the attractiveness of gold may weaken.

• Strategy: Reduce direct investment in gold and shift towards other asset classes such as stocks and bonds.

Raw materials and energy

• Impact: A low inflation environment may suppress the rise in raw material and energy prices, affecting the profitability of related companies.

• Strategy: Invest cautiously in the raw materials and energy industries, focusing on companies with strong market positions and cost control capabilities.

4. Real estate market

Real Estate Investment Trusts (REITs)

• Impact: A low inflation and low interest rate environment is usually favorable for the real estate market, as borrowing costs decrease and demand for real estate increases.

• Strategy: Increase investment in REITs to obtain stable rental income and capital appreciation.

5. Overseas markets

emerging market

• Impact: Low inflation and a weaker US dollar may be beneficial for emerging markets as they can alleviate their external debt burden and stimulate capital inflows.

• Strategy: Increase investment in emerging markets, especially those countries with strong economic fundamentals and benefiting from global economic recovery.

6. Asset allocation and risk management

Diversified investment

• Impact: The cooling of inflation provides a more stable economic environment, which is conducive to the implementation of diversified investment strategies.

• Strategy: Maintain diversified asset allocation, covering stocks, bonds, real estate, and other asset classes to diversify risks.

dynamic tuning

• Impact: Changes in the economy and inflation require investors to flexibly adjust their investment portfolios to respond to market dynamics.

• Strategy: Regularly evaluate the investment portfolio, dynamically adjust asset allocation based on economic and market conditions, and ensure that the investment strategy is consistent with the market environment.

The impact of inflation cooling on investment strategies is mainly reflected in different reactions to fixed income markets, stock markets, commodity markets, and real estate markets. Investors should flexibly adjust their investment portfolios based on inflation expectations and market conditions, increase their allocation of growth stocks, long-term bonds, and real estate investment trusts, while maintaining diversification and dynamic adjustments to achieve stable investment returns. In a low inflation environment, investors can leverage a stable economic environment to achieve long-term wealth growth through refined asset allocation and risk management.

The entire text is complete.

Original Article by Fei Mao Hui Fei, July 5, 2024, Guangdong

Warren Buffett, the master of value investing, has made his own bets in the past!

At the end of 2007, Warren Buffett made a famous bet with hedge fund manager Ted Seides, which was a ten-year competition.

Buffett believed that a low-cost S&P 500 index fund would outperform a group of carefully selected hedge funds over the course of ten years.

The Bet Begins on January 1, 2008:

• Hedge Funds: Seides selected five “fund of funds,” each of which contained multiple hedge funds.
• Index Fund: Buffett chose the Vanguard S&P 500 Index Fund.

The Outcome: By the end of 2017, the S&P 500 index fund significantly outperformed the hedge funds:

• S&P 500 Index Fund: Over ten years, the compound annual return was about 7.1%.
• Hedge Funds: The average compound annual return of the five “fund of funds” was about 2.2%.

Beating the S&P 500 is Hard!
In the first half of this year, which S&P 500 constituent stocks managed to beat the market?

As of the U.S. Independence Day holiday (July 4th), the S&P 500 index had risen 16% this year. However, looking at individual stock performance, beating the market is not an easy feat. Only 22% of the constituent stocks managed to outperform the index.

Here are some popular stocks and their rankings among the 500 stocks, from the largest gainer, Advanced Micro Devices (AMD), to the biggest loser, Walgreens Boots Alliance (WBA.US). The vertical axis shows how much they outperformed or underperformed the S&P 500 index.

According to historical statistics, since 1990, the median historical percentage of stocks beating the market has been 49%, with the only exception being during the dot-com bubble of 2000, when the percentage was unusually low for two consecutive years.

As of June 17, it was estimated that about 30% of stocks were outperforming the market. However, just over a week later, this figure dropped to 22%.

From a mean reversion perspective, small-cap U.S. stock funds may outperform the S&P 500 in the future. This is because, in many respects, many high-quality small-cap stocks are currently at historically low prices compared to large-cap stocks.

This extreme figure indicates that today’s market is overly concentrated, and risks are accumulating!

How difficult is it to beat the S&P 500?

As of 2023, over the past 15 years, 88% of large-cap stock funds have underperformed the S&P 500, and this figure rises to 93% over the past 20 years.

According to data from GinsGlobal through 2021, 83% of fund managers underperformed the S&P 500 over the past 10 years!

In the past 20 years, 94% of U.S. fund managers failed to beat the S&P 500!

Even Warren Buffett, when compared to the S&P 500, especially since the launch of the first iPhone in 2007, has underperformed. From 2008 to the end of 2020, over the 13-year period, Buffett’s annualized return was 7.2%, while the S&P 500’s annualized return was 9.8%.

However, from 1965 to 2020, a span of 56 years, Buffett’s annualized return was 20%, compared to 10.2% for the S&P 500.

Long-term, Buffett’s investment portfolio has lower volatility, with a standard deviation of 13.67%, while the S&P’s standard deviation is 15.57%.

Buffett has repeatedly emphasized that most actively managed fund managers struggle to beat the S&P 500 over the long term. In his 2013 shareholder letter, he clearly stated that in his will, he would recommend that the trustee managing his wife’s assets invest 90% of the funds in a low-cost S&P 500 index fund, with the remaining 10% in short-term government bonds.

Recently, Buffett reaffirmed that it doesn’t matter—his investment philosophy will not change, and he doesn’t want others to worry about whether he can beat the S&P 500.

Since its inception in 1957, the S&P 500 index has delivered an annualized return of around 10.26%, including price changes and reinvested dividends.

To put it simply: since beating the S&P 500 is so difficult, why not just buy the S&P 500? No need for any further discussion!

Long-term, historically, among the financial products available to the average person—no connections, no need to fight for opportunities—there’s no asset that consistently beats the S&P 500!

In terms of long-term transaction costs, passive investments like index funds have lower management fees, which means less money spent on fees and more potential investment gains.

The average investor, who is busy with work and family, or trying to stay fit, simply doesn’t have the time to focus constantly on investments or do in-depth research!

Compared to the risks of concentrating investments in individual stocks, buying an index fund like the S&P 500 allows investors to diversify the risk of individual stocks.

For those with the risk tolerance, investing in the S&P 500 is essentially investing in the entire market. It’s not about you losing money while others make gains, and the investment experience is much clearer.

The simple and effective strategy is: if you can’t beat the S&P, then just join it!

Of course, an even simpler approach would be to have Buffett manage your money for you.

Since buying the S&P 500, I’ve realized that even Buffett isn’t that extraordinary!

P.S.

Finally, a sad note: the “best contrarian” in U.S. stocks has resigned!

Marko Kolanovic, JPMorgan’s Chief Global Market Strategist, is stepping down after 19 years. This well-known contrarian indicator has truly benefited many people. Before leaving, he predicted that the S&P 500 would fall nearly 25% by the end of the year and emphasized the “terrifying” lack of breadth in the U.S. stock market.

Many friends have asked me how I view gold and how it performs during an interest rate cut cycle.

Today, this article will focus on gold.

The Federal Reserve’s interest rate cuts typically have a significant impact on the price of gold. Here are several key factors of how the Federal Reserve’s interest rate cuts affect gold:

1. Relationship between Interest Rates and Gold Prices

• Decrease in Interest Rates:

• When the Federal Reserve cuts interest rates, real interest rates (nominal interest rates minus inflation rate) usually decrease.

• In a low-interest-rate environment, the opportunity cost of holding interest-free assets like gold decreases, making gold more attractive.
  
• Investors may shift from low-yield bonds and savings to alternative investments like gold.

2. Relationship between the US Dollar and Gold Prices

• Weakening of the US Dollar:
  
• Rate cuts typically lead to a depreciation of the US dollar as low interest rates reduce the attractiveness of holding US dollar assets.
  
• Since gold is priced in US dollars, a weaker US dollar makes gold priced in other currencies cheaper, increasing global demand and driving up the price of gold.

3. Inflation Expectations

• Inflation Protection:

• Federal Reserve rate cuts may lead to market expectations of future inflation rising.

• Gold is seen as an effective hedge against inflation because its value typically does not depreciate with inflation.

• Investors often increase their demand for gold when they anticipate rising inflation, thereby driving up its price.

4. Market Risk Aversion

• Increased Safe-Haven Demand:
  
• Rate cuts are often a measure to address economic weakness, which may increase uncertainty about economic prospects in the market.

• During periods of economic uncertainty, investors tend to seek safe-haven assets. The demand for gold as a safe-haven asset increases, pushing its price higher.

5. Global Market Impact

• International Capital Flows:
  
• Federal Reserve rate cuts can affect global capital flows, potentially leading to capital outflows from the US seeking higher-yielding markets.

• Such capital flows may increase demand for gold, especially in times of heightened global economic uncertainty.
  
• Gold is anchored to real interest rates at the medium to long end, and it has a negative correlation with real interest rates at the medium to long end. Gold’s ability to hedge against inflation is due to the fact that high inflation and risk events will lower real interest rates, leading to an increase in the price of gold. The negative correlation between the US dollar index and gold is also linked to the implied real interest rates at the medium to long end reflecting economic prospects.
  
• Based on the calculation using the real interest rates derived from TIPS bonds of various maturities and the Breakeven Inflation (BEI) index, it is found that gold has the highest correlation with the 10-year real interest rate and the lowest correlation with real interest rates below 5 years. Therefore, in research, it is common to see comparative analysis between the 10-year TIPS Treasury bonds and the price of gold (in a negative correlation).

• The real interest rate can be used to assess the price trends of assets such as gold and Bitcoin. Similarly, in the past two years, the United States has also experienced a cycle of real interest rate changes. Before the epidemic, the economic outlook was bleak, with both nominal and real interest rates declining.

• At the beginning of 2020, the sudden outbreak of the epidemic caused the nominal interest rate in the United States to plummet. However, with the implementation of fiscal stimulus plans and cash subsidies, the demand curve did not shrink significantly. Instead, the inflation level rose due to consumption driving it. The divergence between the downward nominal interest rate and the upward inflation rate resulted in extremely low real interest rates, giving rise to a super bull market for virtual assets. In 2020-2021, there was an epic bull market for virtual assets, and gold also performed well.

Let’s review some historical performances of gold:

During the 2008 financial crisis:

• The Federal Reserve significantly cut interest rates and implemented quantitative easing policies, leading to a decrease in real interest rates and a weakening of the US dollar.

• The price of gold rose from around $800 per ounce at the end of 2008 to around $1900 per ounce in 2011, demonstrating the significant impact of rate cuts on gold prices.

During the 2020 COVID-19 pandemic:

• The Federal Reserve lowered interest rates to near zero and implemented large-scale quantitative easing policies to address the economic impact of the pandemic.

• The price of gold reached a historical high in August 2020, nearing $2100 per ounce, reflecting the support of rate cuts and economic uncertainty on gold prices.

Investment strategy recommendations:

Increase gold allocation:

• During expected or actual rate-cutting cycles by the Federal Reserve, increasing exposure to gold can serve as an effective strategy to hedge against inflation and market uncertainty.

• Investors can gain gold exposure through direct purchases of physical gold, gold ETFs, or gold mining stocks.

Diversify investments:

• In addition to gold, investors may also consider other precious metals such as silver and platinum to further diversify portfolio risks.

• Maintain a diversified asset allocation to ensure some level of returns and risk mitigation in different market environments.

Monitor economic indicators:

• Closely monitor the Federal Reserve’s policy direction, interest rate changes, and inflation expectations.

• Based on economic data and market dynamics, adjust investment portfolios promptly to ensure flexibility in responding to changes in interest rates and inflation environments.

Below are some recommended gold and precious metals ETFs worth considering, covering pure gold investments as well as diversified portfolios of various precious metals:

Gold ETF:

1. SPDR Gold Shares (GLD): This is one of the most popular gold ETFs, directly tracking the spot price of gold, suitable for investors looking to invest directly in gold.

2. iShares Gold Trust (IAU): Another major gold ETF with lower fees, also directly tracking the spot price of gold.

3. Aberdeen Standard Physical Gold Shares ETF (SGOL): This ETF also invests directly in physical gold with lower management fees, suitable for long-term holding.

Silver ETF:

• iShares Silver Trust (SLV):
  • Invests directly in physical silver, suitable for investors optimistic about the silver price trend.

• Aberdeen Standard Physical Silver Shares ETF (SIVR):
  • Another major silver ETF that invests in physical silver with lower management fees.

Platinum and Palladium ETF:

• Aberdeen Standard Physical Platinum Shares ETF (PPLT):
  • Directly invests in physical platinum, suitable for investors optimistic about the platinum price trend.

• Aberdeen Standard Physical Palladium Shares ETF (PALL):
  • Directly invests in physical palladium, suitable for investors optimistic about the palladium price trend.

Precious Metals ETF:

• ETFS Physical Precious Metals Basket Shares (GLTR):
  • This ETF invests in a basket of precious metals, including gold, silver, platinum, and palladium, providing diversified exposure to precious metals.

• iShares MSCI Global Gold Miners ETF (RING):
  • Invests in major global gold mining company stocks, suitable for investors looking to benefit from the rise in gold prices through mining stocks.

• VanEck Vectors Gold Miners ETF (GDX):
  • Primarily invests in gold mining companies, offering broad exposure to mining stocks, suitable for investors optimistic about gold prices and mining company prospects.

• VanEck Vectors Junior Gold Miners ETF (GDXJ):
  • Primarily invests in small and mid-sized gold mining companies, with higher risk but potential for higher returns during gold price increases.

Leveraged Bull ETFs (relatively aggressive):

• Gold ETF – PowerShares DB Gold Double Long (DGP)

• Gold ETF – ProShares Ultra Gold (UGL)

• Silver ETF – ProShares Ultra Silver (AGQ)

Investment Strategy Advice:

• Risk Tolerance: For investors with lower risk tolerance, they can choose ETFs that directly track the prices of gold or silver (such as GLD or SLV). For those with higher risk tolerance, they can consider mining company ETFs (such as GDX or GDX).

• Diversification of Investment Portfolio: If you wish to spread investment risks, you can choose a comprehensive precious metals ETF (such as GLTR) or diversify your funds into different precious metals ETFs.

When selecting ETFs, it is important to evaluate based on your own investment objectives, market expectations, and risk tolerance.

A rate cut by the Federal Reserve typically has a positive impact on the price of gold, as it lowers real interest rates, leads to dollar depreciation, increases inflation expectations, and boosts market demand for safe-haven assets, driving up the price of gold. During a Federal Reserve rate-cutting cycle, investors may consider increasing their gold allocation as an effective hedge against economic uncertainty and inflation risks. Maintaining diversification and dynamically adjusting your investment portfolio are important strategies for achieving stable investment returns in a complex market environment.

End of text.

Disclaimer: The content of this text is for reference only and does not constitute investment advice. Investing involves risks, so caution is advised when entering the market.

The poor performance of Biden in the first debate has led to the perception that he is at a disadvantage in the election race against Trump, which directly caused the “Trump trade” to make a comeback.

As a result, the market has recently been focusing on the typical “Trump trade,” where the market is betting on a rate cut amid weakening economic data.

[Review of U.S. Economic Macroeconomic Data]

1. Trump Trade vs. the Fundamentals

Last weekend, Biden’s poor performance in the first debate led to the resurgence of the “Trump trade,” which is characterized by a “strong dollar, weak U.S. bonds” phenomenon. However, as economic data like PMI showed weakness, the momentum behind the “Trump trade” began to lose steam, and by Friday, the nonfarm payroll data essentially sealed the deal. The fundamental economic data has started to prevail over the uncertainty of the election.

2. Frequent Revisions in Employment Data

• Nonfarm Payroll Data: In June, nonfarm payrolls increased by 206,000, slightly exceeding the market expectation of 190,000, but this was a significant decline compared to the previous month’s 272,000. The data for the previous two months were also heavily revised down. In April, the initial reading of 165,000 was revised to 108,000, and in May, the number dropped from 272,000 to 218,000, totaling a reduction of 111,000.

• Unemployment Rate: In June, the unemployment rate rose to 4.1%, the highest since November 2021. The market had expected it to remain at 4.0%, matching the previous month’s figure.

Over the past 16 months, 13 months of nonfarm payroll data were revised down, with only 3 months being revised upward. A key reason for these revisions is that the response rate for post-pandemic employment surveys has sharply declined. The response rate for the CES business survey fell to a historical low of 41.6% in June 2023, rising slightly to 43.5% in March this year, but still below the pre-pandemic response rate of around 60%.

Another reason for the downward revisions is the increase in public sector employment, which has compensated for the lack of private sector job growth. In June, the employment increase was heavily concentrated in construction, education, healthcare services, and government sectors, accounting for 86.9% of the total nonfarm payroll increase.

3. Unemployment Rate and the “Sam Rule”

• Rising Unemployment Rate: The unemployment rate in June rose to 4.1%, exceeding market expectations of 4.0%. According to the “Sam Rule,” if the 3-month moving average of the unemployment rate is more than 0.5% higher than the lowest level in the past 12 months, the U.S. is considered to have entered the early stage of an economic recession. The average unemployment rate for the past three months is 4%, while the lowest point in the past 12 months was 3.57%, with a difference of 0.43%, close to the 0.5% threshold.
• Recession Signals: By May of this year, 21 out of 51 states and territories in the U.S. had triggered the “Sam Rule” recession signal.

4. The Future Path of the Unemployment Rate and Potential Recession

• Demand Side: Wage growth and job vacancy data indicate that the labor market is cooling. Currently, for every unemployed person, there are 1.22 job openings, close to pre-pandemic levels (1.19). In June, the private sector wage growth dropped to a year-over-year rate of 3.86%.
• Supply Side: The labor force participation rate has increased, with immigration having a significant impact on the labor market. After the pandemic, sectors that rely on immigrant labor (such as accommodation, food services, and retail trade) saw high job vacancy rates and wage growth, attracting a large number of immigrants. Biden’s policy to limit immigration along the U.S.-Mexico border may affect labor supply.

5. Market Response and Expectations of Rate Cuts

Following the release of these data, gold and U.S. stocks rose, U.S. Treasury yields dropped, and the CME FedWatch Tool showed that the probability of a rate cut in September rose to over 70%. Futures markets indicate that investors expect the Federal Reserve to cut rates twice this year.

Expert Opinion: Rubeela Farooqi, Chief U.S. Economist at High Frequency Economics, stated that slowing wage growth, rising unemployment, and a slower economic growth path strengthen the case for a rate cut this year. Seema Shah, Chief Global Strategist at Principal Asset Management, noted that the rise in unemployment and data revisions have increased the likelihood of a rate cut in September, but also expressed concerns about the U.S. economic outlook.

The continued weakness in economic data and rising unemployment have heightened market expectations for a rate cut by the Federal Reserve. If the economic slowdown continues in the next few months, the possibility of a rate cut in September will increase. These factors suggest that the Federal Reserve may begin to discuss and implement a rate cut at the upcoming FOMC meeting to support economic growth and ease pressure on the labor market.

[Strong Dollar, Weak U.S. Bonds: The Return of the Trump Trade]

The “strong dollar, weak U.S. bonds” phenomenon refers to the strengthening of the dollar while U.S. Treasury bond prices fall (and yields rise). This phenomenon was particularly prominent during Trump’s presidency, leading to the term “Trump trade”:

• Strong Dollar: A strong dollar occurs when the U.S. dollar appreciates against other major currencies, reflecting investor confidence in the U.S. economy and increased demand for the dollar. This usually coincides with expectations of higher interest rates, as higher rates attract foreign capital to the U.S. for better returns.
• Weak U.S. Bonds: Weak U.S. bonds refer to the decline in the price of U.S. Treasury bonds and the rise in yields, indicating concerns about the U.S. government’s increasing debt burden or expectations of rising future interest rates. Capital flows out of the bond market and into other more attractive investment opportunities, such as stocks or other high-yield assets.

Why Does This Occur? This phenomenon is largely attributed to Trump’s policies:

1. Economic Policies:
   • Tax Cuts: Trump’s administration implemented large-scale tax cuts, including the “Tax Cuts and Jobs Act,” which stimulated corporate profits and economic growth, attracting capital inflows into the U.S. and pushing up the dollar.
   • Fiscal Stimulus: Massive government spending on infrastructure and military expenditures boosted the economy in the short term but also increased government debt, pushing up Treasury bond yields.
2. Trade Policies:
   • Trade Protectionism: Trump’s imposition of tariffs and trade barriers aimed at protecting U.S. manufacturing led to a strong dollar in the short term as tariffs reduced imports and increased demand for the dollar.
   • Trade Uncertainty: Trade disputes with China and other countries heightened market uncertainty, with investors seeking safe-haven assets like the dollar.
3. Monetary Policies:
   • Interest Rate Policies: During Trump’s presidency, the Federal Reserve raised interest rates multiple times, strengthening the dollar. Higher interest rates attracted global capital inflows into the U.S.
4. Geopolitical and Market Sentiment:
   • Geopolitical Tension: Trump’s administration witnessed rising geopolitical tensions (such as with North Korea and Iran), increasing risk aversion and driving up demand for the dollar.
   • Market Sentiment: Trump’s policies and rhetoric often led to market volatility, raising demand for the dollar as a safe-haven asset.

Impact of Trump’s Policy Proposals on the Market

Economic Stimulus and Debt Expansion:

Policy: The Trump administration stimulated the economy through tax cuts and increased government spending. This spurred short-term economic growth but led to higher fiscal deficits and government debt in the long run.

Market Impact: Initially, a strong dollar and high interest rates attracted capital inflows, but long-term debt concerns led to declining U.S. Treasury prices and rising yields.

Trade Protectionism

Policy: High tariffs and trade barriers were implemented to protect domestic industries.

Market Impact: In the short term, this boosted demand for the dollar but heightened global trade tensions, increasing market uncertainty.

Regulatory and Energy Policies

Policy: Deregulation, particularly in the financial and energy sectors, encouraged domestic production and investment.

Market Impact: Stock prices in related sectors rose, but it raised questions about environmental sustainability and long-term viability.

The “strong dollar, weak Treasuries” phenomenon associated with Trump’s policies was driven by a combination of economic stimulus, protectionism, interest rate policies, and market sentiment. While Trump’s policies bolstered the dollar and Treasury yields in the short term, they also raised concerns about fiscal deficits and debt in the long term. Monitoring policy changes and economic data is crucial for understanding and navigating these complex market conditions.

Core Aspects of Trump’s Trade Policy:

1. Protectionism

High Tariffs:

• The Trump administration imposed substantial tariffs on a range of imports, particularly from China, including steel, aluminum, electronics, and household appliances.
• Aiming to reduce trade deficits and shield U.S. industries from foreign competition.

Trade Barriers:

• Besides tariffs, non-tariff barriers like strict import quotas and complex inspection protocols limited foreign goods’ entry into the U.S. market.

2. Bilateral Trade Agreements

Renegotiation and Withdrawal:

• Trump withdrew from key multilateral agreements like the Trans-Pacific Partnership (TPP) and renegotiated others, such as replacing NAFTA with the U.S.-Mexico-Canada Agreement (USMCA) to ensure more favorable terms for the U.S.

Bilateral Negotiations:

• Preference for bilateral trade talks aimed at securing more advantageous deals for the U.S.

3. Trade War with China

Tariff Battles:

• High tariffs were imposed on Chinese imports worth hundreds of billions of dollars, impacting various sectors from electronics to consumer goods.
• China retaliated with tariffs on U.S. goods, hitting agriculture and automotive sectors.

Technology and IP Protection:

• The U.S. accused China of forced technology transfers and intellectual property theft, using tariffs and other measures to push for change. Sanctions were placed on tech giants like Huawei and ZTE, restricting access to U.S. technology.

4. Reducing Trade Deficits and Reviving Manufacturing:

Trade Deficit Reduction:

• A primary goal was to curb trade deficits, seen as detrimental to the U.S. economy, by reducing reliance on foreign goods and fostering domestic production.

Manufacturing Reshoring:

• Tax incentives and deregulation aimed to bring manufacturing back to the U.S., focusing on steel and aluminum industries as crucial to national security.

5. Sanctions and Economic Pressure:

Sanctions as Leverage:

• Economic sanctions were used to force policy changes in countries like Iran, North Korea, and Venezuela, encompassing trade restrictions and financial sanctions like asset freezes and international transaction bans.

Economic Pressure:

• Tariffs and sanctions were tools to compel other countries to concede in trade negotiations, favoring U.S. trade conditions.

6. Impact and Reaction to Policy Implementation:

Domestic Effects:

• Short-term protection of U.S. industries like steel and aluminum was evident, but it also led to higher import prices, impacting consumers and downstream industries. Retaliatory tariffs affected sectors heavily dependent on exports to China.

International Response:

• Trade partners responded with countermeasures, escalating trade tensions.
• Some countries sought alternative markets, diversifying supply chains to reduce U.S. reliance.

Trump’s trade policies, characterized by high tariffs, bilateral negotiations, and economic sanctions, aimed to protect U.S. domestic industries, reduce trade deficits, and encourage the return of manufacturing. However, these policies also led to heightened international trade tensions, increased costs for domestic consumers, and negative impacts on certain sectors. In the long term, the full impact of these policies on the U.S. economy and the global trade system remains to be further observed and assessed.

Long-term Implications of Trump’s Trade Policies:

1. Shifts in Global Trade Patterns

Reorganization of Trade Partnerships:

• High tariffs and trade disputes prompted countries to reassess their U.S. trade relationships, seeking new partnerships with regions like China and the EU.

Supply Chain Diversification:

• To circumvent tariffs, businesses might shift production to cost-effective countries like Vietnam, India, or Mexico, making global supply chains more complex.

2. Impact on the U.S. Economy:

Manufacturing Return and Investment:

• While tax cuts and deregulation may encourage some manufacturing to return, higher labor and production costs could limit this trend.

Rising Consumer Prices:

• Tariffs increased import costs, potentially reducing consumer spending and quality of life, particularly in sectors like electronics and daily goods.

3. International Economic Relations:

Spread of Protectionism:

• Trump’s trade policies could inspire other nations to adopt similar measures, increasing global trade barriers and hindering economic growth.

Challenges to Multilateral Trade:

• Doubts cast on multilateral trade deals weakened institutions like the World Trade Organization (WTO), complicating rule-making and enforcement.

4. Geopolitical and Strategic Effects:

Erosion of U.S. Leadership:

• The “America First” policy diminished U.S. global economic leadership and credibility, encouraging other nations to seek greater autonomy and leadership roles in international affairs.

5. Domestic Political and Social Impact:

Polarization and Division:

• Trump’s trade policies fueled debate, exacerbating political polarization and societal divides.

Job Market and Income Distribution:

• While manufacturing jobs may return, automation limits job growth, potentially affecting income equality as tariffs hit lower-income groups harder.

6. Corporate Strategy Adjustments:

Investment Shifts:

• Uncertainty surrounding trade policy may drive companies to favor investments in politically stable countries.

Localization and Diversification:

• Businesses may opt for local production and diversify markets to mitigate risks from policy changes.

Technology and Innovation:

• Policies limiting access to foreign technology could encourage domestic R&D but may restrict global competitiveness over time.

Trump’s trade policies had a significant short-term impact on the U.S. economy and global trade, but their long-term effects may be more complex and profound. From shifts in the global trade landscape and the impact on the U.S. economy to changes in international economic relations and geopolitical dynamics, these policies are poised to influence the global economic and political environment for years or even decades. In the long term, the sustainability of these policies and changes in the global economic context will determine the specific direction and extent of their impact.

Focus on Interest Rate Cycles and Tax Policies on Tech Stocks, Particularly SaaS.

Amid economic cooling, inflation easing, and the possibility of Fed rate cuts, increasing exposure to tech stocks is a prudent strategy. Investing in companies with strong profitability and innovative potential, and diversifying through tech-focused ETFs, allows investors to harness tech growth in a low-interest environment while maintaining a balanced portfolio for long-term stability.

It is advisable to continue focusing on major IaaS providers and application-side SaaS services. With the development and increasing adoption of AI technologies, IaaS and SaaS companies occupy a unique position to offer essential computing resources and platform services that support the AI transformation of enterprises. These companies can gain direct economic benefits from this trend and enhance customer success, deepening client relationships and achieving sustainable business growth. Looking ahead, AI is expected to be a key driver for further innovation and growth within the cloud computing and SaaS industries.

In the yoga and activewear industry, Lululemon has long been seen as the undisputed leader. However, in recent years, a new brand, Alo Yoga, has gradually emerged and is even starting to threaten Lululemon’s market position. The story behind this is not just the fierce competition between two major brands but also how Alo Yoga, through its unique strategies and innovative designs, has successfully become the new favorite among middle-class consumers. Lululemon’s performance miss for two consecutive quarters is largely related to the increasing competition from Alo Yoga.

Competing with Lululemon

The story begins in 2018 when Alo Yoga was still a relatively niche brand. Lululemon had a solid market share, and its high-quality yoga pants and activewear were loved by global consumers. However, Alo Yoga quietly entered the market and quickly attracted a loyal fanbase with its unique brand philosophy and product designs. Alo Yoga’s rise has caused many consumers to reconsider their choices in activewear.

Design and Versatility: The Uniqueness of Alo Yoga

Alo Yoga’s rapid market success is largely due to the versatility of its product design. Alo Yoga not only focuses on sports performance but also incorporates fashionable elements, making its products suitable for both gym use and daily wear. This dual-purpose design caters to modern consumers who seek both style and functionality (The Yoga Nomads).

Additionally, Alo Yoga’s products often feature earth tones and avant-garde designs, offering options that are both suitable for workouts and stylish for street wear. This design style not only meets consumers’ practical needs but also provides a refreshing visual appeal, making it a popular choice for many fashion influencers and celebrities (ClothedUp).

Pricing Strategy and Shopping Experience: Balancing Quality and Price

In terms of pricing, Alo Yoga is slightly more affordable than Lululemon. Although both brands target the high-end market, Alo Yoga’s products are priced somewhat lower, making it more attractive to price-sensitive, quality-seeking middle-class consumers. For example, Alo Yoga’s sports bras are priced between $40 and $70, while Lululemon’s range is $50 to $80 (yogajala). This slightly lower price strategy allows Alo Yoga to maintain high quality while appealing to more consumers.

At the same time, Alo Yoga offers free worldwide shipping and a 30-day free return policy, significantly enhancing the consumer shopping experience. This hassle-free shopping policy is especially attractive to global consumers, while Lululemon is relatively conservative in this area, offering free shipping only within the U.S., with higher shipping fees for international orders (ClothedUp).

Social Media and Celebrity Influence: Successful Brand Marketing

Alo Yoga is well-versed in modern marketing techniques, leveraging social media and celebrity endorsements to significantly increase brand awareness. Many celebrities and social media influencers frequently showcase Alo Yoga products at public events and on their personal platforms, bringing the brand substantial attention and followers. Through this approach, Alo Yoga has successfully positioned itself as a high-end activewear brand that combines both style and functionality (The Yoga Nomads).

Environmental and Sustainability Efforts: Aligning with Modern Values

Alo Yoga, though still having room for improvement, has made efforts in environmental sustainability, which has earned it the support of a segment of consumers. For example, Alo Yoga operates solar-powered offices and has recycling initiatives, which have helped enhance the brand’s eco-friendly image (yogajala). This environmental consciousness resonates with modern consumers, particularly the younger generation, who value sustainability.

The Success of Alo Yoga

Alo Yoga has emerged as a strong competitor in the market due to not just its high-quality products but also its versatile designs, reasonable pricing strategy, convenient shopping experience, effective brand marketing, and focus on comfort and sustainability. Through these unique strategies, Alo Yoga has successfully attracted a large number of middle-class consumers and is gradually becoming the new favorite in the high-end athleisure market, even beginning to shake Lululemon’s market position.

In the future, as Alo Yoga continues to innovate and enhance its brand influence, its position in the global market is expected to be further solidified and expanded. This not only provides consumers with more choices but also brings new vitality and competitiveness to the industry.

In fact, upon closer examination, Alo Yoga’s strategies have been inspired by Lululemon. The company’s marketing approach bears significant resemblance to Lululemon’s, but Alo Yoga has managed to stand out and achieve remarkable growth due to several key drivers:

1. Social Media and Influencer Marketing

• Emphasis on Social Media: Alo Yoga is highly active on platforms like Instagram and TikTok. Through high-quality visual content, fitness and yoga videos, and brand storytelling, Alo Yoga has successfully attracted a massive following.
• Partnership with Influencers: Alo Yoga collaborates with prominent yoga instructors, fitness influencers, and fashion bloggers. These influencers, with their substantial fan bases, help rapidly increase the brand’s visibility and appeal by showcasing Alo Yoga’s products on social media.

2. Brand Image and Positioning

• Combining Fashion with Function: Alo Yoga’s products not only emphasize functionality but also feature strong fashion elements, catering to consumers who want both aesthetic appeal and practicality. This positioning attracts consumers who care about both fitness results and stylish gymwear.
• Lifestyle Brand: Alo Yoga promotes a healthy, stylish, and active lifestyle, positioning itself not just as an activewear brand, but as a brand that represents a positive, aspirational way of life. This all-encompassing brand image has helped foster strong brand loyalty among its target consumers.

3. Product Strategy

• High Quality and Innovative Design: Alo Yoga invests significantly in product design and quality to ensure its offerings remain competitive in the market. By continually releasing new styles and limited-edition collections, the brand keeps the market fresh and maintains consumer interest.
• Diversified Product Line: In addition to yoga apparel, Alo Yoga has expanded into activewear and accessories, catering to different occasions and consumer needs, thus broadening its market reach.

4. E-Commerce and Direct-to-Consumer Strategy

• Strong E-Commerce Platform: Alo Yoga has invested in building an efficient e-commerce platform, enabling direct-to-consumer sales via its website. By eliminating intermediaries, the brand boosts its profit margins. Additionally, personalized recommendations and online marketing activities improve the shopping experience and conversion rates.
• Flexible Sales Channels: Through e-commerce and social commerce, Alo Yoga can quickly adapt to market changes, seizing emerging consumer trends and demands.

5. Community and Experiential Marketing

• Online and Offline Integration: Although Alo Yoga relies mainly on online sales, it also values offline experiences. The brand organizes yoga classes and fitness events, creating deeper emotional connections with consumers. This integration of online and offline marketing strategies strengthens brand affinity and loyalty.
• Building a Brand Community: Through social media and offline events, Alo Yoga has cultivated a loyal brand community where consumers not only buy products but also engage in brand promotion and community activities, further enhancing the brand’s influence.

6. Agile Market Response

• Quickly Adapting to Market Trends: Alo Yoga is quick to identify and follow market trends, launching products and initiatives that align with consumer demands. For example, during the surge in home fitness and yoga trends, Alo Yoga quickly adjusted its product strategy to meet the growing demand.

Conclusion

Alo Yoga’s rapid rise is no coincidence but rather the result of multiple factors working together. Although many of its strategies are similar to Lululemon’s, Alo Yoga has successfully carved out a niche by placing significant emphasis on social media and influencer marketing, crafting a unique brand image and positioning, releasing high-quality and innovative products, developing a strong e-commerce platform, and building a solid brand community. These efforts have allowed Alo Yoga to gain a strong foothold in the competitive market and win over a large base of loyal consumers.

Moving forward, the competition between the two brands will likely continue.

I have been closely following the Federal Reserve’s policy trends for a long time, always trying to uncover deep insights and the underlying logic in those dry meeting minutes. After reading the minutes of the Federal Open Market Committee (FOMC) meeting held on June 11-12, 2024, I must say that this meeting left me with the impression of “cautious balance.”

Why do I say this?

In this meeting, the Federal Reserve chose to keep the federal funds rate between 5.25% and 5.5%. This decision was not unexpected, but it was a highly significant choice. Over the past year, inflation has indeed decreased, but it has not yet reached the 2% target. In this situation, the Federal Reserve is clearly striving to find a balance—continuing to suppress inflation without excessively stifling economic growth.

The Hawkish Stance

From the minutes, it is clear that the Federal Reserve remains tough on inflation control. The decision to maintain high interest rates and continue reducing the balance sheet are typical hawkish measures. They demonstrate the Fed’s vigilance against inflation risks and its concern that inflation might make a comeback. This tough stance is understandable, as history has shown that when inflation gets out of control, the costs can be enormous.

The Dovish Softness

However, the Federal Reserve is not purely hardline. From the minutes, I sense a gentle dovish tone. The Fed emphasized data dependence and policy flexibility, suggesting that they are not operating in a vacuum but are carefully listening to market signals and the pulse of the economy. Their focus on economic growth and the labor market further shows the Fed’s efforts to balance inflation control with economic support. This cautious and gentle attitude undoubtedly leaves room for future policy adjustments.

Managing Market Expectations

It is worth noting that the minutes mentioned that the market expects potential rate cuts in the future. This is not the Fed hinting at easing, but rather conveying a message: the Federal Reserve is always prepared to respond to changes. If economic data supports it, they do not rule out the possibility of adjusting policies. This attitude reminds me of a doctor holding a scalpel, but always waiting for the optimal time for surgery.

Let’s take a look at the key points from this meeting:

Economic Development Situation

Financial Markets:

• Financial conditions slightly relaxed during the meeting period, primarily due to the rise in stock prices. Market participants generally believe that the federal funds rate has already reached its peak.
• Nominal government bond yields have generally decreased, mainly due to the decline in real yields. Inflation compensation has also fallen, especially in the short term.

Economic Activity:

• U.S. economic activity expanded steadily, with labor market conditions remaining strong. Job creation remained robust, but the unemployment rate rose slightly.
• The consumer price inflation rate has decreased compared to last year, but progress towards the Fed’s 2% inflation target has been gradual in recent months.

Consumer Price Inflation:

• The personal consumption expenditures (PCE) price index for April 2024 rose by 2.7% year-over-year, with the core PCE price index increasing by 2.8%. The consumer price index (CPI) in May showed a total inflation rate of 3.3% and core CPI inflation of 3.4%.

Labor Market:

• Total nonfarm employment growth in April and May was slightly lower than in the first quarter. The unemployment rate rose to 4.0% in May, with a slight decline in the labor force participation rate and employment-population ratio. The ratio of job vacancies to unemployed persons further fell to 1.2.

International Economic Activity:

• Foreign GDP growth in the first quarter strengthened, with services driving Europe’s recovery from a slight contraction in the second half of last year. Chinese economic activity surged in the first quarter, but the sharp decline in loans in April suggests a significant slowdown in economic activity during this quarter.

Financial Conditions:

• The implied path of the federal funds rate in the market is slightly lower in the coming months. Nominal government bond yields have decreased across all maturities, driven by lower real government bond yields.
• Broad stock market indices have risen significantly, driven by investor optimism regarding corporate profits and economic activity.

Economic Outlook:

• It is expected that the economy will maintain high resource utilization in the coming years, with real GDP growth projected to align with potential output growth.
• Total PCE and core PCE price inflation rates are expected to be lower at the end of 2024 compared to the end of 2023. Inflation is projected to approach 2% by 2026.

Participants’ Views on the Current Economic Situation and Outlook:

• Inflation: Although inflation remains high, recent data suggests that price pressures are easing. Specifically, nominal wage growth, though still above the level needed for price stability, has slowed.

• Labor Market: The supply-demand balance in the labor market is gradually improving, with many labor market indicators showing signs of easing pressure.
• Economic Activity: Economic activity indicators show that U.S. economic activity continues to expand at a solid pace. Real GDP growth in 2024 is expected to be lower than the strong growth of 2023, and a slowdown in economic growth may help the inflation process.

Monetary Policy Actions:

• The committee unanimously agreed that maintaining the federal funds rate target range at 5.25% to 5.5% is appropriate under current economic conditions. The Fed will also continue to reduce its securities holdings.
• The committee emphasized that future monetary policy decisions should be data-dependent, considering the evolution of the economic outlook and risk balance.

This meeting indicated that the Fed’s assessment of the economy is generally positive. Although inflation and the labor market still face some challenges, overall economic expansion remains solid. Monetary policy will continue to take a cautious approach to ensure that inflation moves closer to the 2% target while supporting maximum employment. Committee members agreed that the current policy stance is moderate and prepared to adjust policies when necessary to address potential risks.

Let’s look again, through this meeting minutes, we can see the current core trends of the US economy and monetary policy:

1. Economic Growth and Labor Market:

• Economic Growth Steady: The minutes show that U.S. economic growth remains steady in 2024, primarily driven by consumption and fixed investment. While there may be some fluctuations in quarterly performance, the overall economic growth outlook remains optimistic.
• Labor Market Balance: The labor market is gradually balancing, with the supply-demand relationship easing. Although the unemployment rate has risen, overall job growth remains strong. Slower wage growth and fewer job vacancies indicate reduced labor market tightness.

2. Inflation Dynamics:

• Inflation Declines but Remains Above Target: Inflation has decreased over the past year but has not yet reached the Fed’s 2% target. While core PCE and CPI inflation rates have retreated, recent monthly data still show inflationary pressures, especially in core services and import prices.

3. Global Economic Environment:

• Uneven Global Economic Recovery: The recovery of foreign economies is mixed, with economic activity in Europe and China showing volatility. China’s economic growth was strong in Q1, but the sharp drop in loans in Q2 suggests a slowdown in economic activity.

Views on Interest Rates:

1. Current Policy Stance:

• Maintaining Current Interest Rates: The committee decided to keep the federal funds rate at 5.25% to 5.5%, reflecting a cautious stance on the current economic situation. While inflation has decreased, it has not yet reached the target, and maintaining higher rates helps to further suppress inflation.

2. Future Policy Path:

• Data-Dependent Policy Decisions: The Fed emphasized that future interest rate decisions will depend on economic data. Specifically, inflation data and labor market indicators will be key reference points. If future data shows inflationary pressures easing towards the 2% target, the Fed may consider loosening monetary policy.

3. Conditions for Rate Cuts:

• Sustained Inflation Decline: The minutes suggest that the committee will consider lowering rates only if inflation continues to steadily move towards the 2% target. Current inflation dynamics have improved but are not yet sufficient to support an immediate rate cut.
• Economic Activity Slowdown: If economic activity slows significantly, leading to decreased demand and greater suppression of inflation, the Fed may accelerate rate cuts.

4. Market Expectations and Communication:

• Market Expectations of Rate Path: Market participants currently expect a potential rate cut before the end of 2024, but this expectation is more based on a reassessment of economic risks than a change in underlying conditions. The Fed’s communication reflects the importance of market expectations, emphasizing policy flexibility and data dependence.

Through the analysis of this meeting minutes, it is clear that the Federal Reserve has adopted a relatively conservative approach in response to the current economic conditions. Although economic growth and the labor market are performing well, inflation has not yet fully met the target, leading the Fed to maintain a higher interest rate to continue suppressing inflation. At the same time, the Fed emphasizes that future interest rate decisions will depend on the development of specific economic data and will remain flexible to respond to changes in economic activity and inflation dynamics. This strategy demonstrates the Fed’s cautious optimism regarding the economic outlook and its determination to seek a balance between achieving long-term inflation goals and supporting economic growth.

Reflective Insights:

I often wonder, what messages are conveyed behind every decision made by the Federal Reserve? This meeting minutes made me realize that economic policymaking is not just a numbers game but also a profound reflection on the future and a delicate grasp of the present.

The Fed’s “cautious balance” is not only a strategy but also an attitude. In this uncertain era, finding the balance between risks and opportunities is a challenge every decision-maker must face. Perhaps this is the attitude we should also strive for in our own lives: being cautious while pursuing our goals and flexible when facing challenges.

This meeting minutes has shown me the wisdom of the Federal Reserve in seeking stability amid complexity and made me reflect on how we, as individuals, can find our own balance in a constantly changing world. I hope this Fed meeting minutes can provide you with some insights and reflections.

But anyway, with the slowdown in a series of economic data, interest rate cuts are inevitably coming, possibly as soon as September.

Winston Churchill once said, “Success is not final, failure is not fatal, it is the courage to continue that counts.“

First, let me share a poem that I really like. Whenever facing adversity in life, the simple and warm words of the poem can convey a powerful message that strikes the heart.

《Mud》

Perhaps

Many unexpected challenges in life

Like throwing mud on oneself

At the beginning

You will be startled, even infuriated, even frightened

And then, gradually, you will start to contemplate

What exactly are the ingredients in this mud?

Is it the force of fate pressing down on you, or the tangled complexities of human nature?

Or perhaps it’s the rebound of desires, or even self-inflicted?

But no matter what it is,

You may see it as an insult, as pressure, as setbacks,

While I see it as nourishment for growth.

You can think about

The significance of mud to a farmer,

The importance of mud to a flower,

Perhaps you are one of those trees,

Nourishment that helps you thrive and grow.

There is warm sunlight and abundant rain,

But also foul manure and malicious attacks,

It’s not all smooth sailing,

Nor should it be.

Without these trials and tribulations,

How can one carve out a captivating soul?

Therefore, those who pass the test will encounter a wise change of heart,

Those who can change their mindset will succeed.

Mud can then transform into a badge of life!

Let’s encourage each other with these words.

For everyone, the past few years have been unforgettable and bittersweet, worth looking back on, lamenting that this life is not truly mine, when will I forget all these regrets. Recently, all around me has been filled with various unbearable things, one tragic news after another deeply pierced my heart. A talented young woman in her early thirties, who once had a brilliant resume, enviable career, and seemingly bright future, ultimately chose to leave this world. Her story has plunged me into deep contemplation on the darkest moments of life.

This woman graduated from Zhu Kezhen College, one of the top five universities in East China, majoring in economics. She traveled around the world at a young age and joined the fixed income department of a top brokerage firm after graduation. Starting with a high monthly salary, she managed to live a high society life in Shanghai through her own efforts. Her achievements are admirable, but beneath the glamorous exterior, what kind of pressure and loneliness has she actually endured?

Her passing made me see the immense pressure and life’s confusion faced by countless young and middle-aged people in high-paying industries such as finance and the internet. Those of us who once thought we could rely on our own efforts to change our destiny often find ourselves feeling lost and overwhelmed in the darkest moments, with pressure as heavy as a mountain.

Put yourself in my shoes, imagine if I were to suddenly encounter an unbearable setback at the peak of my success, how should I handle it? How can I heal and emerge from the darkest tunnel of the toughest moments?

I was reminded of the classic quote from Winston Churchill in the movie “Darkest Hour”: “Success is not final, failure is not fatal, it is the courage to continue that counts.” At that time, with the threat of Nazi Germany, Britain was facing a dark and seemingly hopeless future. Churchill, with his firm determination and fearless courage, led the country through its darkest hours. Even in the most difficult moments, he held onto his beliefs, inspired others, and demonstrated through his actions what it means to have the courage to swim against the tide.

The story of Churchill made me realize that in the darkest moments, what we need is precisely the courage to hold onto our beliefs. No matter how great the difficulties we encounter, we should believe in ourselves and trust that there will always be light ahead.

As long as there is life, there is hope!

When facing setbacks, James Soong once said, “Many sudden tests are like mud thrown on oneself. At first, everyone will be shocked, even angry, even fearful. Then, we gradually start to think about what ingredients are in this mud, whether it is the fate of the times pressing on us, or the complex entanglement of human nature.” Perhaps, this is the essence of life – setbacks and blows are part of life, all we need to do is to unload the burden and start anew.

If reality slaps us in the face, then hold on, don’t let this slap completely knock me down. Marriage hitting the rocks? Then divorce and start over. Salary cut at work? Even after the cut, the monthly salary is still higher compared to the average person. Housing prices dropped, down payment lost? Just sell the house and recover the cash flow. Even if you have children, after divorce, you can still ask your parents for help with childcare.

Effort to adjust one’s cognition, improve the evaluation of oneself in the heart, achieve reconciliation with oneself, and realize the internal logic’s consistency. Every person who encounters the darkest moments must learn this lesson. Life is bitter, only self-liberation can bring relief.

As the economist Mises once said, “in times of historical rubbish, the wisest strategy for the wise is to “lie low, watch the show, and wait.” This phase may witness a series of thrilling events, but we must maintain optimism towards individuals and caution towards the era. During these rubbish times, taking care of our physical and mental health, accumulating capital, and accumulating experiences are the best choices we can make. Alternatively, we can explore life in places where there is no rubbish time.”

In this world, each of us is like a mayfly in the vast expanse of heaven and earth, a mere speck in the boundless ocean. Before the epochs, we are but a grain of dust. And when the dust of the era falls on each person’s shoulders, it feels like carrying a mountain. This makes us realize clearly that everything in life is cyclical, whether it be glory or trough, all are natural parts.

The changing of the seasons, the rising and setting of the sun, the waxing and waning of the moon, all follow natural laws, all part of the cycle of reincarnation. The operation of the market and economy also has its cycles, like a pendulum swinging from one extreme to another. The time spent in maintaining a stable state in the middle is scarce, and behind all the revivals, prosperity, decline, and recession lies human nature. Because economic operation is composed of the activities of each individual, market operation is determined by each participating entity, and fluctuations and cycles are due to human nature. As long as there are people, there will be cycles, so in investing, one must believe in cycles.

In recent years, my experiences have taught me that after so many years of investing, the greatest gain is realizing that everything is cyclical.

Trees do not grow to the sky, even the most outstanding companies will encounter unimaginable headwinds in the face of the times. In times of adversity, the most important thing is to protect oneself, because the evolution of many things may far exceed expectations, far beyond your imagination, and one should never stick to conventions.

Returning to investing, the three key elements of success in life are timing, location, and people, with timing being the most important. The three key elements of successful investing are timing, stock selection, and allocation, with timing also being the most important. Many times, we believe we have the ability to pick various ten-bagger stocks, but in hindsight, each of us earns the alpha of the era. In the face of the trend of the times, we are all dust. For us, the most important thing is to see the trend of the times clearly, follow the major trend, and find the most outstanding asset class for this stage.

Mark Twain once said, “History doesn’t repeat itself, but it often rhymes.” Where there are people, there is a community, and there are cycles. According to Howard Marks, cycles do not move in a straight line, but rather in a curve. Long-term trends act like a big magnet, with the attraction of mean reversion. Therefore, after a big rise, there is a big fall, and after a big fall, there is a big rise. However, once moving towards the mean, there is an inertia of deviation from the mean. It’s either moving towards greed or moving towards fear.

In times of market greed, when fear dominates, one sees more risks than opportunities, which is a sign of mature investing. From the perspective of human insignificance and cycles, when facing the darkest moments, we need to stay strong.

To those going through their darkest times, I want to say: please do not give up. You are not alone in this battle. There are many others in the world going through the same confusion and pressure as you. We need to support each other, encourage each other, and get through this difficult period together.

Life is like a journey in the opposite direction, and I am just a traveler. Every dark path we walk is leading us to a brighter future. As long as we believe in the path ahead, one day we will see the bright side.

Let’s encourage each other!