After ending QT (quantitative tightening), do you want QE (quantitative easing)? You must be prepared to welcome a major crash

Today, the Fed officially ended more than three years of quantitative tightening (QT), stopping the active 'balance sheet reduction' actions.

Many people immediately excitedly cheered on social media: 'QE is coming! The bull market is starting!'

This sounds like a perfect script, but you must understand that this view ignores the real and brutal economic logic and policy sequence behind the Fed's initiation of quantitative easing (QE).

If you want to profit in the next round of 'life-level' bull market, you must first see this clearly.

The true policy sequence and the triggering conditions for QE

Most people equate 'stopping tapering' with 'immediate expansion' (i.e., QE), which is a significant misunderstanding of the Federal Reserve's toolbox.

Priority of policy tools.

The Federal Reserve's toolbox is tiered; they will prioritize traditional tools before using non-traditional tools.

Step one: interest rate cuts (traditional tool). This is a policy used to stimulate the economy and alleviate recessionary pressures, usually employed when economic growth slows and inflation is under control.

Step two: Quantitative easing (QE) (non-traditional tool). This is an extreme measure used to inject large-scale liquidity and stabilize the financial system. It is only initiated when interest rates have been cut to zero (or close to zero) and the system is at risk of collapse.

QE is the 'ultimate weapon'.

Quantitative easing (QE) is by no means a policy used to 'add icing on the cake' for a bull market. It is the 'ultimate weapon' launched by the Federal Reserve after traditional tools (interest rate cuts) have been exhausted, to avoid a collapse of the financial system or a great depression.

2008: QE was implemented to address the global financial crisis.

2020: QE was implemented to address the economic shutdown caused by the COVID-19 pandemic.

Conclusion: When facing economic pain, the Federal Reserve will first alleviate it through interest rate cuts. Only when rate cuts are ineffective, interest rates hit bottom, and the economy faces significant systemic risk will QE come into play.

Why must you first endure pain?

Since QE is the 'ultimate weapon' used to rescue the market, its initiation must necessarily come when the market and economy are in great danger.

Only a 'great fracture' can trigger QE.

To get the Federal Reserve to break the norm and restart QE, you must see a 'great fracture' in the economy that meets the following conditions:

Massive layoffs and business closures: clear signs of recession, soaring unemployment rates.

Panic selling in financial markets: Stock markets, bond markets, and credit markets plummet simultaneously, liquidity is exhausted.

Systemic risk outbreak: bankruptcy crises in banks, large financial institutions, or sovereign debt.

In other words, if QE really comes, it means the market is undergoing a dreadful 'cleansing'—a crash significant enough to be recorded in history.

Investment perspective: traverse the darkness, embrace life's opportunities.

History tells us that crises (and the subsequent QE) are often the hallmark of cyclical bottoms.

It is precisely due to the trillion-dollar liquidity injected by QE that the foundation for the next multi-year bull market is laid. If you can survive that crash, you will witness an unprecedented wealth re-evaluation.

Core strategy: first pain, then feast.

Stay vigilant, rather than expecting a surge: Do not expect a new bull market to easily arrive next week or next month. The current market environment, from stopping the tapering to interest rate cuts and the possible crisis, requires time.

Reserve liquidity, waiting for a 'life signal': Before the cyclical bottom arrives, maintain sufficient liquidity and cash reserves. The real opportunity is not to chase during market prosperity, but to enter when everyone is fearful and the Federal Reserve initiates QE.

Distinguishing the nature of the crisis: the upcoming crash could be brief and intense (like March 2020) or long and persistent (like 2008). In either case, 'pain' is an indispensable prelude before hitting the bottom.

Summary: The market needs to go through a thorough painful cleansing before the Federal Reserve will initiate QE. Only those who endure this cleansing and dare to act will enjoy the subsequent life-changing super rebound.