Chapter 667: The Fed Raises Rates Again!
December 23rd. The atmosphere on Wall Street today was somewhat somber and oppressive.
This was because the Federal Reserve had announced yesterday that it would make a major policy adjustment this morning.
In fact, for well-connected financial groups, it was already common knowledge what policy the Fed intended to adjust.
And for those familiar with the Fed’s operations, the answer was not hard to deduce.
After all, the Fed’s policy adjustments boil down to either raising or lowering interest rates to inject liquidity. Given the current persistently high inflation, a rate cut to inject liquidity was clearly unlikely, leaving a rate hike as the only option.
Consequently, even before today’s press conference has begun, a sense of unease has already gripped Wall Street.
For ordinary people, whether the Fed raises or lowers interest rates has little impact; in fact, most people are actually happy to see a rate hike.
This is because a Fed rate hike not only increases interest income on people’s savings but also effectively curbs high inflation and lowers the cost of living.
However, for financial institutions, a Fed rate hike spells a harsh winter—or even a disaster.
After all, when deposit and loan interest rates rise, it not only means their cost of capital increases significantly, but also that more people will prefer to deposit their money in banks to earn interest rather than invest it in financial markets.
With fewer “small investors” around, those who prey on them naturally panic!
All this negative news has been reflected in the stock and futures markets.
As soon as the market opened today, major indices such as the Nasdaq, the Dow Jones, and the futures market all saw a general decline, with most stock prices falling—albeit to varying degrees.
No one is naive. The Federal Reserve has already completed two rounds of interest rate hikes. Although the current benchmark rate isn’t particularly high, continued increases will inevitably affect the market’s overall outlook.
To avoid losses or simply out of fear of being trapped in losing positions, there are quite a few investors looking to cash out.
It was against this chaotic and unfavorable backdrop that the Federal Reserve’s press conference officially began at 10:00 a.m.
Under the gaze of hundreds of media outlets, Federal Reserve Chairman Volcker said with a stern expression, “Following the decision of the Federal Open Market Committee, the federal funds rate is hereby raised effective immediately. The target range is raised by 25 basis points to between 5.75% and 6.0%…”
As Volcker’s words were broadcast live on television, they instantly shattered any remaining hopes among investors.
However, what was even more unexpected was that when reporters at the scene asked Volcker the routine question, “Will this be the Federal Reserve’s last rate hike?” his response sent the entire market into a panic.
“Given the resilience of the domestic economy in the first half of the year and the stickiness of inflation, the Federal Reserve has not ruled out the possibility of raising rates at two consecutive meetings, with the earliest potential resumption of rate hikes coming as early as January next year…”
As soon as this news broke, Wall Street was hit like a hurricane. Major indices were in shambles, with the Dow, S&P 500, and Nasdaq all plummeting sharply.
This is actually easy to understand: all investors enter the stock market for the same reason—to make money.
But with deposit interest rates so high right now, why invest in the stock market at all? It’s much safer to just put the money in the bank.
With fewer people participating, the entire market has shrunk—so of course the various metrics are going to drop!
Of course, not everyone is crying in the bathroom; there’s a small group of people who are actually happier the worse the market gets.
Take Li Yi, for example, or Reggie Green!
………
New York. The gold futures market!
In the luxurious VIP lounge, all the executives from the Green Brothers Company were present; anyone unaware might have thought the company had moved its headquarters to the futures market.
At that moment, the atmosphere in the room was still somewhat tense.
Although international gold prices had dropped by two dollars at the opening of the market today, this slight decline had little impact on the overall market.
After all, over the past few days, international gold prices had not only stopped falling but had actually risen significantly against the trend—reaching as high as $378—due to the withdrawal of a large number of short-selling institutions.
No one could guarantee that gold prices wouldn’t rise again in the next moment.
Just then, the door to the VIP room swung open.
Immediately, George rushed in from outside and, looking excited, exclaimed to Reggie Green and Li Yi, “Boss, the Fed raised rates—international gold prices have plummeted!”
As soon as he said this, everyone in the room erupted in a deafening cheer!
As company employees, everyone knew they were all in the same boat—their fortunes were inextricably linked.
If the company’s investment failed this time, not only would the bosses, Reggie Green and Li Yi, be in trouble, but they wouldn’t fare well either.
At best, they’d face pay cuts; at worst, the company would go bankrupt, and they’d have to look for new jobs.
Reggie Green was equally excited. He stood up and asked, “George, what’s the current international gold price?”
“$375 per ounce!”
George continued, “And some market participants have already adjusted the price of futures contracts to $36,800 per contract!”
Hearing this, everyone erupted in cheers once more.
Reggie Green could hardly contain his excitement. He hurried over to Li Yi and said with a trembling voice, “Dear Li, we bet right… we won…”
Li Yi smiled and said, “Green, calm down. You’re the company president—you need to keep a clear head no matter how big the stakes are!”
“You’re right, but I can’t help myself…”
“No, you must stay calm, because this is just the beginning. Barring any surprises, the gold price today will likely drop to around $320!”
“Whoa!”
Hearing this, Reggie Green forced himself to stay calm; he understood what Li Yi meant.
If the international gold price really did drop to $320, he would have to seriously consider whether to cut his losses and pull out.
After all, that price was already low enough—it was practically at rock bottom!
“Li, if the gold price drops to $320 per ounce, will you pull out?” Reggie Green asked in a low voice.
“No!” Li Yi said with absolute certainty.
“That’s $320, you know. Aren’t you afraid the price might rebound?”
“I told you a few days ago—my target range is $270 to $300. I won’t close my positions until the international gold price drops below $300!” Li Yi said.
“Li, you really are a crazy investor!” Reggie Green said with a look of admiration.
Having been in the investment world for so many years, Reggie Green had seen plenty of crazy investors, but most of them only went crazy after losing money.
But Li Yi was different. He wasn’t the kind of gambler who went mad after losing; he was genuinely crazy!
Li Yi smiled but said nothing!
He knew that to outsiders, his behavior did indeed look crazy—it was pure gambler’s logic, and the all-in kind at that.
But Li Yi didn’t see it that way. As he’d told you before, not knowing the outcome is gambling; knowing the outcome is investing!
Since he knew the outcome, what was there left to hesitate about?
In any case, he had already decided to wait it out; now it was up to Reggie Green to see if he had the guts to stick with it.
Of course, if the international gold price really did drop to $320 per ounce and Reggie Green decided not to follow through and wanted to pull out, Li Yi wouldn’t stop him.
They say the master leads you to the door, but it’s up to you to walk through it.
He’s made his position perfectly clear. If Reggie Green still doesn’t have the guts to stick with it, he has no one but himself to blame…
……….