Interest Rate Hike: The Unbearable Lightness of China's Economy
2007/5/21 8:43:51
The interest rate hike arrived as expected — the central bank's few tricks require no prediction; anyone who pays attention already knows. Almost everyone is lost in debates over whether the central bank's Cheng Yaojin-style three-axe-strikes — such as rate hikes — are appropriate or effective. But regardless of whether these blunt moves are appropriate or effective, they cannot hide this fact: the current financial structural system must undergo thorough reform.
Under the current domestic financial structure, just how meaningful are interest rate tools — widely adopted in the West — really worth questioning. And how much effect the massive issuance of bills and increases in reserve requirements can actually have on so-called excess liquidity is equally worth questioning. But one most direct effect is beyond question: these so-called adjustments guided by Western textbooks have already and will continue to make the central bank's balance sheet increasingly ugly. Historically, many difficulties have been caused precisely by blindly playing God with interventions. Of course, the central bank won't get delisted, but even the central bank obviously cannot keep swinging Cheng Yaojin's three axes without regard to results just because it will never be delisted. Policy resources are also limited — swing those three axes too many times, and at best they become ineffective, at worst they become self-destructive. This cannot be ignored.
Theoretically, this textbook-style intervention is based on linear continuity — that is, it first assumes that after passing through the corresponding financial structure, the output and effects will also be linear and continuous. But China's current financial structure contains structural singularities. These structural singularities exist because China's financial structure is composed of components with extremely large disparities. In other words, the kind of financial structure that would allow Western monetary policy to fully take effect has not yet been effectively established. It's like if you want to apply Euclidean geometry to solve a problem, you first need to confirm that the object under examination satisfies the fifth postulate — otherwise you're shooting without a target. And for monetary tools to work, the most basic prerequisite is to establish a financial structural system that allows those monetary tools to function. Obviously, this is far more fundamental and urgent than busying oneself with fiddling around with rate hikes, reserve requirements, and RMB fluctuation limits.
Even if that systemic prerequisite were already in place, how long can the current Cheng Yaojin game of rate hikes continue? The fundamental interest rate differential between RMB and USD means the rate hike space has boundaries. And once the USD's rate hike cycle ends, shouldn't the pressure and risks inherent in this demand vigilance? The current RMB problem ultimately stems from the U.S. needing to transfer economic risks accumulated in previous periods to the rest of the world through dollar depreciation. If you don't discuss the RMB issue from the perspective of currency warfare, you'll forever be scratching an itch through a boot. And the current overall structure of China's foreign exchange reserves dictates that if this problem isn't fundamentally resolved, it will remain a critical vulnerability. If it's already somewhat impractical to massively reduce the overweight proportion of USD in foreign exchange reserves, then using dilution to bring that proportion down as quickly as possible is the most urgent task at hand.
As for directly linking monetary policy adjustments to asset prices, that's probably the most meaningless thing on this planet. Actually, if you really want to bring the stock market down, the simplest and only effective method is to crash the economy — all other methods are essentially futile. Every factor can only be one of the market's components. The market is the resultant of all forces, and all these forces operate on the same overall economic foundation. Unless you directly destroy this foundation — which would give all the market's component forces a change in the same dimension — everything will continue its natural course amid differences. A historical fact worth revisiting: after the so-called "twelve imperial decrees" of 1996, which has been frequently cited recently, the Shenzhen Component Index went from 2,792 points all the way up to 6,102 points five months later, only naturally topping out under the technical pressure of its 1/2 line — without any policy suppression.
It can be asserted that, without the kind of fundamental overhaul of the financial system that the share reform represented for the stock market, the current financial structural dilemma cannot be solved by methods like rate hikes — which are akin to applying athlete's foot cream for a headache. Rate hikes — the unbearable lightness of China's economy. An economic system with structural singularities, if it doesn't undergo thorough financial structural reform but randomly prescribes medicine from Western textbooks, will not only see drug resistance accumulate increasingly until the corresponding policies become completely ineffective, but also cannot rule out ultimately triggering a policy-induced crisis. In plain language: what was originally just a cold ends up causing cancer from the medication — such things happening is not mere fantasy.
Western intervention methods are like Western medicine — they naturally have their effectiveness, but also their drawbacks. If learned without true understanding, mechanically copied from books, the harm is even greater. An economic system, like the human body, would benefit from also being viewed from the perspective of traditional Chinese medicine. For economic regulators, there are three TCM sayings that are essential to know: "All medicine is one-third poison," "The superior physician treats disease before it manifests," and "Learn from the ancients but don't be bound by the ancients." Of course, the last one should be changed to "Learn from the West but don't be bound by the West."
Appendix:
Today's market movement was technically very standard. In the morning, it first pushed up to the 4040 level that has been repeatedly emphasized recently, then pulled back, breaking upward on the fourth 30-minute candlestick, and in the afternoon confirmed the validity of the one-sided range around 4050. Tomorrow's movement is quite simple: if this one-sided range is not broken to the downside, the market will continue to expand the range upward; otherwise, it will once again fall into the extended oscillation of the original hub.
This ID has repeatedly emphasized that the three specific forms of the 1/2 line major oscillation are in the process of forming and being selected. This is the result of the combined forces of various market powers. Whether it's the regulators, the so-called economic cigars, or market participants — no single party has absolute power, which is precisely what determines the final specific form. One must have the clearest understanding of this. The most ideal approach is to let the market gradually unify in the direction this ID has indicated through sufficient oscillation. The regulators fear heights, so they should also be given time to adjust. Therefore, it remains that phrase this ID has been saying since May: oppose both the left and the right, take tough measures against extremists among both bears and bulls, and especially let them get slapped from both sides in the market. Of course, the oscillation range can be expanded — it doesn't have to be limited to the current range. But this ID's script of using oscillation to digest market and policy pressure must become the market's consensus; otherwise, let the market forcibly educate the extremists.
In such oscillation, fully utilizing this ID's theory for operations is the best choice. Of course, if your technical skills aren't up to par, then watch the 5-week moving average, or even the 10-week moving average — since August of last year, the latter has never been broken, and watching this is sufficient psychological cushioning amid major oscillations. For short-term trading, if you can't understand or properly apply this ID's theory, you can watch the 5-day moving average. The key these two days is whether the kiss between the 5-day and 10-day can once again achieve the female-on-top position. Regarding individual stocks, there's nothing much to say — still the same line: during market oscillation, some stocks will actually surge significantly, and that statement remains valid. For specific sectors: pharmaceuticals that this ID mentioned at the end of last year — among this year's most bullish stocks, 002019, 000416, etc. — obviously belong to this sector. Also steel — recently you can pay attention to small-to-medium companies undergoing whole-entity listing. This ID knows the specifics but can't reveal them to avoid regulatory attention. Among them, there's one place this ID seems to have 419'd before. As for military, utilities, etc., they'll continue to perform — you can tell from the corresponding ones among this ID's 16 stocks. Then there are the deliberately loss-making ones that were repeatedly emphasized last month. For example, this ID knows of one that's deliberately losing money, even with a star ST designation, with a stock code that's a geometric sequence — in fact, there are two copper mines being injected afterwards. If possible, go dig into these kinds of tricks.
Forget it — this ID doesn't want this place to attract regulatory attention, so absolutely no more mentioning specific stocks. And everyone shouldn't develop the habit of following tips — what ultimately solves problems is having your technical skills up to standard.
Replies
缠中说禅 2007/5/21 15:42:35
Today's market movement was technically very standard. In the morning, it first pushed up to the 4040 level that has been repeatedly emphasized recently, then pulled back, breaking upward on the fourth 30-minute candlestick, and in the afternoon confirmed the validity of the one-sided range around 4050. Tomorrow's movement is quite simple: if this one-sided range is not broken to the downside, the market will continue to expand the range upward; otherwise, it will once again fall into the extended oscillation of the original hub.
This ID has repeatedly emphasized that the three specific forms of the 1/2 line major oscillation are in the process of forming and being selected. This is the result of the combined forces of various market powers. Whether it's the regulators, the so-called economic cigars, or market participants — no single party has absolute power, which is precisely what determines the final specific form. One must have the clearest understanding of this. The most ideal approach is to let the market gradually unify in the direction this ID has indicated through sufficient oscillation. The regulators fear heights, so they should also be given time to adjust. Therefore, it remains that phrase this ID has been saying since May: oppose both the left and the right, take tough measures against extremists among both bears and bulls, and especially let them get slapped from both sides in the market. Of course, the oscillation range can be expanded — it doesn't have to be limited to the current range. But this ID's script of using oscillation to digest market and policy pressure must become the market's consensus; otherwise, let the market forcibly educate the extremists.
In such oscillation, fully utilizing this ID's theory for operations is the best choice. Of course, if your technical skills aren't up to par, then watch the 5-week moving average, or even the 10-week moving average — since August of last year, the latter has never been broken, and watching this is sufficient psychological cushioning amid major oscillations. For short-term trading, if you can't understand or properly apply this ID's theory, you can watch the 5-day moving average. The key these two days is whether the kiss between the 5-day and 10-day can once again achieve the female-on-top position. Regarding individual stocks, there's nothing much to say — still the same line: during market oscillation, some stocks will actually surge significantly, and that statement remains valid. For specific sectors: pharmaceuticals that this ID mentioned at the end of last year — among this year's most bullish stocks, 002019, 000416, etc. — obviously belong to this sector. Also steel — recently you can pay attention to small-to-medium companies undergoing whole-entity listing. This ID knows the specifics but can't reveal them to avoid regulatory attention. Among them, there's one place this ID seems to have 419'd before. As for military, utilities, etc., they'll continue to perform — you can tell from the corresponding ones among this ID's 16 stocks. Then there are the deliberately loss-making ones that were repeatedly emphasized last month. For example, this ID knows of one that's deliberately losing money, even with a star ST designation, with a stock code that's a geometric sequence — in fact, there are two copper mines being injected afterwards. If possible, go dig into these kinds of tricks.
Forget it — this ID doesn't want this place to attract regulatory attention, so absolutely no more mentioning specific stocks. And everyone shouldn't develop the habit of following tips — what ultimately solves problems is having your technical skills up to standard.
缠中说禅 2007/5/21 15:50:43
[Anonymous] 飞
2007-05-21 15:27:00
Theoretically speaking, in a given declining or rising trend type, sub-level trends oscillating around two hubs overlap to form hub expansion.
Question: 1. Is this expanded hub completed once the overlap occurs?
- If this expanded hub is or isn't completed, how should the three segments of its sub-level trends be counted? How to distinguish them?
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Your description isn't rigorous enough. You can't predetermine the level of hub expansion, because expansion can continue indefinitely. This problem is actually very simple. If you understand the associativity of connections, it's even simpler — it's essentially A+B+C=(A+B+C), and the latter satisfies the definition of a larger hub, so one can say A has expanded. There's nothing profound about it.
缠中说禅 2007/5/21 16:02:49
[Anonymous] 半路学禅
2007-05-21 15:45:50
I have a question for the blog master: Because my technical skills aren't very solid, I put my eggs in 3-4 baskets. Every day after the market opens, I constantly rotate between analyzing them. When trading more frequently, I even make an Excel spreadsheet to calculate price differences. After all this, the mental drain each day is huge, and not every trade is correct or captures the spread. Thinking about how the blog master handles at least a dozen stocks daily, with large capital, and still manages effortlessly — truly admirable!!! I'd like to ask: what is the blog master's secret method of operation??????
==
This question is very simple. This ID only needs to give instructions — the actual keyboard-punching work is not something this ID does. So this ID has repeatedly said, those with small capital must concentrate. For ordinary retail investors, 2-3 stocks are more than enough.
缠中说禅 2007/5/21 16:08:34
[Anonymous] Sina User
2007-05-21 15:59:46
Blog master, could you comment on the morning rebound? It's not very easy to grasp on the 1-minute chart.
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You should look at the 5-minute chart, and you'd see that the oscillation intensity didn't match the previous one. Of course, because it was too fast, if you weren't prepared enough or your trading channel was too slow, you basically couldn't buy at the precise position. But there were many opportunities to choose from later — for example, the second-type buy point at 10:40, which on the 1-minute MACD was a classic first pullback to the zero axis after breaking through it. The key is to truly understand the theory. As for some specific trades that can't be completed due to channel speed or price action being too fast, don't worry too much about it — once you truly understand, are you afraid there won't be opportunities?
缠中说禅 2007/5/21 16:11:25
[Anonymous] 钢股份
2007-05-21 16:07:17
Your Majesty! Haven't been here in a while. Accessing blogs at work is too slow, but your ideas have been passed along to me by fellow classmates in the group!!
Let me ask — the steel sector you mentioned, are you referring to those about to undergo whole-entity listing, or those that already have?? This determines whether I choose Chengde Vanadium Titanium or Hualing Pipeline!!
Please definitely reply!!!!!!!!!
Begging on my knees!!!!!!!
==
Better to look at the trend. There are many steel stocks undergoing whole-entity listing. If you're knowledgeable about fundamentals, you can make your own selections. This ID wasn't referring to these two, but they're not bad either. In any case, the steel sector as a whole shouldn't have major problems.
缠中说禅 2007/5/21 16:22:05
[Anonymous] 哈哈
2007-05-21 15:54:40
Continuing to ask. Getting desperate.
Teach us how to pick ones that don't go ED, please. Unfortunately, I'm stuck with 000807, this "plague god" — it's been plaguing me for almost 2 weeks. The amplitude is so small that even short-term spread trading is torture. Looking at the 30-minute chart, it's practically a straight line. I'm about to cough up blood from it! My capital utilization has all been wasted on it!!! Save me please!!! What should I do going forward?
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Why do you insist on buying only after it's already surged? A pullback after a big rise is perfectly natural.
缠中说禅 2007/5/21 16:27:11
[Anonymous] 缠途漫漫
2007-05-21 15:45:45
Hello blog master! I have a question:
Lesson 20 original text: "The formation of a hub is nothing more than two types: one formed by rallies, one formed by pullbacks. For the first type, a1=b1, b2=c2; for the second type, a2=b2, b1=c1. But regardless of which type, the hub formula can be simplified to [max(a2,c2), min(a1,c1)]."
The above original text seems to imply a premise: that the starting and ending points of each sub-level trend composing the current-level hub are also the highest or lowest points of that sub-level trend. Otherwise, one cannot speak of a1=b1, b2=c2 or a2=b2, b1=c1. So, must the starting and ending points of a completed trend type necessarily be the highest or lowest points of that trend type?
Also, original text: For same-level decomposition at the 5-minute level, taking the most typical a+A as an example, generally a is not necessarily a 5-minute level trend type. But through combination operations, one can always make it so that in a+A, a is a 5-minute trend type, and A is also decomposed into m segments of 5-minute trend types, thus A=A1+A2+...+Am.
Here in the same-level decomposition of several segments, are the connection points between two adjacent segments necessarily the shared high or low points of those two segments?
==
Through the associative law, everything can be reduced to the standard form you described — that is, the connection points are all high or low points. When you decompose the chart from the 5-minute perspective versus the 30-minute perspective, getting different hub results is perfectly normal, but the principle is the same.
缠中说禅 2007/5/21 16:28:37
[Anonymous] 酒吧心情
2007-05-21 16:10:04
Who's that stupid!!!!!!
Are you crazy!!
Posting our chat records!!!!
Please help us delete them, JJ!
Those are all sleep-talk!!!!
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Already deleted. Check if it's been cleaned up completely.
缠中说禅 2007/5/21 16:33:45
[Anonymous] 横刀
2007-05-21 16:16:04
[Anonymous] Sina User
2007-05-21 15:59:08
Please delete this person's comment as soon as possible — there's a traitor among us here.
If it's not deleted, a large group of classmates in the group will be severely hurt. Thanks, sis.
==
Already deleted.
缠中说禅 2007/5/21 16:36:04
[Anonymous] 短路
2007-05-21 16:31:38
Fellow classmates, let's spend more effort studying the lessons and improving our skills.
Don't always look for shortcuts.
In electrical circuits: shortcut = short circuit
In the stock market: shortcut = ......
==
Exactly right. The key is mastering the technical skills. Everything else can be ignored, including the stocks this ID casually mentions.
缠中说禅 2007/5/21 16:41:03
[Anonymous] 缠途漫漫
2007-05-21 16:33:48
Chán Zhōng Shuō Chán
2007-05-21 16:27:11
[Anonymous] 缠途漫漫
2007-05-21 15:45:45
Hello blog master! I have a question:
=
Through the associative law, everything can be reduced to the standard form you described — that is, the connection points are all high or low points.
＝＝＝＝
Thank you, blog master.
But for the case of 9 segments of 5-minute trends oscillating and expanding from a 30-minute hub to a daily hub, the above doesn't seem to hold. For example, if the oscillation of these nine segments converges in a triangular pattern, then for each 30-minute trend composed of 3 segments, the highest or lowest point is obviously not necessarily the connection point between two 30-minute trends.
==
For extensions, only look at the range of the first three segments — everything after is oscillation. When you decompose the chart from the 5-minute perspective versus the 30-minute perspective and get different hub results, that's perfectly normal, but the principle is the same.
缠中说禅 2007/5/21 16:43:36
Sorry, this ID has something to attend to and needs to head off now. If there's time tonight and it's early, I'll come back online, but not necessarily — let's see how things go.
Off now, goodbye.
缠中说禅 2007/5/21 21:38:21
[Anonymous] 垃圾802
2007-05-21 21:28:21
Theoretically speaking,
802 was the safest stock today
With the highest-level buy point
In reality?
802 was the only stock among Chan's 16 that plunged today — ranked 28th from the bottom among 3000+ stocks
So then, in a bull market, should one buy stocks where the 5-minute daily line hasn't broken but a 5-minute divergence has appeared — is that correct?
Hope the blog master sees this and can answer.
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Since when are there 3000 stocks??? Wouldn't buy at 10 yuan, now stuck — serves you right!! Greedy hearts deserve to die!!!
缠中说禅 2007/6/13 17:17:32
I'm here.
缠中说禅 2007/5/21 8:45:28
Market commentary will be appended to this post after the close.
Heading off now, see you at 3:30.