Source: Brokerage China Author: Qu Hongyan Recently, China Yangtze Power hit a historical high and once again showed the slow bull stock trend of "tripling in ten years". The slow bull market has left behind many passers-by and brought good returns to the steadfast investors. It is "rare for those who triple in one year to be like carp jumping over the dragon gate, while those who double in three years are few and far between." On the other end of the investment world, however, violent collapses are also deafening, with many financial products suspected of "Ponzi schemes" ceasing payments, leaving investors with no hope of recovering their investments. Both positive and negative cases illustrate the importance of forming a suitable mentality towards money in one's lifetime; otherwise, sooner or later, you will divorce yourself from your money. "I call this the money mind, a person's IQ can reach 120, 140, or even higher levels, and perhaps some people's minds are good at doing one thing, while others are good at doing another. They can do things that most ordinary people can't do. But I know some very smart people who make very foolish decisions because they lack the money mind." Buffett once said so. The so-called money mind refers to believing in common sense, believing in compound interest, being cautious and rational, thinking independently, prioritizing security over return, not dealing with people with questionable character, not easily guaranteeing for others, not believing in windfall profits, and not trying to cross legal norms for extra benefits. In today's world of ubiquitous information, everyone's wealth may become the "prey" of those with ulterior motives. Only with the money mind, can one form good behavior habits and shield oneself from separating from one's wealth. Do not entrust your wealth easily. Wealth is easy to lose but hard to accumulate, and trust is a vital reason leading to the rapid loss of wealth. "Do not allow anyone else to manage your business unless you can watch their every move closely and understand their behavior; or you have strong reasons to believe in their character and ability. For investors, this criterion determines when you can let someone else make investment decisions for you." Graham's criterion written eighty years ago is so clear. Almost all the investors who lost their wealth in the financial products have violated the above two criteria. They did not have the ability to closely supervise the whereabouts of their funds, nor did they have sufficient reasons to believe in the character of the product issuers. They easily invested their own wealth solely based on others' glib tongue and a piece of commitment paper. They did not act as gatekeepers of their own wealth and ended up with nothing left even if the government punished the wrongdoers. "An ounce of prevention is worth a pound of cure." This is a phrase Munger often says. Destiny must be in one's own hands, and investors with a suitable money mind will try their best to find suspicious points in their investments to protect the safety of their principal. For example, whether the manager is trustworthy, whether the underlying assets are profitable, whether oneself can timely monitor the risks in the investment process, and whether the sales staff is obtaining large commissions. As long as any unreliable signs are found, these investors firmly will not invest their money. Do not desire to get rich quick. As in the capital market and anywhere else, making money is not easy, and desiring to get rich quick will lead to quick loss of wealth. In the capital market, the desire to get rich quickly often leads to investors over-allocating specific stocks, industries, or assets at the worst time. For example, buying high-risk stocks that can gain huge returns once an adventure succeeds, but the chance of success is very small, also known as "whispering stocks" by legendary fund manager Peter Lynch. "They often tell investors a story with explosive effects. These 'whispering stocks' have a hypnotic effect on people, and it is easy for you to believe that the story the company tells has an emotional appeal that can easily confuse you." This is like hearing a very tempting "sizzling" sound, making you salivate, but you did not notice that there is no steak on the grill. In the eyes of investors who lack the money mind, stable yield provided by blue chips such as China Yangtze Power cannot meet their demands. However, historical experience clearly shows that buying stocks lacking in safety solely based on imagined high yields is unwise. The long-term average investment return of general stocks is 9%-10%, which is also the average investment return of stock indexes in history, a benchmark to measure one's investment performance and the benchmark to measure fund investment performance.
Author: Chen Ming.

On September 7th local time, US Treasury Secretary Yellen stated that the financial system does not have a 'red light flashing', and the US economy is healthy. The recent cooling of employment data over the past few months is a signal of a soft landing, not a recession. In addition, according to Reuters, Yellen said on the 7th that she may soon meet with Chinese officials again.

On the day before Yellen made the above remarks, which was last Friday local time, concerns about a US economic recession were raised as the nonfarm payroll growth was significantly lower than expected, leading investors to sell their US stocks. On that day, the Dow Jones Industrial Average fell more than 1%, the Nasdaq dropped 2.55%, and the S&P 500 Index fell 1.73%. Within a week, the Dow, Nasdaq, and S&P 500 Index fell 2.93%, 5.77%, and 4.25% respectively. Among them, the market cap of the leading AI stock NVIDIA evaporated more than $400 billion in a week.

Yellen's 'call out'

US Treasury Secretary Yellen attempted to reassure the public on Saturday that despite a series of weak employment reports causing investor unease and putting pressure on the stock market, the US economy remains strong. Yellen stated that the financial system does not have a 'red light flashing', reinforcing her view that even with weakened job growth, the US economy has achieved a soft landing.

Yellen said, 'For the United States, the risk indicators we are monitoring, whether it is asset valuation or leverage, look good. I have not seen a red light flashing.'

Yellen said, "We are concerned about the downside risks to employment data, but we will continue to see a good and stable economy." Yellen said, "Despite the risks, we can successfully lower inflation while maintaining strong growth. This is what most people call a soft landing." The wage increase is considerable and exceeds the rate of inflation. Yellen said that consumer spending remains "fairly robust," and although hiring is "not as crazy," there are no substantial layoffs, and the monthly job growth is roughly at the level needed to absorb new entrants to the labor market.

At the age of 78, Yellen also said that after the end of Biden's term in January next year, she may "likely end" her government's top-level position.

On the day before Yellen made the above comments, on Friday local time, the United States reported another month of lower-than-expected employment data. On that day, the US Bureau of Labor Statistics released the August non-farm payroll report. The data showed that the non-farm employment, which measures job creation in the United States, increased by 0.142 million people in August, lower than the expected 0.165 million people. The previous value increased by 0.114 million people. This data once again raised concerns about a slowdown in the labor market.

In addition, the non-farm payroll for June was revised downward from 0.179 million to 0.118 million; and the non-farm payroll for July was revised downward from 0.114 million to 0.089 million. After the revision, the total employment added in June and July was 0.086 million lower than the previous revision. Despite the slowdown in job growth, the US unemployment rate in August remained at a low level of 4.2%, in line with expectations, slightly down from the previous value (4.3%), marking the first decline since March of this year.

The above data has raised concerns among investors about a possible "hard landing" of the US economy. After the release of non-farm data, US tech stocks experienced a sharp sell-off. On that day, the tech-heavy Nasdaq dropped by 2.55%, the S&P 500 index fell by 1.73%, and the Dow Jones Industrial Average fell by 1.01%. Among them, chip stocks plummeted, with Broadcom falling by more than 10%, ASML Holding falling by more than 5%, Nvidia and Taiwan Semiconductor falling by more than 4%, and Advanced Micro Devices, Micron Technology, and Qualcomm falling by more than 3%.

Recent economic data released in the past week shows that manufacturing activity in the United States is still in contraction, and the job market is also cooling down, which has caused investors to have strong concerns about the future prospects of the US economy. Last week, the Dow Jones Industrial Average fell 2.93% in total, the S&P 500 fell 4.25%, and the Nasdaq fell 5.77%, making it the worst-performing week for US stocks since March 2023. In addition, there has also been significant volatility in the US bond market.

How much should the interest rate be lowered?

Currently, there is almost no suspense in the market about the Federal Reserve initiating the first rate cut in four and a half years at the policy meeting on September 17-18. However, there is a big divergence on Wall Street regarding whether the Federal Reserve will cut the interest rate by 25 basis points or 50 basis points in September.

When the non-farm payroll data was just released, the interest rate futures market quickly took the lead in betting on a 50 basis point rate cut by the Federal Reserve. But after a short period of time, investors, upon careful examination of the non-farm data, seemed to feel that the performance of the non-farm was not too bad after all, and the probability of a 50 basis point rate cut fell back from 60% to 40%.

According to the Chicago Mercantile Exchange's tool for monitoring the Federal Reserve, as of the close on Friday, market traders expected a 70% probability of a 25 basis point rate cut by the Federal Reserve in September, while the probability of a 50 basis point rate cut was 30%.

Federal Reserve Board member Waller stated that it is now time to lower the target range for the federal funds rate, considering sustained progress in inflation and cooling in the labor market. Waller pointed out, 'If the data supports a series of rate cuts, then I believe that a series of rate cuts is appropriate. If the data indicates the need for a larger rate cut, then I will also support it. In 2022, when inflation was accelerating, I strongly advocated for raising rates ahead of schedule, and now, if appropriate, I will support lowering rates ahead of schedule.'

John Williams, the third-ranking official at the Federal Reserve and president of the New York Fed, said that given the progress made in reducing inflation and the cooling of the labor market, it is appropriate for the central bank to lower interest rates now. John Williams also said that he has no opinion on whether the Federal Reserve should lower rates by 25 basis points or 50 basis points.

Gennadiy Goldberg, head of U.S. rates strategy at Barclays, pointed out, 'This jobs report can support a 25 basis point rate cut, but it also provides the basis for a 50 basis point rate cut.'

Michael Hartnett, Chief Investment Strategist at Bank of America Merrill Lynch, believes that although the Federal Reserve is likely to cut rates by only 25 basis points at the first rate cut, it will still make substantial cuts afterward. He believes that the most favorable move at the moment is to 'sell the first rate cut' and wait for a better opportunity to enter the market for risk assets.

Jan Hatzius, Chief Economist at Goldman Sachs, pointed out, 'We believe that these statements are consistent with our forecast of a 25 basis point rate cut in September. If the labor market continues to worsen, the Fed's leadership will be willing to cut rates by 50 basis points at subsequent meetings.'

For investors in the U.S. stock market, the announcement of a 50 basis point rate cut by the Federal Reserve could potentially trigger a new round of stock market crashes. If the Federal Reserve chooses to cut rates by 25 basis points in September, it is essentially equivalent to a 'preventative rate cut,' indicating that the Fed's outlook for the U.S. economy is relatively optimistic, and the 25 basis point rate cut is more based on preventing the U.S. economy from entering a recession. On the other hand, a 50 basis point rate cut largely suggests that the Federal Reserve has a relatively pessimistic view of the U.S. economy - that is, Fed officials may see significant signs of an economic downturn, increasing the likelihood of a self-fulfilling recession and also meaning that the starting point for the Federal Reserve's rate cut may not be equivalent to a 'preventative rate cut,' at which point the U.S. stock market may be plunged into panic selling due to recession expectations.

Editor/Somer