First, let's look at the good news from China. There is a great article on Bloomberg on this subject. It talks about the new stimulus packages of the People's Bank of China. It is a multifaceted package. It is not a bazooka, you know, it is not a big money dump, but it is still a package that will affect the economy. If you recall, I mentioned China's deflation risk before. The economy was really not doing well in China and it seemed like they would not be able to meet their economic growth targets. China has a target of 5% growth per year. In this context, they brought a brand new package on Monday. The governor of the People's Bank of China, Pan Gongsheng, explained the details of the package. First of all, they reduced short-term interest rates by 50 basis points. This is part of the job, but not the most important part.
Apart from that, they talked about a new package of measures that will ease mortgage loans. Total mortgage debt in China is $5.3 trillion. They also eased the obstacles for people to buy second homes. On the other hand, they brought the reserves that banks are required to hold to historically low levels. If I am not mistaken, it has reached its lowest level since 2018. Thus, they encouraged banks to provide more loans. But they did not stop there. The People's Bank of China also created a fund. It opened a liquidity window of 113 billion dollars to those who wanted to buy stocks. To Chinese institutions who wanted to buy Chinese stocks or funds from the market. Such a window was also opened. Thus, they directly put their finger on the stock market. Shanghai is up 4.13%, SZSE Component is up 4.36%, China A50 is up 5.14%, DJ Shanghai is up 4.12%, Hang Sang is up 4.11%, all Chinese stocks went up. In general, this is a move that I predict will carry world stock markets upwards. Because China is the world's second largest economy. China's recovery benefits everyone. I had stated that other central banks in the world would also line up the night the US Federal Reserve announced its interest rate decision, and I was expecting China to make the first move, to be honest. The expected move from China also came. This was a move that supports my theory that money will be abundant in the world by mid-2025. I don't know if it will be enough to save China. I don't know if these increases in stocks will be permanent. I can't say that I have a lot of knowledge about the Chinese economy. But in any case, monetary easing is good for stock markets.
The first good news is that I think it is possible for Chinese stocks, which have been crawling for a long time, to make an upward move at least for a while. Those who have investments in companies like Alibaba or ETFs like kweb may be in for a few good days. The news flow in American markets is a bit weak this week. PCE inflation is coming on Friday. Inflation is what the FED cares about the most, there is no very important data flow until there. But FED managers are talking a lot. 3 FED managers spoke on Monday. Goolsbee, Bostic and Kashkari, who is a very hawkish person, all three said they were not against 50 basis points. In fact, Goolsbee is even more optimistic, Goolsbee said that we think it is well above the natural interest rate we should be at right now. They call it neutral, meaning we are well above the interest rate that neither excites the market nor puts it into recession. He gave such a clear statement. He says that this interest rate will fall rapidly.
Even the most hawkish Kashkari said that I supported this 50 basis point cut. Normally, we would prefer to go to 25 basis points in the future, but our decisions may change depending on the future data flows. In other words, it seems that the FED members have made their adjustments. More FED members will speak this week, but the FED members' speeches did not cause the markets to fall on Monday. Beliefs that the next interest rate cut could be 50 basis points have strengthened. This was again positive news for the market.
The last positive news comes from American treasury bonds. For a long time, rote economists claimed that when the interest rates of 2-year bonds exceeded 10-year bonds in America, this would mean a recession. Later, they said that the real recession would not occur when the 2-year bond exceeded the 10-year bond, but when this started to improve. In other words, when the interest rates of 10-year bonds increased, they said it was a sign of recession. But days go by and there is still no evidence of recession. Because I think things are developing a little differently this time. Under normal conditions, the interest rates of 10-year bonds should be higher than 2-year bonds. Because a longer-term risk is being taken. This has been provided right now. When we look at 10-year bonds, the interest rates have reached 3.77%, 4.12% for 30-year bonds and 3.591% for 2-year bonds. They said that this could be a sign of recession as it normalizes. But how this normalization will happen is also important.
They didn't actually explain that detail. If there had been a major recession fear in the markets after the FED interest rate cut, because they were saying that if it came by 50 basis points, the fear of recession would definitely have taken over the markets, and the interest rates of 10-year bonds would have fallen below the interest rates of 2-year bonds, and since the decrease in 10-year bonds would have been less than the decrease in 2-year bonds, there would have been a recovery and this would have shown us a sign of recession. But something more interesting happened. The day the FED cut interest rates, 10-year bonds started to climb. They have been climbing ever since. They climbed on Monday, but the two-year bonds didn't fall much. In other words, the recovery was in the form of both of them climbing. What does this mean? It means that recession is no longer priced in American treasury bonds.
In other words, I am really tired of the rote comments of people who don't know these kinds of simple details. But here it tells us that we are no longer pricing in recession in treasury bonds. That's why we are raising interest rates. An increase in interest rates means that the American economy will be vibrant in the coming period. In fact, this may even create some inflation. So it is natural for interest rates to rise. Thus, it seems that we have moved from the inverted yield curve to the correct yield curve without much suffering. Of course, it is still early to say that America will not enter a recession. Of course, America will enter a recession one day. Everyone will be proven right one day, even if it is only once in 5 years. But the point is that by 2024, I think the recession has completely disappeared.
Because when we look at the Atlanta FED, the economic growth in the third quarter already seems to be around 3%. We will not suddenly shrink from there in the fourth quarter. The FED has many opportunities to lower interest rates until next year and the treasury bonds say that those who invest in them are America's most sophisticated investors, we are no longer pricing in a recession, we are pricing in a normal economic growth. We will see who will be right, but for now this is good for stocks. I was a little surprised the first day. Why didn't the bond market react in the same way when the FED lowered interest rates, interest rates did not decrease, on the contrary, they increased. Now that I look into it, I understand that the bond market is actually doing the right thing, it has given up pricing in a recession. I think this is basically good for stocks.
Of course, what I have said does not mean that the risks for American markets are over. We also have election risk, as is known, and October is usually bad in election years. The election will take place in November. Markets tend to fall in October during election years. Will the same thing happen this year depends on the markets' thoughts about who will win the election, and I think the markets are happy with what is happening right now. Because Harris is probably ahead in the presidential race. It seems so in many of the latest analyses I have looked at. But she is not far ahead, in other words, there is no such thing as a blue party taking over the entire country. Even if Harris is president, it seems like the House of Representatives and the Senate will be divided at the bottom, and it seems like Harris will not have the power to make the decision she wants in any of them.
This is also pleasing for the stock market. Of course, it is a bit debatable how much we should trust these betting markets or polls. Polymarket is a betting market here, Trump has been on a slight rise again in recent days. Harris was gaining ground at one point. Of course, these may change from day to day. But it seems that neither a red wave, that is, the one that Trump swept away, nor a blue wave awaits us. The market wants this. Because one of them scares the markets with tariffs and excessive tax cuts. The other scares them by increasing taxes. In other words, both have their own flaws. The market says that if the House of Representatives and the Senate are divided, neither of them can do what they want. We will mind our own business. In this context, this risk has also decreased somewhat. But these risks may increase again in October.
I think that matters will heat up as the election approaches. However, perhaps for the first time in history, we can pass October without a decline during the election period. Remember, at the beginning of the summer season, when we look at the statistics, they said that there would definitely be a decline in August and September. We increased in August, albeit very slightly. September is going well for now, it seems like it will end with an increase, it has four days left if we do not have an accident. They were saying that October would definitely decrease, maybe that will not happen either, but it is too early to say this right now, there are still uncertainties. Still, I think that the uncertainties caused by the election have decreased.
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