Chapter 196 Sit tight, hold on

Zhao Xinyue sat quietly beside him, first filling a cup of tea for Li Feng, then silently asked:

“So, is the market in the first stage or the second stage now?”

"I've seen people say there will be another brutal correction in the future, and the market will have to repeatedly consolidate its foundation around 3,000 points."

Li Feng turned around and said with a smile:

"Why, the index just hit 3,000 points, and even you, a 12-year veteran stock investor, can't sit still?"

He slowly turned around, picked up the teacup and took a sip, then continued:

"The Shanghai Composite Index has been hovering around 3,000 points for several years, seemingly forming a ceiling. However, I personally believe that after this market rally, 3,000 points will likely become the bottom for the Shanghai Composite Index."

"Because, whether looking at the banking and insurance stocks, which are the core weights of the two markets, or the oil and petrochemical stocks, the Shanghai Composite Index has basically no room to fall."

"At the same time, the macroeconomic deleveraging process is basically nearing its end. This is typically seen through the introduction of policies that build first and then break down, and has begun to mitigate risks in the real estate industry."

"The real estate industry is the mother of the economy. Supporting it and mitigating its risks can directly support the economy and indirectly affect dozens of industries."

"In addition, there is also the continued easing of monetary policy, lowering the reserve requirement ratio and interest rates..."

"Many people are hoping the stock market will adjust again, perhaps to a double bottom. However, I personally believe that this possibility is very small, no matter how you look at it. The Shanghai Composite Index is likely to replicate its trend in early 2019 and surge directly to over 3,000 points!"

"Right now, it's just a general rise. After we select the stocks, we should sit tight and wait for the market to go up!"

After listening to this, Zhao Xinyue thought for a moment and then asked:

"I heard that the Federal Reserve's monetary policy, in addition to cutting interest rates, may also continue to tighten. What do you think the US monetary policy will be like?"

"These days, I've been following the Federal Reserve's various meetings and statements, but the more I pay attention, the more confused I feel."

"You're right if you can't figure it out," Li Feng said with a smile. "When you think you've figured it out, you're wrong."

"What do you mean? What does it mean?" Zhao Xinyue was very surprised.

"Because both fiscal and monetary policies have an expectation effect, especially when it comes to controlling inflation. When the market forms consistent expectations, inflation becomes difficult to control, and even various policies may be difficult to be effective."

"Therefore, the Federal Reserve's monetary policy since the middle of the last century has been to pursue ambiguous policies and manage expectations, striving to dispel the market's consensus expectations."

"For example, in 2021, market inflation was extremely severe, setting a 40-year high, but the Federal Reserve often said that inflation was temporary and possibly unsustainable and needed to be observed."

"Are they really unaware that inflation is making a comeback? No, their goal is to dispel the market's consensus expectations of inflation."

After a pause, Li Feng continued:

"The Fed has been obfuscating market judgment, repeatedly postponing the timing of rate hikes and even hinting at the possibility of further increases. This is intended to dispel the market's consensus expectation of rate cuts, keep people confused, and calm market volatility."

"We can analyze this in this way: the Federal Reserve now has only two choices: either cut interest rates, or not cut interest rates, or even raise interest rates."

"A rate cut is the most likely outcome, and we all know that this will lead to a resurgence of inflation. However, if rates are not cut, or even raised, we can also predict the consequences: economic pressure, further intensification of commercial real estate risks within the banking system, and ultimately a recurrence of the 2008 economic crisis."

"In this extraordinary moment of great power competition, the chances of the Fed raising interest rates and causing a self-destruction are small, but whether it raises or lowers interest rates, the ultimate result will still be a rate cut."

"Everything has its limits, and prosperity will eventually decline. The end of interest rate hikes is interest rate cuts."

"The main logic behind my current investment is that the Fed's interest rate cut cycle has begun, coupled with the easing of domestic monetary policy, which has led to a resurgence of inflation."

"I believe it and I'm betting on it."

Zhao Xinyue thought for a moment and said, "Would you consider investing in other industries?"

"Many other industries, such as home appliances, real estate, and even consumer stocks like pharmaceuticals, have relatively low PE ratios. Some even have high dividends and have seen good growth recently."

"These industries," Li Feng pondered, "I didn't have a deep understanding of them before. Now I personally believe that these consumer stocks, the so-called consumer upgrade stocks, are fundamentally post-inflation beneficiaries."

"A round of inflation, or a round of monetary easing, starts with the central bank opening the floodgates and sweeping down. Commodities like gold and copper will benefit first, followed by real estate, stocks, stamps and other investment products."

"Ultimately, inflation will be transmitted to the end user, that is, to every individual. Individual wages will rise sharply, and residents' basic living necessities will rise sharply. For example, the price of food and egg-filled pancakes on the street will rise sharply."

"At this time, residents' incomes have nominally increased significantly, which has laid the foundation for consumption upgrades. A large number of consumer stocks, such as soy sauce, liquor, noodles, and even home appliances, automobiles, and real estate, have the basis for both volume and price increases, and further growth in performance."

"That's why I won't look at consumer stocks or even financial and insurance stocks right now, because these are post-inflation stocks, and right now, inflation hasn't even started, let alone buy them."

"So, how long do you think it will take to buy it?" Zhao Xinyue asked further.

Li Feng pondered for a moment and replied:

"To answer this question, we must address the difficult question of when inflation will come. My personal guess is that this round of inflation will arrive in 25 or 26 years, but no one knows how long it will last. It could be one or two years, or three to five years, or it could slow down before another round. Let's invest in inflation-benefiting stocks first and then decide when the time comes."

"Is that so..."

Zhao Xinyue looked at the consumer stocks, real estate stocks, home appliance stocks, cement stocks, etc. with such low valuations and couldn't help muttering to herself, "Why do we have to wait so long for these stocks? They're already quite cheap now..."

"It's not impossible for these stocks to rise again," Li Feng said. "I'm just choosing the strategy that I think has the highest chance of success based on the current time point."

"Maybe I'll be wrong, maybe the market will surprise us, no one can say."

“However, once we determine our trading strategy, we must stick to it unless it is overturned.”

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