We've got lots to talk about. Number one, something big that just flipped in China, Number Two, a violent breakdown of what the Fed just did, what they are projecting and why stocks boomed. And then lastly, I want to pick your brain about what stage the market is currently in. Let's get right into it.

Okay, let's go ahead and start with China. Lots and lots of big moves coming from that market. When I shot this video, you have Neo up about 20 x paying up about 25, Lee up about 28 Baba goshipa baba up 28 Dd is up 45 Jd up 32 Almost all these actually went up a lot more after the Fed's announcement. By the way, Lots and lots of capital flocking to Chinese markets.

The main index in Hong Kong was up about 9.08 percent today alone. Imagine if you woke up and the S P 500 was up nine percent, you'd be like Slap Me Sally, I'm dreaming. Fxi, a large cap Chinese stock index made by Blackrock is up 16 today. But you look at the bigger picture.

Capital has been leaving China like crazy since basically February 15, 2021.. part of that is the overall risk off environment that has caused people to sell out of anything. That's a little bit more risk on, but arguably one of the biggest core reasons for the exodus out of Chinese equities was because of increasing hostility towards big tech companies in that region such as Alibaba. There was this environment that grew where China had become directly at war with major Chinese companies and people that saw that and investors that were watching that were getting squeamish.

And then of course you had complicating factors like the ever grand debt crisis fear. And as of the last few weeks you saw another huge wave of fear around the new lockdowns you're seeing in major Chinese cities. But today, the Chinese government seemingly flipped. Bloomberg reported this morning quote In a brief statement carried by state media, China's top financial policy body vowed to ensure stability in capital markets, support overseas stock listings, resolve risks around property developers, and complete the crackdown on big tech as soon as possible.

they said, and this is quite bullish. Government department should actively introduce policies that benefit markets. Then they said that the Central Bank would help implement these policies in regards to extra eisen on the cake. China also said they support firms listing overseas and claims they have made positive progress in discussions with Washington over Chinese stocks on U.s exchanges, which again was another huge piece of fud hanging over the minds of Chinese stock investors, especially in U.s markets and around the world.

If you're looking to invest in a company and you're not really sure if that company is going to be allowed to even list on your markets in a year or two, then all of a sudden you're like, well, maybe I shouldn't invest in that, But according to them, they've made progress on that front as well. So a lot of what they said today really calmed the fears of a lot of investors, and overall this is an ebb and flow process. You have periods of time where China's trying to attract investment, and then you have periods of time where investment gets a little bit crazy and companies get a little bit powerful and then it seems like they try to cut down on that power and now you're kind of getting back into a situation where they're trying to get more investment. But I think the big difference between what they said today and what investors had been feeling over the last 12 to 18 months is that the Chinese government did signal that they do see value in having a healthy, stable, and trustworthy equity market and are making efforts to rebuild that.

Investor capital is one of the engines that drives economic growth, and economic growth is obviously something that China and every country is gunning for. We'll see if this new rhetoric is followed by action, but this is at least why Chinese stocks did so damn well today. Okay, next we have to talk about the Fed. We'll go through the main points and I'll save you a few hours of having to listen to it.

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Now on to the content. The Fed approved a 0.25 percentage point rate hike which is the first hike since December 2018. didn't go so well back then. Hopefully it does better this time.

They predicted increases will be coming at each of the remaining six meetings in 2022, of which takes us to a bit more than the market expected by year end. The Consensus Funds rate is about 1.9 by your end now, which is a full point higher than the Fed indicated it would be in December, and more than the major analyst estimates which had put, which had put that year-end estimate at about 1.5 This signals an area where the Fed's actually been a little bit more aggressive than the market had thought. The committee sees three more hikes in 2023 than none the following year. so you have seven total hikes this year, including today's hike, and you have three next year in 2023, and then none in 2024..

the committee also expects to begin reducing its balance sheet probably around May. now. in terms of forecast changes, the Fed raised inflation expectations while cutting Gdp expectations. The Fed changed their forecast on inflation from 2.7 percent that they said in December to now 4.3 percent for the year.

This is measured on the Pce of course, not the Cpi, but when you look at a jump from 2.7 to 4.3 that's substantial. The Fed also now sees 2.8 Gdp growth in 2022, whereas they were previously projecting four percent, which you pull up the 2010 to 2019 gdp growth numbers, 2.8 Gdp growth would have been a pretty damn decent year if that had happened in this decade, but expectations were you'd see an acceleration in 2022 above what the average was in this decade, specifically because you have some of those tailwinds still pushing you above from that recovery from the massive covet drop. But moving on to recession commentary, Jerome Powell said the probability of a recession and this is important within the next year is not particularly elevated, which means he's not making decisions as if he's expecting a recession, and means that he's going to be more aggressive, right? Which is signaled by the fact that he's doing seven rate hikes meeting after meeting this year. He did say if we do get a recession this year, that it would just be a transitory recession, so nothing really to worry about.

I'm just Charlie Horson around, but in terms of economic strength, he cites high labor demand, tight labor markets, and healthy household and business balance sheets as proof that the economy is strong, but he does acknowledge that Ukraine could hurt the Us economy through trade and financial market volatility if we go back to the Bank of America Global Fund Manager survey that we talked about in yesterday's video, the number one fear was the Ukraine Russia situation, and then the second fear was a global recession. He's saying that the risk of a recession, at least domestically isn't elevated, but he is acknowledging that there is some real fear around that Ukraine, Russia problem. That said, he didn't really give much of a thought process on how the Fed would react to complications with Ukraine and Russia. Now, as for the market reaction, though, gold and some precious metals today took a breather.

That's because gold becomes less attractive when bond yields go up, since gold doesn't pay yields, and bonds become more attractive now. of course, equities dropped originally, especially when the Fed signaled higher inflation expectations and also lower Gdp, but then they bounced as the Fed mostly met market expectations overall and provided an increased level of certainty. I think that markets really, really appreciated the level of certainty that the Fed projected today. I do believe that the Fed has done a better job at managing expectations as of the last few months, allowing markets to factor in and really over factor in a lot of the risks associated with central bank movement, which has allowed for massive rallies like we saw today, but I think that overall, if you're a fund manager and you've been very, very squeamish the last six months all of a sudden, you have a firm foundation of what's going to happen over the next year or two, and you're like, okay, well, now I can start building my equity decisions based on this firm foundation.

And then you look at the market and a lot of things are down pretty deeply, especially in the tech sector, which rallied up the most today. And that's kind of the perfect segue into the last part of this video, which is that the market is rigged to attract more and more capital over time. Somewhere around 80 percent of Equity market capitalization is institutional, right. Institutional money invests for groups of people, organizations, or corporations, right? And they take a fee, usually a percentage for doing so.

They are operating in the business of investing capital. For folks, that means that pretty much the entire American stock market is predicated on the ability of institutional investors to operate in the business of investing institutionally investing their clients capital no matter what is going on. If they decide not to operate in that function, then they get less in fees and eventually nothing in fees because nobody wants to pay you to do nothing. And obviously there's down, years and down periods and certain sectors fall into or out of favor.

But the thing is in business and in the business of institutional investing, you do not have the luxury of being able to sit out quarter after quarter year after year. As retail traders, you could decide on your own to hold cash for as long as you want. Years and years. decades even.

But if you're a fund manager who's receiving fees for operating in the business of being a fund manager, you can't keep your clients funds in cash for very long. Obviously, some players like hedge funds like to play off the news and cycle in and out very, very rapidly. But for the most part, in order to operate in the business of investing capital, you need to be invested. or you need to be finding a new investment to put money into.

you can be cycling allocations. You can be going back and forth, But you can't just hold cash or super safe assets that are similar to cash for very long without losing all of your clients. Sure, if your clients are complete doofuses and don't know what's going on, maybe they'll still pay you a percentage fee for keeping their funds invested and just straight up cash even though they can just do that themselves for free. But overall, if you hold cash, people are just gonna redeem their funds from your fund and then you receive no fees.

Let me give you a direct relatable example. Let's say that you are an institutional investor whose main revenue stream is the one percent fee you charge on the money that you manage for your clients. Let's say that you're a tech fund, and let's say that you feel that for the next three years tech stocks are going to be doing horribly. They're going to perform awfully.

But you're still a tech fund and you can't just change allocations. You have to focus on the strategy that your investors invested in. So you really have two options. Option one is you go and you sell out of all your tech holdings before this massive crash happens and simply hold cash until the crash ends and then you try to buy back at a lower value or number two.

Alternatively, you could just decide to keep your clients capital invested and just ride out the crash. Now, if you're managing your own money and you had a crystal ball that told you for certain that stocks were going to crash for the next three years, then you'd probably choose the first one. Conserve the capital and cash out and then rebuy back in later, right? But for the most part, you're not managing your own money. You're managing clients money of what you're earning a percentage fee on because you're investing it for them.

If you decide to cash out your clients money because maybe the market's going to crash, then you're going to be holding all that capital in just cash or cash equivalent type assets. You can only do that for so long, because again, why would clients pay you to just keep their capital in cash indefinitely? Some of your clients are going to want a more aggressive strategy that keeps their capital invested because most the time stocks go up. Other clients that may agree with your hypothesis that stocks are going to crash aren't going to want to pay you for just holding their funds in cash, so they'll just take the cash out, redeem their funds, and you no longer make fees on that money. And then when you start rebuying back in if they want, they can just give you the funds back two three years later, No reason to pay you fees for investing assets if you're not investing assets, right? Whereas in the second case, even if you lose 50 percent of your clients money, they're still paying you fees.

Sure, some of them will likely redeem their capital from your fund because they lost confidence in you, but most of them you'll be able to talk into continuing in your fund and you probably already prepped them for down trends anyways. So if you're a fund manager, in tech or really any industry, you make the most money based on fees. if you can just keep capital invested in any market condition, and you can pitch more investors to join your fund in any market condition, so it almost never makes sense except for in the most extreme scenario and only over a really short time horizon to keep cash. And as we saw after that original 2020 dump, the more you keep cash and the more you invest in only safe haven, very slow but stable assets, the more you risk your clients going somewhere else or just keeping cash themselves.

And the truth is, if we're being honest, it's probably better for your clients to just stay invested over the long run anyways, because stocks usually recover very quickly and the few times they don't, those are the best opportunities to add more capital. So all of the math works in my favor if I just consistently tell my clients to invest more money and hold their positions no matter what happens. The way that I see it is that if you are an institutional investor deciding what to do during a tense market condition, you have two different options and four different potential outcomes. If you're looking to make as much money as possible for yourself, you have to choose the one that has the highest probability of making you the most money.

So if you're a fund manager, you could see up here your two options. You could hold cash or stay invested. So let's say that you think a crash is coming and you decide to hold your clients funds in cash and then stocks dropped dramatically. Well, you definitely had a short term.

When your clients think that you're a genius, you were able to predict a crash when most market fears actually don't result in crashes. You were still able to find the one that did, and your clients probably think you're on your a game, and you probably still continue to get fees, at least in the short run as your clients trust your prowess as a investor over the long run. It's probably not going to do that good for you though, because a lot of your clients aren't going to want to continue to stay invested in cash and you have to be able to be right twice and actually be able to time when the best time to buy back into the market is. Some investors are probably going to want to redeem their funds from your fund because they're so worried about whatever made the market crash.

so much. So, if you're holding cash and stocks go down. We'll say it's at least a short-term win. Maybe a long-term win, but it depends on how good and lucky you are.

But if you hold cash and stocks go up, that's a massive loss. Your clients paid you a percentage to hold their funds in cash and then the market went up another 10 15 percent. Well, they are definitely going to redeem their funds from you, and your fund is going to get less in fees. But if you decide to stay invested and stocks go down, that's a win.

You told your clients when they invested in your fund that markets are cyclical and they have to be prepared to hold through downturns. Some of them will still redeem their funds, but most of them will stay the course. and perhaps the assets under management go down as stocks sell off. But you're still getting a percentage of some assets that are under management, so you're still winning and in the long run things will come back.

So if you stay invested and stocks went down, you had a win as a fund manager and your incentive structure is still in your favor. And then of course, if you stay invested and stocks went up, you had a massive, massive, massive win because your clients just made a lot more money and you're also able to get more in fees and you're able to attract more capital and so on and so forth. It's also true that if you are staying invested, whether or not stocks are up or down, that means that you can pitch new clients on your strategies constantly instead of trying to pitch investors on. Oh yeah, I'll charge you a percentage fee and just hold cash for you for a few years until the market maybe or maybe doesn't crash and then we'll invest for you.

No, no one's going to pay you to do that. They're going to say call me when you start investing. The business of the market is to keep capital coming into the market and keep it invested as much as possible. And sometimes it's about churning that capital around because fund managers get fees for doing that.

Everybody makes money when that happens. The point is, if you understand this incentive structure, you can easily easily understand how the market is actually rigged over time and why institutional investors are always itching to get capital back into the markets. One more example that I do want to leave you with is: I have a friend who works in the real estate acquisition industry works at a big real estate acquisition company. They go and pitch potential investors on their ability to invest in real estate profitably.

Then when they get capital from investors, they go and buy apartment complexes, fix them up, and then try to rent them out for a premium, and then over time, maybe five, ten years later, after receiving all that premium, they can then go and sell it at an appreciated value. They generate cash flow in the process, which kind of acts as a dividend, and then over the long run they get that core return. So anyways, because the real estate market is so hot right now pretty much everywhere, and because the La prices specifically have gone up so dramatically over the last 18 months, I asked, Well, now that we're obviously in this extreme euphoria period and we're heading into a tightening period, are you guys doing anything different with your acquisitions And the answer was really, really surprising to me. He said no, we're not doing anything.

We do the same sorts of acquisitions, hot or cold. And the reason is not just because they can't predict the real estate market, but it's because if they decided to just take a couple years off and just hold cash, well, they wouldn't be able to raise investor capital anymore. You can't pitch an investor. Oh, give me some cash and I'll hold it for a few years and maybe the market will crash and we'll reinvest it.

Now, if you're raising investor capital, you need to go and invest that investor capital. You don't care if the market goes up or down because you make money based on how much capital you get from investors and how many properties you're able to buy. If you buy 25 properties a year, rain or shine over the long run, you should come out ahead, but you're not concerned about the short-term losses, right? Your goal is to just keep getting more capital and keep investing more capital into the market. The minute that you stop doing that, your business stops operating and it no longer works.

Now, don't get me wrong, there's certainly periods of time in economic conditions where investors actually have to pull capital out of the market or they have less capital to invest. And in some cases, it takes time for that capital to come back into the markets because that capital no longer exists. it's being used for a different purpose. But the point is, the business of markets and investing is to consistently and aggressively attract capital and over the long run.

it's very, very successful. And so that's why, even in the most bleak of conditions, you have to keep your eye on what the game is tilted towards. I think if you understand this, you might not be as pessimistic during these bad times as maybe the rest of the market is, and you may be able to find some better opportunities and take advantage of them with a little bit better peace of mind. Anyways, folks that caps off today's video: Thank you Moomoo for sponsoring us.

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