Yes, it's time for a deep dive into economics and investment. August has begun, and recently, after the sharp decline in tech stocks, there was a rebound. Also, with expectations for interest rate hikes in September following the FMC, there were high expectations for August. However, the stock prices fluctuated significantly last night, causing concerns. How should we strategize for the August stock market? Today, we have Mr. Moonstar Invest CEO with us. Welcome, CEO. Hello, you came in mid-July, and the atmosphere was good back then. You mentioned a stock adjustment, but since then, there has been not just a minor adjustment but a significant drop in tech stocks. Then, there was a sharp rebound, followed by another decline yesterday. It's hard to keep up. Please start by diagnosing how you see the market. Why has the volatility increased so much? Well, first of all, if we liken it to an illness, we need to take care of ourselves a bit.

Shouldn't we diagnose it? But if I briefly explain about the recent trend, actually, in July, the peak was on July 17th, and after that, there was a decline. And two days before, before the BOJ and FMC meetings, there was a sharp rebound. However, looking at it from the perspective of the U.S. market, it moved a lot during the pre-market hours rather than the main session. Also, it had a significant drop the day before. If you look at this trend, what do you think? You should understand it in terms of liquidity flow. So, the reason for the decline on the 17th was because the CPI headline figure came out negative, indicating deflation rather than inflation, showing that prices stabilized.

Expectations for a rate cut have been very strong. So, if you make a rate cut stronger, why should an increase in liquidity be good? Why was this left out? There must be captions for this. As I have mentioned before, liquidity supply has been announced through press conferences so far. Oh, that part is a bit difficult. And now, as this begins, as the criteria for interest rates change, didn't the interest rates from short-term to long-term start to change? And just two days ago, on July 32nd, the market rebounded strongly. You all know that, right? Due to recent changes in the Bank of Japan's policies, the yen rose to 161 and then fell strongly to 149 after breaking 150. In reality, although the scale of quantitative easing has been reduced, they still...

It was about continuing to queue until 2026 and 2027, continuously purchasing bonds, so there is a perspective of continuously studying liquidity, and considering Japan's economic situation, raising the rate by 15 is actually difficult. The U.S. and Japan are closely coordinating policies, and this year, with the presidential election, if they raise interest rates a bit with London's cooperation, it has alleviated many concerns about the yen carry trade market relatively. In a way, it has strongly influenced the market. And yesterday, as I have mentioned before, in July, I thought it was actually right to raise interest rates a bit at the FOMC meeting, and practically, since last week, Dudley, who was the president of the New York Fed, and other Fed officials, of course, have started to [END OF TRANSCRIPT]

The former mentioned that they should now focus strongly on interest rates, but when I actually opened the lid, I realized that although you may think of FMC as doves, the content is quite hawkish. Yes, so Powell mentioned concerns about employment in the Committee part, but in the manufacturing index yesterday, the employment-related part came out worse than expected, causing market concerns about a recession, right? And today, on the day itself, there could be an employment report, which is again causing concerns and leading to market worries about an economic downturn. In reality, as I mentioned, there is a phenomenon of decreasing liquidity, which you may not notice, but on July 31st, the financing plan for the third and fourth quarters was announced by the Ministry of Finance. If you look into the details, it's more strategic than the previous announcement.

The announcement of the reduction in liquidity led to further impact on the market. Therefore, the liquidity aspect has experienced a contraction different from what was expected in the market, resulting in increased market volatility and a downward correction. Ultimately, changes in the market and major investors' sentiments surrounding interest rate predictions have created significant volatility. Discussing liquidity is crucial in understanding the market. It was mentioned that liquidity is entering a phase of slight contraction. So, what will be the direction regarding interest rate cuts? Although Jerome Powell has conducted some investigations by September, the path to rate cuts is still uncertain. There is still time until September, as the Jackson meeting is scheduled for August.

Isn't that right? Yes, but now, the interest rate has dropped below 4% for the past 10 years. So, what about the direction of the interest rate? In that case, there is a possibility that Powell or Yellen might make some remarks to calm the market down. Now that the FOMC meeting is over, the blackout period is over, right? Then, as the Fed officials come out and make statements, they will observe the market and respond with appropriate remarks. However, practically speaking, there seems to be a retreat in the timing of the interest rate cut in the September FOMC meeting, right? That's about 7 seconds. But personally, I think it would have been better to have a rate cut this time, but since that didn't happen, the market liquidity has somewhat decreased. However, the concerns and worries being discussed in the market right now, like the mild economic downturn or concerns about a severe economic downturn, seem a bit exaggerated in my opinion. So, from that perspective, it seems a bit overly worried.

I think it's not necessary. Yes, I see. Next, the quarterly funding plan of the U.S. Department of the Treasury was actually first informed to domestic market investors by Chairman Moonjang. Before that, I didn't pay much attention, but after Chairman Moon's explanation, I look at it a lot. However, what's extremely important is that while the market's self-sufficiency and reducing QQT used to be the role of the Federal Reserve, now the U.S. Treasury is taking the lead. So, it's said that the quarterly funding plan is important. You briefly mentioned it, but if you could mention it a bit more, this comes out every quarter, so the recent ones mean that the market's liquidity is somewhat constrained, right? Yes, that's right. This part is quite difficult, so let me explain it a bit more easily. For example, liquidity is a bit restricted.

To understand, I had organized some information from the table. It is necessary to look at the Fed's balance sheet. So, in the case of the Fed, since the capital has come in, the assets and liabilities are the same or, in accounting terms, the Fed's SOMA, which stands for System Open Market Account, can be seen as held assets. They have created international liquidity by establishing the standing repo facility. Therefore, if you debit 1 and credit 2, it will come in as an asset account. And as for the opposite, the liabilities, the reserve balances, are basically the deposits that banks are required to hold legally and deposit at the central bank. Then, the Department of Treasury's TGA, the money that the Department of Treasury can use, is deposited at the Fed. Think of it as the Department of Treasury's money. Lastly, there was actually no mention of 영내 상고 (unknown term), but why did 영내 프 상고 come about?

With the emergence of COVID-19, a large amount of liquidity was provided all at once. As a result, there is a perspective where the necessary liquidity in the market is being supplied. When this provided liquidity circulates in the market, there is a concern about potential asset inflation, which is a side effect. To manage this and absorb some of the liquidity in the market, the Federal Reserve came out to control it. Therefore, the most important thing to consider is how the reserve requirements move, which can be seen in a table. Simply put, depending on the reserve requirements set by the central bank, assets are created, and when subtracting liabilities from assets, reserves are generated. So, why did Powell not raise the benchmark interest rate this time but instead announced a rate cut next month? It seems almost certain that this move is to actually reduce liquidity.

If you try to understand what has been done, you need to understand the criteria that I explained earlier. What does this mean? When the Ministry of Finance now raises funds, it easily enters the Ministry of Finance's account, right? So, in other words, when the Ministry of Finance increases its debt, the equity decreases. However, securing funds from the Ministry of Finance means that, in a way, through 1 week, 2 weeks, or 3 weeks of financial expenditure, liquidity is supplied to the market. Therefore, in fact, this time, you should check the comment on how much the Ministry of Finance's TGA account warehouse will maintain at the end of this quarter. On July 30th, the Ministry of Finance's TJ account is currently discussing maintaining about 850 billion won at the end of September. Currently, the balance is about 874 billion won, so in reality, about 100 billion won more should be saved. So, accordingly,

Money is absorbed in the market, and now, why is the interest rate under the repo market important? Because the market is quite smart, isn't it? So, for example, if the interest rates rise in September, what happens is that short-term and long-term bonds will lower the interest rates in advance, right? So, this thing called the repo rate, in simple terms, is the CMA operated by the Fed. The money that can be used to buy these bonds is what we call MNF funds. So, what do MNF funds buy? They buy things like bonds, RP, deposits, or short-term government bonds. The interest rate on these transactions is set at the lower limit of the benchmark interest rate, at 5.3%. Recently, the interest rate for replacing these bonds fell below 5.3%. Therefore, naturally, the operator of the MF, who manages this, buys government bonds.

Rather than increasing the discount rate, by expanding the open market operations, it is expected that with such a reduction in interest rates, more funds from overseas will flow in, thus tightening the market liquidity. It's quite difficult to explain it easily, but for those who are listening, yes, it's challenging. Therefore, if we prepare ourselves to be criticized and organize it, in the end, it is not about the Fed's actions, but checking how the liquidity of the financial department is doing. That's important, and you mentioned several points. Yes, among them, the most critical ones are as you said, number 3, 4, and 5. So, practically, what we need to confirm is whether the base rate is increasing, which is the most crucial. Number 3, specifically, doesn't affect much, right? But, this time...

Now, due to the impact of the FMC interest rate, the financial department's TG resolution, and the subsequent QR, the process of the ceremony was conducted. As the TG resolution increases, prudence decreases, and then, due to the recent interest rate cut in the domestic market, more deposits are being made, leading to a contraction in market liquidity. Consequently, the phenomenon of further reduction in reserve requirements has occurred. Doctors, after completing their medical treatments, explain that when blood vessels are blocked, patients face difficulties. So, what should we do? In any case, if we check the financial liquidity now, we are in a phase where it is slightly decreasing. Then, where should we look for solutions? Well, if you go to a certain extent, you can see these things clearly. If you check to some extent, I can explain more in a cyclical manner. It's easy to understand when you look at the table.

As the base expands, liquidity increases, and as the base contracts, liquidity naturally decreases. Now, if I explain a bit more about the QR, in May, during the second and third quarters, if you see the yellow color, in the second quarter, as I mentioned, it contracts, and from the third quarter, liquidity increases, so I mentioned that it rises in the summer, right? Especially if you look at short-term international trends, right? But now, if you look at it, after May 1st, the market was quite strong. So, here, in the third quarter, around 7, 8, 9, liquidity can flow in strongly. This part was reflected, starting from July 31st, so if you compare it, in the QR released on May 1st, it supplies about 2.9 trillion won of short-term government bonds in the third quarter.

Two days ago, there was a mistake in the announcement made. It's not the 1st and 2nd quarters, but the 2nd and 3rd quarters. Below is the 3rd quarter. If you look here, it's decreased from 2,900 billion to 1,815 billion. Isn't it a reduction in liquidity? In fact, the part that needs to be explained now is that liquidity is being reduced. To put it simply, what happens is that by reducing the liquidity, long-term government bonds are issued more, while relatively less short-term government bonds are issued, leading to an actual reduction in market liquidity. You did a good job. Below the second year, in July, what came out at the end of July is the 3rd and 4th quarters. Specifically, there is a reduction in liquidity in the short-term government bonds. If you look at the QR content, in the market, there may be a reduction in liquidity compared to what was announced before, and at the same time, now let's move on to the comments.

What did you say? In late September, the TGA Django, which is currently around 7.14 trillion, is expected to increase Django to the level of 8.5 trillion, so the phenomenon of absorbing liquidity in the market as much as that money will occur. So, if you look at it, why did the market rise like this two days ago? The reason the market rose two days ago was that there were concerns about the so-called carry trades related to the BOJ, but those concerns were significantly eased in reality, which was good. At the same time, now with the AMD earnings announcement, and although it wasn't good with MS, through the effects of investment, there was a lot of investment, so there could be a lot of investment in AI semiconductors continuously, making the semiconductor market quite strong. However, actually, now, on the evening of the 31st, if you look at the content of FMC's statement, it is quite bearish.

However, Paul mentioned in the comment that he will be working in September, but looking at the content, he is not starting now, right? What does that mean? As I mentioned earlier, if the interest rate is lowered as a part of the monetary policy, the funds flowing into foreign investment will be directed to government bonds when the domestic interest rate drops from 5.3% to 5%. During that period, the interest rate in the video is already adjusted to 5.3%, and only the short-term government bond interest rate that was announced for September has dropped. Therefore, a situation may arise where money does not flow into short-term government bonds. I understand. CEO Moon, I feel sorry and frustrated because the broadcast time is limited and you couldn't say everything you wanted. It seems difficult for us to convey what we want to say. It's actually quite challenging. However, it is very important for us to continue this conversation because there are many important points to discuss.

So, then, investors, earlier, I referred to a doctor and mentioned that taking medicine now will make you feel better. What should you do? Is the stock market correction that started in mid-July still ongoing? Yes, the stock market correction is still ongoing. I believe it will continue until mid-October. The first round of price declines that I mentioned earlier seems to have been completed. There may be a rebound, but I expect the second correction to occur around mid-September. Also, the assumption of liquidity tightening that I mentioned will intensify again in September. Therefore, there may be additional corrections in September and October. However, what I can say for August is that if you look at the chart, there will be a significant tightening of liquidity.

Looking at the current situation, in July, the numbers are still increasing, and in August, due to this trend, mobility will increase a bit. However, it is expected to decrease in September. And isn't this kind of situation already reflected in advance, causing prices to drop significantly? That's right. In this kind of situation, as I mentioned, concerns about an economic downturn are somewhat exaggerated, and I believe it won't actually happen. Therefore, if a correction occurs and prices fall, it could actually be a good short-term trading opportunity. However, looking at it in the long term, until the end of the third quarter, around the end of September or the beginning of October, this kind of adjustment, as I mentioned last time, isn't it more like a long period of rain rather than a short shower? So, I suggested that you should prepare a raincoat to protect yourselves safely. By approaching it wisely and cautiously in the long run, you will be fine.

It seems like that, so until September, September and October, now the adjustment, there was a major 2 adjustment, right? And then, going back and forth, the period of adjustment can be a bit longer like this. September and October are weak. However, if August drops a lot, it can actually be used as a rebound phase. So, what about the market leaders? How about the tech stocks? Did the tech stocks rise and fall as part of the adjustment? Is there a possibility of rotation to replace tech stocks, such as small and medium-sized stocks or value stocks that have been mentioned before? Can you show the current status of U.S. options and I will conclude my explanation? First of all, the Russell, the small and medium-sized stock index, dropped the most on the previous day.

Didn't it go down? The reason is that the manufacturing index was not good the day before, and the sentiment in the job market was not good, so there was a strong concern about an economic slowdown. So, if the actual economy is not doing well, small and medium-sized stocks won't do well either. Therefore, I think the optimism that was seen recently has already faded away. Yes, in such a situation, the cycle does not turn positively. In the U.S., big tech companies are considered safe assets because they show a lot of profits. In fact, Amazon announced its earnings the day before, but the stock price didn't react well. From that perspective, for big tech companies that are making a lot of money, it's not good for interest rates to rise. Big tech companies should be seen as safe assets. Therefore, even though the NASDAQ index has dropped significantly, it's because the U.S.

The options market has developed a lot now, and here you should consider it as an index futures related to the SNP. Up to the put month part here, it is designed to defend even if it falls fundamentally. However, the previous closing price was 5,440, and it has maintained the national sovereignty up to 5,400 recently. But if today's employment report comes out worse than market expectations, temporarily, it could break 5,400 won. But even if it breaks, it could prevent derivative positions, which could lead to a defensive effect on the economy, and safe asset funds are flowing in, right? So recently, as interest rates have dropped significantly, bond funds have flowed in, so how will the main stock index be affected? I think that tech stocks centered on big tech could attract funds. Therefore, if there are concerns about the economy, if the market outlook is large, you should consider a lower price.

It becomes a good opportunity to buy cheaply. By diversifying investments and focusing on the economic sector, rather than investing in interest rate hikes, I believe it is best to concentrate on investing in big tech companies. I think it is the best timing to enter. Do not worry about corrections in September and October. If you trade in the short term and find a lower price than the current one, it is a very good timing to enter tech stocks. Today, I will stop here with CEO Deepsight. Thank you.

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