From March thirty-first, two thousand twenty-five, to April fourth, two thousand twenty-five

I. Foundation

resistance to change and hence greater dependability for the results shown in the past.

The non-bailout version of QE: Operation Twist 2.0

Debt refinancing will begin to concentrate in earnest this year, increasingly weighing on asset prices. There is still 10 trillion dollars of U.S. government debt coming due, As always, competition for capital between the public and private sectors will be extremely intense this year.

Further reading: Notes250227 The Fed's QT and the impact of the debt ceiling on market liquidity

Notes250327Positioning the United States (Two): Signs of a Recession

The Federal Reserve’s current actions are already moving back toward some form of quantitative easing (QE), but they would never directly say, “This is QE”; the Fed would never call it that.

This is also why, before writing today’s Notes, we need to first clarify the QE logic for everyone...

Further reading: Notes250328 four different forms of QE: An Introduction to the Concept of Monetary Financing

Even if there is no so-called recession or market crash this time, the Federal Reserve may still launch a form of “asset purchases outside a bailout context,” whose Possible forms include balance-sheet composition twist operations, while their real aim is to find a way to bring down the long end of the yield curve:

At least from Bessent’s perspective, the Treasury clearly wants to finance the fiscal deficit by issuing short-term Treasuries (T-bills). This can be sustained only if there is enough demand while the supply of long-term Treasuries increases.

Even if it is unwilling, under its core objective of maintaining stability, the Federal Reserve will most likely step in through some form of “balance-sheet twist operation” and play a stabilizing role in the long end—whatever banner they use to do it.

So the process for this operation is as follows:

1) Use T-bills instead of long-duration Treasury debt to finance borrowing, lowering long-term rates;

2) The Fed’s balance sheet conducts a duration swap: sell at the short end and buy at the long end;

3) They do not call it QE publicly, but structurally it becomes an operation resembling QE internally;

This lets them avoid using the word “QE” directly, because as soon as they say it, the market will immediately question the credibility of monetary policy and may even panic.

This approach is more like a lighter version of the Japanese YCC (yield curve control). Its purpose is to control long-term rates in a “non-QE” form, thereby creating fiscal financing room. The Treasury wants to keep financing itself with short-term debt in a high-rate environment to maintain the appearance of a manageable interest burden—which means there will be more long-term debt supply in the market, and new buyers will have to step in to absorb it.

Simply put, even without a recession, the Federal Reserve may return to balance-sheet expansion under the name of “non-QE” and actively intervene in long-term rates to address fiscal deficit pressures and debt rollover problems.

2025.04.02

II. Insights

Our Viewpoints and ideas on market.

Positioning America (three): The Fragile Symbiosis Between Private Credit and Pensions

Moral hazard never really left..

If this cycle most resembles the year 2008, it is not because of banks or MBS, but because of Private Credit—and this time, it is not only bigger, but also more hidden.Under policy encouragement and institutional exemptions, this system has become a highly leveraged, lightly regulated, interconnected black box, and Its downstream exposure is the US pension system.

In other words, the housing market certainly has problems too, but from a systemic-risk perspective, by comparison, today’s housing market no longer poses the kind of systemic threat it did back then, while the corpo t credit market problems are more urgent, because their transmission through the financial system is stronger.

If market liquidity runs into trouble, compared with MBS, the Federal Reserve is more likely to intervene in corporate credit—for example, by establishing some kind of long-term liquidity facility to channel support to parts of the corporate sector—rather than return to the housing market.

The problem in corporate markets is that private credit is expanding very rapidly and has very little transparency, yet it is closely connected to traditional financial institutions. This combination may pose genuine risks—and the Federal Reserve can barely see what is happening in this area now. That is what makes it complicated.

US Treasury Secretary Scott Bessent has recently praised Private Credit in glowing terms, for an obvious reason: tighter regulation has left banks with severely inadequate lending capacity, while Private Credit is “more flexible and willing to take risks,” able to fill credit gaps and promote employment and business expansion.

Or, put another way, private credit fills the gap left by bank lending precisely because it is unregulated.

One of the new administration’s priorities is financial deregulation. Bessent has also taken a fairly positive stance when discussing Private Credit, because they want to ease regulation of the banks.

The issue with private lending is not whether to oppose an unregulated lending system. Private Credit can finance companies that banks are unwilling to lend to because of regulatory constraints, and that is reasonable. The key risk here is that they cannot be allowed both to expand freely and to receive a swift bailout when things go wrong.

This is a standard moral-hazard dilemma. Once the market expects that risky investments will always be rescued, the systemic problem will not come from loans going wrong, but from there being no cost when they do.There is no cost when things go wrong.

More importantly, private credit is actually a “system with hidden connections,” not a “truly independent system.” It relies heavily on the banking system for liquidity and leverage and is connected to the banks themselves, while its asset side faces pension funds, insurers, and institutional clients directly.

Many Private Credit funds obtain financing from banks through various channels, while pension funds keep investing in Private Equity and Private Credit; the latter, in particular, also provides leverage for the former’s projects, This middle layer looks “market-based,” but both ends are systems sensitive to the public.

The core issue is that pension funds have become overly dependent on Private Credit.It is not that Private Credit is too greedy, but that pension funds are too hungry. When interest rates stay at zero for a long time and traditional assets cannot meet benefit obligations, pension funds begin chasing “unmarked risk” and treating illiquid assets that cannot be valued for long periods as a “source of stable returns.”

And this time, they have bet too much.

On the other hand, pension funds effectively come with a giant “policy put option”, such as the California Public Employees’ Retirement System (CalPERS)—even if it made bad investments, would it really be allowed to go bankrupt? Impossible: if these pension funds get into trouble, they will ultimately be rescued through tax increases.

When US public pension funds buy Private Equity and Private Credit on a large scale, the issue can no longer be “market neutral”:Once the problem ultimately erupts in public pension funds, the government cannot possibly refuse to bail them out.

The implicit expectation of a system-wide bailout is the greatest source of risk.If the leverage chain behind Private Credit breaks, the consequences will not be limited to hedge funds or Family Offices; they will extend to the pensions of tens of millions of public servants, teachers, and firefighters—the voters.This model, which turns “systemic risk” into a policy hostage, could very well be repeated by PE/Private Credit: “If you don’t bail me out, you’ll have to bail out CalPERS, so you might as well bail me out directly.”

So The key going forward is to watch where the regulators responsible for Trump’s financial deregulation agenda intend to build the “firewall”:Will they make Private Credit bear the consequences while intervening only to contain spillover effects? Or will they say, “To keep things from getting completely out of control, we have no choice but to grit our teeth, pay a price, and bail out these private lenders directly to protect the whole system…”

Ultimately, they will most likely choose the “bail out Private Credit first” path.

Although the circumstances are different, the market has already seen a similar operation in the case of Silicon Valley Bank (SVB). SVB was not remotely a systemically important financial institution; depositors should have borne their own losses. But to maintain confidence in the system, even “non-systemically important” Tech Bros received full protection. If a credit fund really blows up in the future, the Treasury and the Federal Reserve are unlikely to stand by,

Private Equity + Private Credit + public pensions form a “hidden systemic-risk loop.” When the risk materializes, the authorities are highly likely to use “limited rescues of private interests” to avoid “a full-scale bailout of the public.”

Private Credit is not outside the system; it is the new front end of systemic risk.The deeper risk lies not in leverage and liquidity themselves, but in the fact that the market already believes someone will step in when trouble hits. Once that belief becomes reality, the original market logic comes to an end.

2025.03.31

Positioning America (four): The K-Shaped Economy: Leverage, Illusion, and “Paper Prosperity”

GDP doesn’t care who’s spending. But markets should...

In the years since the pandemic, the term “K-shaped economy” has been used repeatedly, but few people truly understand the divergence in consumption structure and the market feedback mechanisms behind it.The essence of the K-shaped economy is simple: high-end consumption can still support the macro data because the stock market has not yet crashed; once the stock market catches up on the downside, consumer spending will lose momentum abruptly.

The market’s biggest illusion right now is that consumption looks decent, so the economy must be in fairly good shape. But under a K-shaped economy, this is actually the result of paper prosperity, while the real underlying foundation is already sinking.

Put simply: consumption currently looks acceptable on the surface, but the structural divide is severe (K-shaped), and GDP it is still being supported in the short term by “high-net-worth individuals + the wealth effect from asset holdings.” If the stock market catches up on the downside, high-end consumption will collapse and the overall consumption data will lose momentum as well—the US stock market has become the economy’s confidence anchor and consumption engine.

After the pandemic The current US recovery is essentially a K-shaped recovery, and the lower arm of the K—that is, lower-income consumers—is indeed getting worse. But as long as the upper arm of the K (higher-income groups) spends enough to keep overall consumer spending at a certain level, the system can still hold up.

However, as the opening line of today’s Notes put it, I hope everyone keeps this sentence in mind:

GDP doesn’t care who spends it—but we should

A fairly representative optimistic view is that the United States is not currently on the verge of an immediate recession unless the stock market first makes a major correction. The data show that retail sales have not “fallen off a cliff”: performance is poor, but there has been no sudden collapse. Even though lower-end consumption is weak, spending by high-net-worth individuals is still providing a backstop.

The K-shaped economy is what gives bulls confidence in the consumer data, Although the lower groups are deteriorating, as long as upper-income groups keep spending actively and “aggregate spending holds,” then GDP the figures can still hold up, because in the statistics, Spending is spending. GDP doesn’t really care where it comes from....

The biggest problem with this kind of economy or consumption structure is:The marginal consumption of high-income groups is based not on wages but on their stock-market accounts. They spend the “paper gains” in their portfolios; once those gains shrink, consumer spending will be sharply reduced immediately.

GDP: It does not matter who spends the money; as long as someone spends it, the headline data can hold up.

But all of this depends on one condition: the stock market cannot crash...

If a macro shock really does trigger earnings downgrades, a wave of corporate debt refinancing, and debt-servicing pressure under high interest rates—putting downward pressure on stock prices and pushing the market back into a downtrend—then the problem will be truly serious.The upper arm of the K spends its “paper wealth”—the psychological surplus generated by the stock market. Once the market falls, the entire consumption side will be hit hard. A decline in US stocks will definitely show up directly in the consumption data.

the stock market is the tail wagging the economic dog anymore...

A traditional defining feature of consumer indicators is that sentiment leads and the data lag. This distinguishes consumption indicators from other macroeconomic data. The University of Michigan Consumer Sentiment Index—especially its outlook for the labor market—shows extremely pessimistic sentiment, which is really not surprising. In other words, sentiment is a leading indicator of the data.

The first step is often a deterioration in consumer confidence, followed by a contraction in actual consumer behavior. Meanwhile, the CFO survey also shows that businesses are “sitting on their hands” on hiring and capex, Together, these two signals point to contraction at both ends of the consumption chain; the data in the middle simply have not fully shown it yet.

This is also the source of one of the core arguments in our Positioning America series: although macroeconomic uncertainty is certainly a factor in the current valuation contraction of US-listed companies, as repeatedly emphasized in Planet Notes, in the US stock market it is always micro-level performance that determines everything, and contraction in the consumption chain is bound to bring a decline in company results, It is not that macroeconomics does not matter; it is that every narrative must ultimately be tested against financial statements.

In the Atlanta Fed’s nowcast forecast for Q1’s GDP, the consumer-spending component is at zero, already a recession-level figure. If it becomes reality, it would be the weakest quarterly reading since the pandemic and the Great Recession. If housing and medical expenses—these “essential expenditures”—are excluded, the remaining “discretionary spending” is clearly already in recession territory.

The K-shaped economy is fragile, another reason is the structure of the US stock market today, where reactions are amplified by excessive leverage, There are too many extreme, leveraged speculative instruments in the current market. These instruments are not the problem in themselves, but they play a key role in amplifying “sentiment shocks”; once prices fall, they create a negative spiral in the K-shaped economy.

In previous US bear markets, stock declines reflected only a linear shift toward bearish sentiment. But now, with the widespread use of 0DTE (zero-days-to-expiration options) and the presence of leveraged ETF retail investors and institutions, marginal investors actually face asset-value fluctuations far greater than 5-6%, and even losses multiplied several times over.Once this “tail-end forced-liquidation sentiment” creates a reverse feedback effect, it will magnify the market’s average decline and quickly spread to consumer expectations.

At the lower end of the K, one very clear current signal is BNPL (Buy Now Pay Later), the so-called buy-now-pay-later model. BNPL has reached the end of the consumption chain: DoorDash allows users to pay for fast-food delivery in high-interest installments, This behavior essentially reflects an extremely loose credit environment + a user taking “their last available line of credit and spending it anyway” + a “last-line sentinel” for systemic consumer health—financing a meal in installments at an 37% interest rate.

BNPL’s expansion into food delivery and low-ticket spending is one of the red flags for the consumer system.Meanwhile, credit-card delinquencies and severe auto-loan delinquency rates are both rising, yet borrowing shows no sign of slowing and credit expansion continues. At the end of the line, this is increasingly less about “confidence” and more about “having to borrow.”

Overvaluation + macro shock = stock-market decline = sharp drop in consumption + earnings downgrades + further declines + recession

2025.04.01

Positioning America (five): Path Dependence: QE Is Not Called QE, and Money Printing Is Not Called Money Printing

They won’t call it QE—but the balance sheet will tell the truth...

When discussing monetary policy, what has always mattered is not what they say, but what they do—and this time, the Federal Reserve has chosenAnd this time, the Fed chose “QE that isn’t called QE,” and “liquidity injection that isn’t called liquidity injection.”

If you carefully break down the Fed’s recent actions, it is actually quite clear—Balance sheet runoff is the most important change right now.From slowing balance sheet runoff to the asset purchases likely to come in the future, the Fed is already on a path of “indirectly restarting QE.”The only difference is that they won’t call it QE.

Further reading:https://mp.weixin.qq.com/s/kjaoUDQk85Xbr3ji0IZ78g

1. Is balance sheet runoff a “technical adjustment”? No, it is actually the liquidity response mechanism kicking in..

First, note that at its latest meeting, the Fed announced it would reduce the pace of balance sheet runoff from $60B per month to $25B per month, and explicitly said it would slow it further to $5B per month in the future.

Powell called this move a “technical adjustment,” but in reality it is a prelude to liquidity being injected again.

It’s actually quite clear... If everything is going so well, why change anything?

Powell publicly claims it is merely a “technical adjustment,” as if expanding the balance sheet were also just a technical adjustment... But honestly, how can slowing balance sheet runoff not be a policy action?This is clearly a response to some real-world pressure. If everything were truly “normal,” there would be no need to change the pace.

Bear in mind, Stopping balance sheet runoff actually means the return of the largest “passive buyer” in the supply-and-demand structure. This is not a technical adjustment; it is a genuine directional shift, a change in the conduct of monetary policy.

Powell’s framing essentially downplays the true significance of the decision made by FOMC

What the market needs least right now is for the Fed to keep selling assets into it—that is, to continue shrinking its balance sheet. The United States cannot force foreign buyers to purchase Treasuries, and the Fed should at least avoid making things worse.

The path they are taking is this: first, reduce the pace of balance sheet runoff from 250 hundred million per month to 50 hundred million; then gradually stop runoff altogether; and after that, the Fed will probably expand its balance sheet again (QE) to absorb the excess supply of U.S. Treasuries in the market.

Behind this shift in behavior is the Fed’s need to make room for government financing.As U.S. Treasury maturities enter a peak period (around $7T+ in 2025 and $1.2T in 2026), the Treasury Department faces enormous refinancing pressure. More crucially, foreign buyers are leaving: the latest data show that foreign investors were net sellers of $500 hundred million in Treasuries that month.

Further reading: Notes250116The U.S. Treasury’s game within a game: neither about inflation nor debt

Faced with government financing needs, the only thing the Fed can do to stabilize market liquidity is avoid making things worse—first stop balance sheet runoff, then engage in indirect repurchases, and perhaps eventually expand the balance sheet again.

2. Expanding the balance sheet again is only a matter of time: the inevitability of coordination between fiscal financing pressure and the central bank’s balance sheet

Further reading: Notes250402A non-bailout version of QE: Operation Twist 2.0

This is a highly path-dependent chain of operations: balance sheet runoff → slowing → pause → balance sheet expansion.

A crisis does not need to come first—even if “everything looks normal,” expanding the balance sheet again is only a matter of time.And if the market really does face credit problems this time, the Fed’s response will probably be even less constrained by asset type, For more on this, see Notes250331Locating America (Three): The Fragile Symbiosis Between Private Credit and Pensions。

In essence, what the Fed is doing is:

1) abandon its original tightening path;

2) gradually slow balance sheet runoff, make structural adjustments, and reassure the market;

3) make room for fiscal financing pressure and stabilize the long end;

4) pave the way for future balance sheet expansion while avoiding market resistance and emotional risks associated with the “QE” label;

This is not a simple technical adjustment; it is another turn as monetary policy enters a fiscal-service phase.

Markets will ultimately be forced to accept another “normalization of unconventional policy”

2025.04.02

Locating America (Six): Can geopolitical rapprochement restore confidence in the dollar?

Peace might be good for oil. But it won’t fix the dollar...

Markets have been trying to bet on “positive surprises.” With no good cards to play on tariffs, many institutions are watching for a possible easing of geopolitical tensions, especially whether a Russia-Ukraine peace agreement could become a new catalyst for risk assets.

If a peace agreement is indeed reached, our view is:For oil prices, it may be bullish in the short term; for equities, the impact would be minor; for the dollar, it could provide short-term support; but the long-term de-dollarization trend will not be reversed as a result.

1. First, oil prices. According to conventional logic, after taking office, Trump pursued the “drill, baby, drill” policy while claiming he would resolve the issues in the Middle East and Ukraine; in theory, oil prices should have fallen.

But in reality, oil prices have been anchored within a narrow range. Even as global growth slows and geopolitical conditions repeatedly shift, oil prices remain relatively firm (always pulled back to $70); this may reflect price anchoring driven by OPEC. So, For now, even if a peace agreement is reached, oil prices may not fall unless peace actually brings substantial easing in the real supply structure.

This is also why we think Trump will most likely want to advance a recession narrative: in a market with an actor controlling prices, only a sweeping global narrative of this kind could break through a stubborn price range.

After the tariffs took effect, oil prices plunged toward a bottom. The key thing to watch next is whether they can return to $70; if they manage to fall below the range, Trump will at least have won the first round here.

2. The effect of peace on equities: a boost to sentiment ≠ a reversal of the trend

The core of the Positioning America series lies in Macroeconomic shocks act as trading catalysts, while structural trends are determined by actual earnings, in other words, this also means that even a broad easing of tensions is unlikely to provide the market with a genuine medium-term boost.The market’s attention is not on geopolitics, but on earnings, liquidity, and valuation. What determines the market’s direction is not “whether there is peace,” but “whether there is money to be made.”

This can be seen in the market’s reactions to numerous past wars:

In most cases, equities react only intraday; sentiment shocks are extremely short-lived in structural trend trading.

3. Normalization of U.S.-Russia trade could provide short-term support for the dollar

What is truly worth examining is the dollar. On the one hand, the dollar is linked to dollar-denominated assets as a whole; on the other, the resumption of trade between the United States and Russia, the lifting of asset freezes, and the restart of cooperation on mineral resources form the mainstream narrative for a new source of support for the dollar.

The policies of “weaponizing the dollar” over the past few years (such as freezing Russia’s foreign exchange reserves and imposing sanctions through the Swift system) have accelerated global de-dollarization. If the U.S. side makes some kind of “soft concession” in its policies or symbolically restores mutual trust, In the short term, this will certainly ease that trend, which means it will definitely support the dollar in the short term. But short-term benefits do not imply a long-term reversal, because the root cause of de-dollarization has never been politics—it has been fiscal conditions.

In other words, the root of the dollar’s systemic credit crisis is not sanctions, but the fiscal deficit itself. The United States relies on its “exorbitant privilege” of printing money to support the deficit, and central banks around the world have long known this.In the next series, we’ll discuss the dollar crisis and the fiscal and liquidity issues behind it.

In a nutshell: a peace agreement can bring localized relief, but it cannot fix America’s structural problems. Oil prices may fluctuate in the short term and the dollar may find short-term support, but what the market should really care about is fiscal imbalance, the repricing of capital, and the institutional erosion of credit.

2025.04.03

Positioning the United States (Seven): Manufacturing Capital Repatriation—A Genuine Revival or Old Money in New Packaging?

Announced capital ≠ realized CapEx. Not even close...

Whenever the market needs “good news” to offset macroeconomic weakness, the reshoring of manufacturing capital expenditure (reshoring CapEx) becomes the storyline policymakers and market bulls are most eager to promote. In particular, the recent “stacking” of major investment commitments creates the illusion that the United States may really experience a new wave of manufacturing revival one day.

The market does not really understand how much “fluff” there is in these commitments, how slowly they are being realized, or how high the costs are.What is being discussed for now is a vision; what will actually be delivered comes down to timing, tax rates, and the discounting of cash flows.

The investment figures look enormous (the current commitments are listed below...), but “the money hasn’t arrived yet”...

UAE pledge $1.4T + Saudi Arabia $600B + Apple $500B + NVIDIA $100B + Stargate alliance (SoftBank + OpenAI + Oracle) $100B + TSMC $100B + J&J $55B + Eli Lilly $27B……

To start with, this is indeed a “positive CapEx story,” representing the directional intention of global capital to rebind itself to the U.S. manufacturing system.

The key point is this: what we are talking about now is commitment, not cash flow; intention, not execution, In addition, the essence of this portion of CapEx is a “redirection of funds,” not “new inflows”.

These so-called “large-scale investments,”Mostly, they simply redirect capital that had originally been intended for deployment overseas. In other words, the capital was already there; it was just moved from Malaysia, Vietnam, or Mexico to the United States.

The question is—Building factories in the United States costs more, takes longer, and is less efficient.This means these capital commitments may ultimately fail to deliver stronger margins and instead compress returns because of rising unit costs, tax uncertainty, and high labor costs.

This does not mean they will not invest; it means they will not move quickly or go all in lightly.

Against this backdrop, the real game changer will be accompanying tax incentives, not tariff threats.As we noted in last year’s Notes, U.S. equities were likely to see a liquidation trade in the first half, while a genuine reversal might have to wait until the third quarter or later in the second half, because Among the key policy variables, disruptive policies are implemented more quickly, while incentive policies are constrained by procedures and greater competing interests; they cannot be rolled out to support the market until at least the second half..

Further reading: Notes241209 Trading Expectations: Fast Announcement, Slow Implementation

When making CapEx decisions, companies care less about trade threats than about whether the after-tax cash flow structure is clear. In other words, What companies really care about is:Can you tell me exactly what the tax burden will be over the next ten years if I build a factory in the United States?Only if it is truly as Trump advocates—that factories built in the United States face lower tax rates while those built overseas face higher rates—would that amount to a genuine reform of the incentive structure.

If this incentive structure is introduced in the third quarter, that means actual CapEx deployment will come after the third quarter; these are linked steps in the same chain of reasoning. The growth trade is in the second half.

The issue companies face now is not that they “don’t want to invest,” but that they are “unsure whether it is worth investing.” A tax bill with clearly defined accompanying provisions would be far more durable, transparent, and priceable than short-term tariff measures. The “asset-side signal” on the revival of manufacturing is already very clear; the question is whether the fiscal and policy sides will respond.

Whether this “return of capital” can become a new pillar of the U.S. economy does not hinge on those “commitment figures in the trillions of dollars,” but on when companies can press the commit button without hesitation.

The second-half growth-trade narrative rests on all of Trump’s pledges being fulfilled, and some are very likely to be missed; if not, this round of large-scale investment plans will very likely become another cyclical narrative in which “the money hasn’t arrived, but the assets have already rallied,” and the growth trade will follow a W-shaped path:

Tariff shock (down) - pricing in incentive implementation early (up) - implementation falls short of expectations (down further) ..

Finally, this is the last installment in the series. The intention was to offer some positive reassurance at the end. Since we released the first few pieces in the series, US stocks have been moving in line with our expected narrative—and, in fact, the market has priced it in faster than expected. I hope this series has helped you properly locate where the US and US equities stand in the current cycle. In the next series, we’ll continue from the perspective of liquidity. See you next week, and best of luck with your trading.

2025.04.04

III. Market Pulse

Our latest Comments on the economic and market environment

Tariff Day analysis

The weighted average of the announced tariff rates was 18.3%; after excluding exemptions for certain categories, tariffs actually increased by 12.6 percentage points. Considering subsequent retaliatory measures and the possibility that tariffs on certain industries may continue to rise, the overall increase in tariffs could be even greater.

Taking exemptions for certain products into account, tariffs on China increased by 26 percentage points, and the effective tariff rate on Chinese goods rose to 58%, far above market forecasts.China is expected to announce retaliatory tariffs and export restrictions, while preventing a sharp depreciation of the renminbi and stepping up domestic stimulus.

In fact, before Trump took office, we had already discussed the relationship between tariffs and A-shares:

Chart: Notes 240421 The trade war2.0 may be a good thing for A-shares

Chart: Notes241106 How to trade after the election: Trump-trade-led global macro and capital flows

Overall, as things stand, these tariffs:

1）Trade frictions continue to intensify globally, and are no longer confined to the U.S.-China confrontation.

2）Small- and mid-cap stocks in each region will see a bout of valuation expansion relative to large-cap stocks with greater exposure to global markets.

3）Stimulus measures will begin; after the tariffs, they will most likely follow quietly QE (see the Positioning the U.S. series).

4）There are still no plans for Trump to meet with mainland China, which means that the “real negotiations” have not yet begun.

Another point worth noting is that future room for negotiation may lie in China reducing its trade surplus with the United States, for example by importing more U.S. goods. The Wall Street Journal reported in 2 that China might use the “Phase One” trade deal as a bargaining chip, including by increasing its annual purchases of U.S. goods by 2000 hundred million dollars.

At present, the U.S. government clearly understands the impact of its tariff policy on the market, yet still chooses to move forward;while on China’s side, this year’s Government Work Report explicitly mentioned for the first time“the healthy development of the property and stock markets”—a first in history, which must mean there are still policy considerations behind it.

After all, external and domestic demand cannot both fall behind.

Some smart money will enter the market early and wait for policy; when the policy is implemented, it will be time to sell. Either stay out or get in early.