2 weeks, 1 day ago

 this doesn't need any conspiracy theory to explain. Let's understand the definition of US equities and US dollar index. 


Basic knowledge of finance, a country's currency is also a kind of asset. This time, the U.S. stock market fell sharply, for the reason that the U.S. dollar is not enough on the market. 

The dollar index refers to the degree of change in the exchange rate of the dollar against a basket of currencies. The U.S. dollar index jumped as a result of 
 appreciation of other currencies 
. 

It's impossible for the United States to harvest other people's money by a combination of nearly suicidal jumps in the dollar index and such sharp falls in the stock market. 


 the following are popular science: 


Money is an interest free asset. There are two ways to hold money for profit:


1


For example, if you are the holder of the euro, you can exchange 1 euro into 1.2 (non real exchange rate) US dollars, and buy the risk-free interest rate products of US dollars. If the euro depreciates (depreciates to 1:1) during the holding period, you can get more euros (1.2) when you exchange the US dollars back. 

There are friends who are familiar with purchase power parity. When the economic form is relatively stable, even if you hold more euros, the absolute purchasing power does not change. 

USD/EUR=(1+rfusd)/(1+rfeur)

As you can see here, the situation of both sides should be considered in the foreign exchange market. 
 the release of water from the Federal Reserve does not necessarily lead to the decline of the dollar index, because if the European central bank makes more efforts to release water, or the world's dollar is the weakest, the dollar index will still rise. 


The exchange rate of freely convertible currency and currency is based on the economic development expectation of two monetary entities. For example, the long-term economy of the United States is better (more important) than the euro, and the dollar will appreciate against the euro. If the U.S. economy is good for major countries, the dollar index is up. 

Investors will hold more US dollar assets - in exchange for us dollars, 
 and then buy US dollar denominated stocks, bonds and real estate. 


In the short term, if you think that the world economy is not good, but the dollar will be relatively better, you will also buy the dollar and allocate some high liquidity treasury bonds and so on. 

In a period of economic stability, on average, the market will see the inflow of US dollars in a relatively stable way, allocated to all kinds of assets denominated in US dollars. 


 transmission mechanism: we are optimistic about the relative development of the U.S. economy - & gt; for the U.S. dollar - & gt; part of the capital allocation in the stock market - & gt; the U.S. dollar index and the U.S. stock market are rising. 


Of course, American monetary policy has the effect of harvesting the world. Indeed, we often observe that through the dollar index cycle, the United States regularly harvests the world's assets by releasing money to the world (to the world is very important) & gt; investing in foreign currency assets - & gt; returning the dollar to the United States. 
 however, the United States does not want investors from all over the world to take cash after changing into US dollars, but to guide them to enter various capital markets and change into assets. 



2


There is no strong recession in a country, and the return rate of cash assets is the lowest compared with other major assets. 




So according to the analysis of point 1, the investors who hold dollars do not hold dollars in cash. Stocks, bonds and real estate will be allocated. 

The problem is that in 2020, there is a real recession risk in the economy, and the financial market has a stampede and chain reaction. At this time, the holders of US dollar cash face the following situations:


 high risk asset bubble is here, the risk of recession is high, dare not sell; 

Risk parity is a kind of strategy convergence, which leads to concentrated selling pressure and redemption, which leads to the selling choice, not daring to accept the offer

The global economy is pessimistic, the strong belief in the dollar is still there, and many people are still buying the dollar. 
In a very pessimistic market, cash has a 
 short-term 
 chance to outperform other assets. 


 3 as mentioned in the question, the U.S. stock market fell sharply + the U.S. dollar index jumped 


The safe haven for the rise of the US dollar index is key, with the exchange rate higher than other major currencies. 

Not only the US dollar, but also the traditional safe haven yen has appreciated against major currencies in the past month. 




We don't need to talk about the problems of American stock market. If you are interested in it, please read it


 How do you think of the opening crash of US stocks on March 18, 2020, and the fifth fusing of US stocks? 



 the relationship between U.S. stocks and the U.S. dollar index is mostly in the same direction, provided that the U.S. dollar flows in and is allocated to various types of financial assets; 


The outflow of US dollars, the withdrawal of US dollar denominated assets in a certain proportion and the exchange of foreign currencies. 

The problem this time is:

 
 it's bad, but in all countries where currencies are freely convertible, the dollar is the best. The dollar index jumped

Holding US dollar cash is much more secure than buying risky assets at present, 
 dare not pick up coins in front of the moving bulldozer. 
 U.S. stocks fell sharply but no one dared to take over. 
This is a typical example of the pricing function failure of high-risk assets in the liquidity crisis. 


One more thing, someone asked if this was an American plot. 

It's not good to chop your fingers to frighten others. It's not good to take off your arms to frighten others.

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