up to date! The pace of Fed rate hikes may be faster than last cycle! U.S. Department of Justice inv

The minutes of the Federal Reserve's January meeting released on Wednesday showed that central bankers reached a consensus that with the growing impact of high inflation on the economy and the employment situation improving significantly, there is reason to tighten monetary policy, although they also said that the specific decision still depends on each month. Analysis of the data at the 2018 interest rate meeting.

Data released last week showed that the US nominal CPI rose 7.5% year-on-year in January, continuing to hit a new high since February 1982.

The minutes of the meeting showed that most participants noted that if inflation fails to fall as expected, it would be appropriate for the Fed to unwind its easing policy faster than currently expected. The implication is that policymakers believe it is possible for this round of rate hikes to exceed the 2015-2018 cycle.

Participants acknowledged that high inflation is a burden on American households, especially those unable to pay for basic goods and services.

U.S. President Joe Biden's approval ratings have fallen further due to stubbornly high inflation, and price pressures have made it harder for his administration to pass an economic stimulus plan. Both Democrats and Republicans are urging the Fed to rein in price pressures.

In terms of employment, data released earlier this month showed that non-farm payrolls in the United States increased by 467,000 in January, the largest increase since October last year, significantly higher than market expectations of 150,000. Nonfarm payrolls for December were also revised up sharply to 510,000 from an initial 199,000. At the same time, wages continue to rise.

According to the minutes of the meeting, Fed officials last month discussed the possibility of continued wage increases, which could trigger a wage-price spiral in which inflation rises as businesses raise wages and pass on price pressures to consumers.

Policymakers explored how to trim the nearly $9 trillion balance sheet, which is largely made up of all the bonds the Fed buys to keep interest rates down and spur economic growth.

According to a plan announced by the Fed in December, bond purchases will end in early March this year. Two officials suggested ending bond purchases weeks early to send a stronger signal to the outside world that the Fed is committed to reducing inflation.

Some officials have suggested that it may be necessary to sell mortgages outright so that only U.S. Treasuries remain on the balance sheet.

Despite being surprised by persistently high inflation, participants emphasized that the appropriate policy path will depend on economic and financial developments and their implications for the outlook, including risks surrounding the outlook. Fed officials said they would updat their assessment of the appropriate environment for the policy stance at each meeting.

After the minutes of the January meeting were released, Ian Shepherdson, chief economist at Pantheon Macroeconomics, commented that the report did not clearly discuss the date of the reduction of the balance sheet, nor whether it would raise interest rates by 25 basis points or 50 basis points at the March meeting. Therefore, the stance of the meeting minutes was not as tough as expected.

Since the Fed's interest rate meeting in January, the market has increased its bets on the number of interest rate hikes. There is currently a view in the market that the Fed will raise interest rates six to seven times this year. In December last year, the market generally expected the Fed to increase interest rates this year. rest three times.

As the representative of Fed hawks, St. Louis Fed President Bullard this week again called for the Fed to accelerate its plan to raise interest rates, arguing that four consecutive strong inflation reports provided the reason for policy makers to act. Inflation data react.

Bullard suggested that, in response to the highest level of inflation in 40 years, the Fed should raise rates by 50 basis points at its March meeting, a total of 100 basis points by July 1, and begin to contract in the second quarter balance sheet.

// Amid the turmoil in U.S. stocks, short news came out of the U.S. Department of Justice's investigation. Muddy Waters and Citron founders are listed //

The U.S. Justice Department is investigating a series of high-profile short sellers over whether they profited by sharing damaging short-selling reports and using illicit trading practices, including Muddy Waters research founder Card Carson Block was also in the search area.

It is reported that investigators from the Department of Justice have obtained some hardware devices, transactions and private chat records, aiming to prove the extensive collusion of these US stock shorts.

The "minority" in the US stock market is now fighting for itself
According to people familiar with the matter, as early as last October, FBI agents in the United States appeared in front of Bullock with a search warrant, and it is reported that his mobile phone was also included in the search scope. According to earlier reports, Andrew Left, founder of Citron Research, another well-known short-selling agency, was also investigated, and federal agents confiscated his computer.

It is worth mentioning that because the U.S. stock market has been in a state of continuous rise for a long time in the past, investors who specialize in shorting can only be regarded as a minority on Wall Street, and there are not many opportunities to make money. What's more interesting is that these bears were also seen as "villains" during last year's "retail vs. Wall Street" and suffered a lot of losses.

But it is undeniable that these short sellers have also successfully exposed the fraudulent behavior of listed companies. Whether it is Enron 20 years ago or the recent Wirecard storm, they all have their presence. These people are often used to taking the initiative to attack and catch public companies off guard, but now they need to fight for their freedom.

The U.S. Attorney's Office in Los Angeles, which is known for prosecuting organized crime, is said to be leading part of the investigation.

Whether to use illegal trading strategies is the key
Shorting U.S. stocks is clearly legal, so the legality of these short trades will be a key part of the investigation. According to reports, the U.S. Department of Justice is focusing on whether these shorts are spoofing or “scalping”.

Specifically, fake quotations are a common illegal trading practice in the past few years, aiming to deceive counterparties with a large number of fake pending orders to make profits. For example, a stock is trading at $10.03 immediately. At this time, the suspect puts out a large number of sell orders for $10. When other sellers rush to keep up and sell the stock for $10, the suspect quickly cancels the sell order and buys at that price. stock. When repeated enough, a lot of profit can be generated.

While the tactic was outlawed as early as 2010, it wasn't until 2016 that the first commodities trader from New Jersey was sentenced to three years in prison. So far in 2020, the U.S. Department of Justice has indicted 20 people for the crime and issued more than $1 billion in fines to banks and other financial institutions.

A separate investigation into "scalping" strategies focused on whether these publicly shorted stock traders took profits on their positions without disclosing them.

The law professor behind the US Department of Justice
So far, the short sellers and their lawyers have expressed confusion over the Justice Department raids, and even questioned whether the government was knowingly exploiting academic research that portrayed activist investors as conspiring market criminals.

According to media reports, Columbia Law School professor Joshua Mitts, who published a paper criticizing short-selling strategies in 2020, is advising the Justice Department in this investigation. Mitts himself has provided expert services to companies and executives such as REIT Farmland Partnership and Bank of California, which have sued short traders for fabricating false or misleading research.

A clear sign of fraudulent trades was the flood of sell orders that were sent to exchanges around the time the short-selling reports were published, and then cancelled in mere seconds, according to Prof. Mitts for the lawsuits.

But Professor Mitts' views are not always adopted by the courts. In 2020, a British court rejected his findings in a lawsuit against financial services company Burford Capital, that shorts relied on fake trades to suppress share prices, and it was Bullock’s muddy waters research that caused the company’s share price to plummet by 50% in one day.

// U.S. stocks close: the Fed is not as tough as expected, the three major indexes are mixed //

On Wednesday, Eastern Time, the three major stock indexes were mixed. The Nasdaq fell by more than 1% in early trading. After the release of the minutes of the Federal Reserve's January meeting, the major stock indexes narrowed some losses due to the less hawkish stance shown by policymakers.

(The Nasdaq once fell by more than 1%, source: Yingwei Finance)
Data released on Wednesday showed that U.S. retail sales rose 3.8% in January from the previous month, far exceeding market expectations of 2% and hitting a new high since March last year.

Market dynamics
As of the close, the Dow Jones index fell 0.16% to 34,934.27 points; the S&P 500 rose 0.09% to 4,475.01 points; the Nasdaq fell 0.11% to 14,124.09 points.

Top stock performance
Most of the large technology stocks closed down, Apple fell 0.14%, meta fell 2.02%, Microsoft fell 0.12%, Netflix fell 2.30%, Google rose 0.83%, and Amazon rose 1.02%.

New energy vehicle stocks were mixed, with Tesla up 0.10%, NIO down 0.70%, Xiaopeng Motors down 2.27%, Li Auto down 1.29%, Nikola down 0.59%, Workhorse up 0.86%, Lordstown up 1.17% , Lucid rose 0.45%, Rivian fell 0.06%.

Popular Chinese concept stocks rose and fell. JD.com fell 1.09%, Weibo rose 0.81%, Pinduoduo fell 1.68%, Bilibili rose 1.94%, Baidu rose 0.29%, New Oriental fell 1.22%, NetEase rose 0.33%, Ali Baba fell 0.54%, Tencent Music fell 1.75%, iQiyi fell 1.56%, and Didi rose 1.83%.