We had the minutes this morning. It seems to be a

We had the minutes this morning. It seems to be a little bit different from what the market expected. What did Powell see? When Powell appeared in January of 2018, who insisted on raising the benchmark interest rate further, he looked white and said he would stop raising it. And one of the questions that the market had when we watched the FOMC in December of last year, which was reminiscent of that atmosphere. So why is the Fed trying to shift to a base rate cut? There must be something very serious about it. But I don't think it was easy to find that seriousness. But I'm going to put it in perspective that rising asset prices could hamper inflation, or that the current decline in the reverse repo seems normal. And the discussion that H4L should last longer than the Fed members expected. And this is a little bit different from what the market expected. And there were discussions about how to stop quantitative tightening. To keep the balance sheet larger than it did in the past, we'll have to stop at some point. And there should be discussions about the appropriate level. And this is a pretty long story. So I'll write it down in a weekend essay with the annual outlook.

I just gave you a brief review of the minutes. Now we're going to continue with the fourth part of the annual outlook. How do we invest when we think that interest rates are going to go down? This is the whole point of the fourth part. If interest rates are going to go down significantly ... do we have to buy growth stocks? Do we have to buy long-term bonds? You might think it's hard to tell. Hedge funds would prefer long-term bonds. And you don't just buy long-term bonds. You have to borrow them. Now that I'm going to invest in that. I have confidence that fund A will cut interest rates. I bought long-term bonds for $100,000, which is the total cash of the fund. Now that I've done all the work, do I need to take a break? LOL No. I take out the mortgage on that long-term bond. Let's say that you can get a 95 won loan. And then you buy another long-term bond with that 95 won. And you get another 90 won loan with that bond as collateral. And what do we do? And so the point is to make a mortgage on the mortgage until the very last minute, and then you have to pay off the long-term bonds. Isn't that dangerous? No. Not at all. Because we live in a promised land, because we live in a promised land that interest rates would come down. And Powell promised us that the land would come down. I'm going to cut interest rates by a large margin..

This is where mortgage lending is really interesting. It's not from a bank. You go to a short-term financial market and you get a loan called a repo. It doesn't matter what a repo is. You take that long-term bond out as collateral and you take a one-day loan. I don't understand. And the next day when you take out a one-day loan? Yes, you can get a loan again. If you connect a one-day loan for 365 days, it's a one-year loan. LOL. So why do you do this? You have to go to a short-term financial market and it's easy to take out a loan. Is it easy to borrow long-term? Is it easy to borrow short-term? Of course, you have to borrow short-term. And interest rates are going down. Wouldn't you have to get short-term loans, rather than long-term ones, double the joy in the future when interest rates come down? Yes. That's why I took out a one-day repo loan and I'm holding on by extending every day. And there's a lot of money in the market.

But then ... one day something strange happens. First of all, everybody expected interest rates to go down ... everybody expected interest rates to go down very strongly. Wouldn't they have a lot of similar plays? Every day you go to the repo market, there's a flood of funds that want to get loan e-mails. And of course, they have confidence that they can get daily repo loans. So later on, it's not veterans coming ... new employees coming. He doesn't really know what it's about. He keeps saying, go stamp it, borrow money.

But then ... there's this kind of repo, this kind of marketplace that gives you short-term loans, that's kind of weird. So, for example, at the end of the year, banks are going to have to have some liquidity, so they're going to cut down on repo loans. So there's a little bit less older guys lending money to the repo market. But the problem is that everybody's borrowing money every day with full leverage. And the supply of lending is going to decrease. If you can't borrow money ... if you can't extend every day, the fund is going to the abyss. So if you think the supply of loans is going to decrease, you're going to have to kneel down and borrow money. Please… You're going to push out new employees, and your senior comes running in and you're going to try to extend your repo loan somehow. But what happens if you try to extend it, too? Yeah, you get a problem where repo interest rates pop up. There's a lot of people who want to borrow, but the number of people who lend will decrease, so of course, interest rates will pop out..

What happens if the fund fails to extend its loan? I have to take out a loan today and turn off the loan I got yesterday. If that doesn't happen, it'll lead to bankruptcy. Shouldn't we just throw a bunch of long-term government bonds into the market and make cash to pay them back? Yes. If the repo market falters, hedge funds that take out repo loans will sell their long-term bonds. So long-term bond prices will plummet, and interest rates will jump out of the way. But that's where the repo market normalizes again. So? Yeah. So our family of hedge funds, who have the confidence that interest rates will go down, will come back and buy long-term bonds again with debt, debt, debt, debt, debt, debt, debt, debt, debt, etc. Wouldn't that change the price of long-term bonds greatly? Wouldn't that create a huge swing in long-term bond rates? I'm quoting an article for those of you who may think, "How many hedge funds do you have? How much power they have?" It's the main article. Please read it carefully.


"While the U.S. Central Bank (Fed) has hinted at a cut in the benchmark interest rate, a small number of hedge funds are moving the U.S. government bond market amid growing demand for government bonds." It is explained that hedge funds borrow large amounts of debt and influence the market through ultra-short trading. Some point out that market volatility has fluctuated due to the intervention of hedge funds.

Bloomberg diagnosed on the 20th (local time), citing sources in the hedge fund industry, that very few hedge funds dominate the U.S. government bond market. They include Jonathan Hoffman, fund manager of Exodus Point Capital, John Bonello of Millennium Management, and Jonathan Tippermas of Citadel. (Omitted)

According to Bloomberg, in addition to the three managers, Cupula Investment, Citadel, Simetree Investment, and Vanyasni Asset Management are also increasing market volatility through the basis trade. Wall Street estimates that their transactions account for 70% of the government bond trade volume.

According to the U.S. Commodity Futures Trading Commission (CFTC), about half of the futures contracts for the two-year U.S. Treasury bond were signed by eight hedge fund managers. The figure is a surge from 29% in 2022. The short selling position of government bond futures increased from $650 billion in July to $800 billion in December.

Regulators are paying keen attention to the basis trade. This is because hedge funds close the basis trade and liquidate large-scale contracts. At this time, concerns are raised that it could have a big impact on the market." (Korea Economy, December 21, 23.)

We trade futures. If you understand the whole point of the story, except for the technicalities, you've done enough of today's essays. So let's think about why their overplay has gotten even more extreme. One is the Fed's shoveling. If you turn the conviction that interest rates are going down into the jackpot, you're going to get more of a swing. Interest rates are going down like crazy. And then they're going to go the other way around. And I think this roller coaster is going to continue into the past year and again this year. And when we talk to a lot of people about the outlook, more than 90 percent of them say that interest rates are the most important thing, and they're the ones that swing the asset market the most. And if those interest rates falter? Yes. Wouldn't the volatility of the asset market be significant?

So, why don't you lower the interest rate? Then the tiger of the sun and moon will appear. If you lower the interest rate more, I won't eat you. If you stop quantitative tightening, I won't eat you. If you add quantitative easing to zero interest rates, I won't eat you. If you don't add a negative interest rate option to the zero interest rate, I'm going to eat you. Then hedge funds will falter. If you can't fill this in, you'll have to stop quantitative tightening and cut the base rate. So will the Fed do this? It's not going to raise the base rate just because housing prices in some places go up. It's not going to cut interest rates just because they fall off in some places. Wouldn't they respond to tweezers? That's what the Fed calls TOOL. It's hard to write a long essay during the week. T.T I'm going to cut it down here today. I'm going to continue with the five-part annual outlooks in the weekend essay. Thank you.