# Market Reflections on Current Geopolitical and Economic Dynamics

Let me share some thoughts on current market logic. First, let's examine Trump's current political base.

Regarding the midterm elections, Democrats have approximately an 85% probability of winning the House and about 52% probability of winning the Senate. Democrats are essentially in a position of "securing one, competing for two."

The odds of Trump facing impeachment during his term have already exceeded 70%. If Democrats retake both the House and Senate in November, this impeachment is virtually 100% certain, making Trump the first U.S. president to be impeached three times.

The reason impeachment is even being discussed is that Trump himself mentioned it on January 6th—if he loses the midterms, impeachment is inevitable. Currently, Trump is already overwhelmed just dealing with domestic pressure.

Starting from this point, let's reason through the subsequent developments of the Iran situation. There are essentially two outcomes: first, promptly withdraw from the Iran situation and focus all efforts on the midterm elections; second, deploy ground forces in Iran.

Within the second option, there are two possibilities. One is full-scale ground war intervention—the probability of winning is low, but it could allow him to declare an emergency state, assume the role of wartime president, and gain extraordinary special powers to continue his strongman politics. However, this probability is relatively low because the threshold for wartime president status is high and is difficult to push through.

The other possibility is sending troops to seize islands. Currently, the likelihood of Trump withdrawing from Iran without deploying ground forces is extremely low, unless the U.S. and Iran have reached some private agreement with significant trade-offs.

The current market believes that not deploying ground forces equals the U.S. losing this war. Sending troops to seize islands and handing over the messy situation to allies while withdrawing and declaring victory to rescue midterm election approval ratings—this approach best aligns with Trump's character and has a higher probability.

If we proceed with the assumption of sending troops only to seize islands: the islands are Iran's lifeline. Seizing them would allow both sides to find a new balance point for compromise and negotiation. The market would stage a massive rebound, though we don't know when this window will occur—perhaps this week, perhaps next week.

Returning to the market: currently, amid global stock market collapse, everything except oil and gas is declining sharply. All technical indicators have lost any reference value. Any signal of situation easing could trigger a retaliatory rebound. At this point, attempting to cut losses is futile.

The market is trading tail risks of war, such as rate hikes and stagflation. However, I believe the rate hike trading logic is merely an accelerator of panic. Not to mention the dot plot shows one rate cut each for this year and next year, the very premise that the Fed would use rate hikes to respond to rising oil prices is shaky.

The key prerequisite and necessary condition for the Fed historically using rate hikes to combat high oil prices is declining unemployment. Currently, the U.S. faces significant upside risks to unemployment. When the market raises the rate hike issue under these circumstances, it seems redundant—at most, the Fed would pause rate cuts.

The problem of gold and silver accelerating downward is partly related to the market trading rate hike expectations, but to a large extent reflects panic liquidation from liquidity crises. Historically, such massive gold and silver corrections only occur when real interest rates rise by more than 200 basis points.

Real interest rate = nominal interest rate - inflation. With inflation rising and nominal interest rates remaining constant, real interest rates cannot rise. This fundamental logic for gold and silver must be remembered. Clearly, this round of gold and silver correction has little to do with real interest rates and even less direct connection to rate hikes. It's essentially a liquidity crisis, identical to U.S. stocks and crypto. As long as geopolitical tensions ease, they will rebound.

On this formula, let me elaborate on a conspiracy theory: perhaps the war pushing up inflation is what the U.S. wants. With inflation higher and nominal rates following suit and declining, real interest rates remain in negative territory. For the nearly $40 trillion U.S. debt scale, this could mean the national debt shrinks by hundreds of billions annually—perhaps another Trump victory in debt reduction.

In the 70s-80s, that's exactly what was done. Although rates were raised then, the rate hike magnitude couldn't keep pace with inflation levels. Perhaps this time, simply maintaining nominal rates unchanged while controlling crude oil prices within a certain range could achieve the same result.

During that debt reduction phase, gold gained 16x over a decade, and silver gained 27x. Perhaps the next market trading logic is stagflation, and the gold and silver story clearly hasn't concluded.

Finally, the current market is difficult to endure—no problem. Historically, for U.S. stocks, any war ultimately becomes a golden buying opportunity. This Iran situation won't be worse than the pandemic. The darkness before dawn—perhaps it's this week.