Why have you been taking more rest recently? Today, we will talk about the core reasons and some potential problems caused by the government shutdown. In recent days, everyone has felt that the market atmosphere is not quite right - whether it's stocks, commodities, or cryptocurrencies, they are all falling. If you open the market and take a look, you will find that this is not a problem with any country or sector, but a collective sell-off of global risk assets. Tonight, the US stock market experienced a sharp decline (such as Figure 1 below). On the surface, didn't the Federal Reserve just cut interest rates on October 30th? In theory, a rate cut should be a 'release of water', market liquidity should be relaxed, and asset prices should rebound. The result is actually the opposite - the market is tighter. To clarify this matter, we need to start from the root of 'liquidity'. Sudden tightening of liquidity: With less money, the market panics Let's take a very critical indicator - the Guaranteed Overnight Financing Rate (SOFR), such as Figure 2 below. This is actually the "short-term borrowing cost" in the US financial system, equivalent to the "overnight lending rate" between banks and institutions. Normally, after the Federal Reserve cuts interest rates, this rate also has to go down. But now it has skyrocketed to 4.22%, 32 basis points higher than the reserve rate set by the Federal Reserve (such as Figure 3 below), this is the biggest "decoupling" since the COVID-19 crisis in 2020. What does it mean? It's just that the banking system is short of money. In 2020, it was a sudden outbreak of the pandemic and global panic, and everyone went to grab cash. This is not a natural disaster, but a human caused liquidity crisis, mainly due to the government shutdown. Core source: US government shutdown+Federal Reserve still shrinking balance sheet Let me first talk about the 'culprit' of this time - the US government shutdown. Now the beautiful government has been suspended for 35 days, equaling the longest record in history (the last time was also at the end of 2018 during the Trump period). After the government shutdown, the Ministry of Finance has no new budget or revenue sources, but it still needs to maintain the basic operation of the country, such as military salaries, medical insurance, social welfare... What should we do? We can only "suck" blood from the market - that is, issue short-term treasury bond and borrow all the cash that can be borrowed in the market (such as As shown in Figure 4, the Ministry of Finance currently has reserves of nearly $1 trillion. At the same time, although the Federal Reserve has already cut interest rates, it has not stopped reducing its balance sheet (i.e. recovering US dollars from the market). Powell said that the reduction in balance sheet will not officially end until December 1st. The result is that on one hand, the Ministry of Finance is sucking money; On one hand, the Federal Reserve is also collecting money. These two 'devouring beasts' teamed up to drain market liquidity. ⚠️ Consequence: Risk assets are under pressure across the board, and money is flowing to safe haven assets When there is a shortage of dollars in the market, institutions will sell their stocks, bulk commodities and cryptocurrencies to exchange for dollar cash or short-term treasury bond bonds in order to meet emergencies. So you will see that recently: the S&P 500 and US stock futures have both started to decline; BTC and ETH are experiencing simultaneous declines; Even gold and crude oil cannot withstand it. This wave of decline is not due to deteriorating fundamentals, but purely a liquidity issue. It's not that I'm not optimistic, but I have to pay back the money now This time is different from 2020: it is a controllable 'artificial tension' The wave of liquidity collapse in 2020 was a global panic and a sudden outbreak of the pandemic, and no one knows where the bottom is. This time is different, with strong controllability - because it is caused by the combination of government shutdown and balance sheet reduction. So as long as the US government reopens, the Treasury Department no longer needs to hoard large amounts of cash; Or the Federal Reserve could end its balance sheet tightening early and release liquidity. If liquidity can return soon, the market is likely to rebound rapidly. There is still nearly $1 trillion in cash reserves in the Ministry of Finance's accounts (a new high since 2021), and once the government resumes normal operations, this money will flow back into the market, almost achieving an "instant recovery" effect. My own strategies and suggestions cannot be considered a true 'crisis' this time, but can be understood as' liquidity injury'. At present, there is no need to panic too much. The current decline is not due to problems with corporate profits, technological prospects, AI innovation, but rather a lack of money in the market. So, my own approach is: in the short term, I control my position and don't go to a hard top; Keep cash and observe the progress of the US government; If I see the Ministry of Finance resume spending and the Federal Reserve soften its tone, I will increase my holdings in technology stocks, AI, BTC, and other highly resilient targets. Because once liquidity returns, these risky assets will be the first to be sought after by funds.