Super Risk Warning: The Triple Blow to Financial Markets Mid-Year and Response Strategies

Recently, dark undercurrents have been building in the financial markets. If you don’t want to experience a massive pullback or losses around mid-year this year, you must read this post carefully. Here is an in-depth analysis you won’t find from other finance bloggers, guiding you through the risk logic chain behind it.

## 1. Domestic channels for trading U.S. stocks are blocked: restriction or protection?

After the close of trading this Friday, eight departments jointly punished Tiger Securities and Futu Securities, directly cutting off domestic access to buy U.S. stocks. Finance bloggers across the internet are all interpreting this incident, but let’s take a different perspective—by stringing together major events over the next period, you may find that this might actually be helping everyone control risk.

## 2. The market storm triggered by three major events

### 1. The World Cup curse returns (opens on June 11)

In past World Cups, financial market conditions have generally been sluggish. A large amount of financial capital is drawn to watch the games and gamble, and market funds are drained significantly—this is a major blow to liquidity in stock markets and other financial markets.

### 2. The siphoning effect from SpaceX’s listing (June 12)

As a super giant, SpaceX’s listing was originally expected to be around Elon Musk’s birthday (June 28), but it was moved up to June 12. You should know that Musk is used to making big moves around his birthday—this unusual timing for the listing suggests there may be something behind it. Listings by super giants like this tend to create a strong capital-siphoning effect, and market conditions are very likely to swing sharply before and after the listing.

### 3. The terrifying power of the Federal Reserve’s balance sheet reduction (June 18 rate decision)

The newly appointed Fed Chair Waich will announce the rate decision for the first time as chair. His position is rapid balance sheet reduction plus rate cuts. Balance sheet reduction is intended to rein in high inflation in the U.S., while rate cuts are to ease pressure from the U.S. Treasury’s debt repayment.

Many people underestimate how powerful balance sheet reduction is. Put simply, money is divided into base money and derived money. Balance sheet reduction directly reduces base money, and a reduction in base money causes derived money to shrink in a multiplying way. In essence, it is deleveraging—its speed in draining liquidity is far more terrifying than rate hikes.

At present, the Federal Reserve’s balance sheet is $6.7 trillion. The market expects it to shrink to $4 trillion within two years, a reduction of $2.7 trillion. Combined with the U.S. money multiplier of 4.22, broad money will contract by $11.4 trillion within two years, which is even more intense than the rapid rate hikes in 2022 - 2023.

## 3. The logic behind the risks: when things are abnormal, there must be something going on

Linking these events with the blocking of domestic channels for trading U.S. stocks makes it hard to say it’s a coincidence. Perhaps it’s a kind of advance awareness of market risks—protecting domestic novice investors.

## 4. Response strategies

Given such huge uncertainty, my plan is to “run away with a bucket” in early June or early June and observe from the sidelines. If you also don’t want to bear potentially massive losses, you should also prepare an exit.

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