Is $35 Trillion US Debt a Ticking Time Bomb?

The U.S. fiscal deficit has surpassed $1.8 trillion, setting a new record outside of pandemic times, with interest payments exceeding $1 trillion for the first time.

Numbers may not convey the gravity of the situation, but they prompt us to深思 three major questions to guide our investment direction:

1. What will be the ultimate outcome of the U.S. debt, which has already reached $35 trillion and is growing larger?

U.S. debt is akin to a Ponzi scheme, long-term extracting global wealth at extremely low interest rates. With such a colossal amount that keeps accumulating, the U.S. simply does not have the capability to repay the principal to investors worldwide. It can only continue to issue new debt to repay old debt, inevitably leading to substantial or implicit default in the end, such as reducing interest rates close to zero, deferring interest payments, or confiscating the U.S. debt of rival countries under the guise of war or trade sanctions (this has happened historically, so don't think it's impossible). The credibility of the U.S. dollar will definitely decline in the future, and de-dollarization is a major international trend, an irreversible developmental tendency.

2. Faced with huge interest payments, why does the U.S. insist on high interest rates? How long can it hold on?

According to the actual state of the U.S. economy, interest rates should have been lowered long ago. The reason for holding on until September to lower rates was that its financial strategic goals had not been achieved. The original plan was to aggressively raise interest rates to burst the global economy, causing a significant drop in global asset prices, mainly targeting China, Japan, and Europe, and then to lower rates to harvest, in order to repair the U.S.'s riddled balance sheet.

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However, this strategy did not meet expectations at all, and unexpected incidents occurred during its implementation. The interference of China and Japan caught the U.S. off guard. During the period when the Federal Reserve was aggressively raising interest rates, China, which holds a large amount of foreign exchange reserves, played the role of a second U.S. central bank, exporting dollar liquidity to the world, while Japan, with long-term zero interest rates, played the role of exporting capital liquidity to the world.

As a result, the world avoided a significant drop in asset prices caused by the exhaustion of dollar liquidity, and many countries' stock markets have reached historical highs (of course, A-shares and Hong Kong stocks are exceptions). Without a significant drop in asset prices, the effect of harvesting cannot be achieved during the rate-cutting cycle.

Therefore, the U.S. adjusted its strategy, attempting to use sustained high interest rates to trigger economic recessions in other countries, and then suppress asset prices through economic recessions. So, it stubbornly refused to lower rates, even at the cost of huge interest payments. However, in doing so, the U.S. itself could no longer hold on, and the direct drop of 50 basis points in September indicates that the actual state of the U.S. economy is much worse than the data shows. In the future, the U.S. has only one way to go, which is to lower interest rates to alleviate the pressure of economic recession and interest payments.

After understanding the U.S.'s financial strategic goals, means, and implementation paths, it will be clear that the world is engaged in a battle of harvesting and anti-harvesting. China will naturally also come up with its own countermeasures. The primary task of preventing harvesting is to quickly raise the severely undervalued asset prices to prevent U.S. capital from picking up bargains. This is the intrinsic reason why A-shares urgently exploded across the board after the Fed lowered interest rates.As early as August 18th, Dark Horse clearly stated: There will be no sharp decline in the A-share market, and 2600 points is the bottom line; the first wave of the market is likely to be a rapid rise like a thunderbolt; once the Federal Reserve cuts interest rates, the A-share market will take off like a bull.

As an investor who knows and unifies, Dark Horse has been significantly increasing positions at the end of August, fully loading up on positions when the market dips.

Investment requires a certain strategic thinking, which allows us to see the situation more clearly and gain insight into opportunities. We should not always be calculating from our own position, but get used to looking at the overall situation from a higher position.

III. How to grasp investment opportunities in the new global monetary cycle?

As a global valuation lowland, the investment opportunities in A-shares and Hong Kong stocks are obvious. In the global interest rate reduction cycle, international capital cannot ignore such a good opportunity.

Against the backdrop of the depreciation of the US dollar and the appreciation of the renminbi, the settlement of hundreds of billions of dollars in trade surplus and the increasingly abundant liquidity spillover globally, it can be foreseen that in the next few months to one or two years, there will be a huge amount of capital flowing to China and pouring into the stock market. Coupled with the financial power strategy, actual demand, policy orientation, and economic recovery, the dual drive of internal and external forces will inevitably lead to a bull market in A-shares and Hong Kong stocks. This is a very rare opportunity in life, and it requires a great spirit and a large pattern to grasp.

Now, if the country creates wealth opportunities for you, and you can't understand or cherish them, you can only blame yourself for being short-sighted, shallow in cognition, narrow-minded, and having a small pattern, and you can't blame others!

Under the overall situation, some visible and controllable opportunities are:

First, the chemical industry in the cyclical industry.

The recovery of the domestic economy is inevitable, and the improvement of the chemical industry's prosperity is also inevitable. Chemicals have better elasticity than steel and higher cost-effectiveness than coal.Secondly, gold and commodities (non-ferrous metals) are anti-inflationary.

A new round of global monetary easing will trigger a new round of inflation in the future, and gold is expected to reach $3,000 in the medium term.

In the past two years, the country has been fully committed to fighting inflation, and it will shift to fighting inflation in two or three years. The inflow of huge international capital, the liquidity released by domestic reserve requirement ratio cuts and interest rate cuts, the wealth effect brought by the bull market, and the strengthening of consumption momentum after the economic recovery will all contribute to the rise of domestic inflation.

No one is discussing domestic inflation now because many people are only focusing on the present, but I want to tell everyone that it is highly likely to appear in two or three years, and at that time, the policy will shift, and the bull market will also come to an end.

The judgment of dark horses on the overall situation has always been ahead of schedule, just like the forecast in August 2022: the Shanghai Composite Index will fall to 2,650 points, and the bear market will last at least until the second half of 3023, and if it lingers, it will reach the second half of 2024.

Inflation is bullish for gold, silver, and non-ferrous metals.

The third is big technology, including Hang Seng Technology.

One of the core main lines of the new bull market is now active repeatedly.

The fourth is the medical and biological sector that has been severely oversold.

The cost-performance ratio is extremely high, and valuation repair in the bull market is inevitable.New energy has opportunities for a rebound from oversold levels, but the process of industry capacity clearance is a lengthy one. The sector was heavily hyped in the last bull market, and the probability of it reaching new highs in the new bull market is not very high.

What if you don't know how to pick individual stocks?

The dark horse strategy involves investing in promising high-quality broad market indices and industry indices, such as the CSI 300, STAR 50, CSI Data, Hang Seng TECH, Precision Medicine, Hang Seng Healthcare, and CSI Traditional Chinese Medicine, etc. Next, we will look for opportunities to allocate some CSI 500 and Chemicals.

If you don't want to hold too many positions and want to save some effort, then go directly for the CSI 800. It balances value and growth, as well as large-cap and mid-cap stocks, and has a stronger market representation. Regardless of whether the market favors a large-cap value style or a mid-cap growth style, investing in the CSI 800 can still yield substantial returns.