To The Moon

The fluctuation of U.S. bonds in the past two days is very high, which can be summarized as the current long-empty reaction to the interest rate of U.S. bonds And other market indexes/behaviours from ETFs like  $Semiconductor Bull 3X Shares(SOXL)$ $Nasdaq100 Bull 3X ETF(TQQQ)$ $Nasdaq100 Bear 3X ETF(SQQQ)$  is somewhat bull trend 

Weghy U.S. debt: U.S. debt ceiling + inflation does not fall

Liduo U.S. debt: company thunderstorm + corporate recession + inflation decline

In the regional bank incident that broke out in March, a total of three banks had problems. After the weekend, the FED held an emergency meeting, and the U.S. government and the FDIC also entered the rescue. In the end, banks are provided with enough cash to cope with the run by the two practices of "American Deposit Insurance" and "American Treasury Loan".

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In fact, after reading the official response at present, I have been not optimistic about the bank incident after thinking about the source of the bank's profit and the instinctive reaction of the masses.

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The operation of the bank is as: after receiving the depositor's deposit (debt), it must use "loan" and "investment" to earn the spread. After deducting the interest and related costs paid to the depositor, the balance is profit.

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The situation in 2020 is that hot money has flooded into the market and enterprises, and enterprises have obtained a large amount of funds and deposited them into the banking system. In addition to lending, banks use a large amount of funds to buy bonds and other commodities to earn spreads. In the era of 0 interest rate in 2020, the long-term bond interest rate is about 1.5%-2%, so the whole bank operates quite smoothly.

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In 2022, due to the rapid inflation and the sharp interest rate increase, the bond price fell sharply, and the bank's unrealized loss soared. Coupled with the destocking of enterprises, the profit- Proficiency has decreased. The high interest rate also leads to the company's low willingness to lend, and can only continuously withdraw deposits from the bank to supply the operation needs of the enterprise.

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From the background of two different years, it can be inferred that the era of high interest rates is bound to keep the outflow of bank funds, and the unrealized losses of the bank itself will continue to expand.

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In a vernacular way, the 100 yuan held by the bank lost 30 yuan due to investment losses, and the principal was reduced by more than 20 yuan due to the depositor's run-up. However, because most of the bank's cash was invested and the cash was insufficient, the bonds originally held at maturity must be sold. The loss has been realized. Although the bank was not crushed by a run because of FED and FDIC rescue, the principal was only less than 50 yuan left, and the interest paid to FED within a year (more than 4.5%) had to be deducted.

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If the bank still has 70 yuan of principal and has not suffered a run, it can still slowly recover in the form of fixed annual income. However, due to the continuous loss of principal due to the run, it is extremely difficult to achieve the loss change in the plain first.

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From the perspective of depositors, the insurance balance of the FDIC has an upper limit, which also means that if there are bank problems in the future, it may lead to the later explosion of bank depositors and may not be able to get compensation. Under such human instinct, the phenomenon of depository fund transfer will be very obvious. The continuous inflow of funds from large banks and the continuous outflow of funds from small and medium-sized banks makes the situation more difficult.

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Yesterday, there was another banking crisis, and the stock price melted, which also dragged the index down. I don't think he will soon become a big crisis, but according to the superficial logic above, the situation of small and medium-sized banks in the United States should be very difficult.

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With the news of sporadic bank closures, depositors will only continue to move funds to large banks, and the bank side will be more conservative about the lending business, which will pose challenges to the survival of small and medium-sized enterprises. Such a death spiral is likely to eventually evolve into large banks and large enterprises that can be repaired due to abundant cash, but small and medium-sized banks and small and medium-sized enterprises will become disaster areas.

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It is believed that the initiator FED and the U.S. government should be as fast as in March, but the disposal method in March is a bit like taking a bucket to add water directly wherever there is a leak, but the leakage is not blocked. Instead, cracks and seepage begin to appear in more places.

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This pressure should be the biggest for the UNFA. High interest rates hit high inflation, but it will cause financial austerity. This time, the Federal Council will raise interest rates by one yard, which may have a negative impact on the index, but it is likely to be beneficial to U.S. bonds.

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Also, due to the above evaluation, I can't predict the time of the above events and the impact on the index when they occur. So I chose to hold 100% bonds from March, preferring to miss the opportunity cost, or at least guarantee the basic profit.

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After all, only the re-rising of inflation is the bearishness of U.S. debt, but the current high interest rate will make the probability of recession continue to rise, and the probability of inflation re-up will naturally continue to decline. For U.S. bonds, it is an investment with a high winning rate, but this does not include corporate bonds. The price of corporate bonds will fluctuate with the company's stock price, and I don't recommend any corporate bonds.

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It seems that the United States will inevitably fall into a recession or a systemic crisis in the end.

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Finally, I reinvested the dividends TMF gave me yesterday, and I continued to wait for FED to deal with this slowly expanding but unresolved dilemma.

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