The past week has been a thrilling week, a magical week, the trend of the market has no need to be repeated, only need to use a joke ridiculed by online stock analysts to know what happened in the five trading days: can't sell, can't sell, can't sell, can't buy, can't buy......

Now that the stock market crash of the past month has finally passed, we can't help but reflect on what caused such a tragic stock market crash and where will the stock market go in the future.

To answer this question, we first need to figure out why this bull market started to the present.

China's stock market has always been a capital-driven market, whether in 1993, 2000 or 2007, each of the major bull markets was accompanied by the central bank's large-scale injection of base money, the rising growth rate of M1\M2 broad money supply, and high inflation.

For example, in the bull market of 2007, the growth rate of M2 data was as high as 20%, and broad money increased by tens of trillions in just a few years, and the growth rate of monetary aggregate was equivalent to 10 times that of the past 50 years.

At the same time, the inflation indicator CPI has reached a maximum range of almost 10%, and this is only the official data, and the actual situation may be even more serious.

However, since 2014, this round of bull market and the three bull markets in history are different, in the process of this round of bull market, there is no central bank currency over-issuance, M2 data has remained relatively low below 15%, while the CPI indicator has fallen all the way to below 2%, not only has prices not increased at all, and there are even some signs of micro-deflation.

But it was in this situation that the stock market rose all the way from 2,000 to more than 5,000 points.

So what is driving this bull market? Where does the money come from?

The answer is leverage.

The start of this bull market and the recent plunge are, to put it bluntly, leverage. Stock index futures, margin trading, graded funds, over-the-counter allocation...... It was these leveraged instruments that led to a bull market and a once-in-a-century stock market crash.

These leveraged instruments are issued by the state or with the tacit consent of the state.

So why does the state issue so many leveraged instruments? While the financial systems of the world are deleveraging, isn't China worried about the risks that exist in leverage?

The root cause is still economic problems.

In the past, China's central bank used to issue money to solve financial problems. But as China's economic situation has deteriorated, this approach is no longer sustainable.

When the central bank issues money, it does not directly send money to enterprises and individuals, but transfers it through commercial banks. When the state issues treasury bonds, and the central bank buys treasury bonds, commercial banks will receive funds, and after they have funds, banks will lend to enterprises, and there will be abundant funds in the market.

However, with the deterioration of the financial environment, this capital chain has been broken, and commercial banks are reluctant to provide loans to enterprises.

Because the business situation of enterprises continues to deteriorate, profit margins are decreasing, and even large losses are occurring, it will become unsafe for banks to continue to provide loans to enterprises and local governments.

In this case, China's financial market can no longer carry more money, so the only way to keep the financial market active is to increase leverage.

For example, an industrial and commercial bank has a total market value of trillions, and it is very difficult to continue to increase the scale of additional issuance, but it can increase the market vitality by increasing the turnover rate.

In this situation, various leveraged instruments came into being, and the stock market began to rise vigorously.

Among them, it is particularly worth mentioning the over-the-counter allocation company.

First of all, bank credit or individuals use P2P to provide loans to credit companies with an annual interest rate of about 6%~7%, and then the credit company will provide these funds to the over-the-counter allocation company at an interest rate of 10%~15%, and then the over-the-counter allocation company will provide these funds to shareholders at an annualized high interest rate of 20%~30%.

In this whole process, banks, P2Ps, credit companies, and capital allocation companies are all pure profit individuals, and the shareholders who receive the capital allocation bear all the costs for this.

Of course, shareholders will not borrow money in vain, they borrow money from the allocation company through 4 times, 5 times or even 10 times leverage, and then make a lot of money with the help of the bull market.

When the stock market goes up, everyone is making money, and it's all going well; And once the stock market falls, the investors who borrowed the money will have to bear all the costs and risks.

But even so, at most, the shareholders who accept the allocation lose money. However, in this round of stock market crash, something happened that everyone did not expect - a large area of individual stocks fell to the limit, resulting in the inability of shareholders to sell.

For those investors who have borrowed 4 or 5 times leverage to finance and speculate in stocks, once the market plummets by more than 20%, shareholders will face liquidation, and all the principal will be wiped out.

What's even more terrifying is that the fall of individual stocks continues. This means that all the principal of the shareholders has been lost, and the companies that provide the allocation of capital will begin to suffer large losses.

They are not involved in the risk themselves, but now they are facing a huge risk of loss, and they have to find a way to pass on the risk.

At this point, the only way is to hedge with stock index futures.

The stocks held by the allocation company have fallen and cannot be sold, and the loss of this part of the funds is unavoidable, but they can use the way of shorting in the stock index futures market to reduce their losses.

There are currently three types of stock index futures in China's stock index futures market, the 50 Index, the CSI 300 Index, and the CSI 500 Index.

Most of the stocks held by the company are small-cap stocks, and the most relevant to the trend of small-cap stocks is, of course, the CSI 500 index, so in order to avoid the risk of loss, the company began to sell a large number of stock 500 stock index futures, and once led to a huge discount of 900 points in the stock index futures relative index.

In fact, it can be seen from various signs that the initiator of this ** decline is very likely to be led by the government.

As you can see, the government hopes that the stock market will come out of the slow bull, but in fact, the stock market has risen from 2,000 points to more than 5,000 points in only half a year, and if it is not controlled, it is very likely that it will continue to rise to 8,000 points, 10,000 points.

And this will be a very risky thing, because China's economic situation does not support the stock market to rise that high, and because this round of the stock market is driven by leverage, once the stock market rises to 8,000 points and 10,000 points, the bubble bursts, this harm is very great.

Therefore, in order to ensure that the tragedy of 2008 does not happen again in China, the rate of stock market growth must be suppressed.

As a result, the China Securities Regulatory Commission (CSRC) began to speed up the issuance of new shares and accelerate the extraction of blood from the secondary market.

Originally, the frequency of new shares in the market was once a month, but then it became twice a month.

Originally, the number of new shares issued was about 10 at a time, but then it became about 20 at a time.

Even so, the stock market is still rising wildly, so the CSRC has made persistent efforts to issue small-cap stocks, so it will issue super large-cap stocks. As a result, two super large-cap stocks of China Nuclear Power and Guotai Junan were issued in succession, and a series of large-cap stocks such as Bank of Jiangsu were lined up.

At the same time, China's stock market entered June.

There has always been a proverb in the Chinese stock market, which is called infinite six absolute seven turnover.

Because the end of April is the intensive disclosure period of the quarterly report of listed companies, many listed companies in order to speculate on the stock price, will blow the prospect of the enterprise infinitely better, but unfortunately the ugly daughter-in-law is going to see her in-laws after all, when the ugly quarterly report is disclosed, all the cowhide has been blown out, and the stock price in May will naturally fall.

The next June is the month of bank fund settlement, and the market capital will be relatively tight, just two years ago in June 2013, the state also single-handedly contributed to the money shortage in order to crack down on shadow banking.

Therefore, the stock market will continue to fall under the influence of a lack of funds. Until July, the capital situation improved again.

The intensive issuance of new shares this time coincided with the money shortage in June, and the dual factors led to a sharp drop in the stock market.

Originally, the sharp decline was planned by the government to cool down the stock market and reduce leverage risk.

On the other hand, this round of bull market has risen so far, and the main force of the rise is small and medium-cap stocks, while the large-cap stocks controlled by the state have not risen much.

This is what the state does not want to see. The state worked hard to pull up the stock market, but as a result, the stocks held by the social security pension did not rise, which is equivalent to buying a cannon for others to put on, of course, not happy.

Based on the experience of the post-530s generation in 2007, the government judged that after a sharp plunge in the bull market, the market would revert from the current small-cap stock frenzy to the 28 phenomenon.

Therefore, the whole process of the stock market falling from more than 5,100 points to 4,000 points in June can be said to be a government-led script.

When the broader market fell to 4,000 points, the index was already approaching the lower band of the bull channel.

The government's original intention was to slow down the rise of the stock market, and it did not want the bull market to end, and now that they have achieved their goal, they certainly do not want the stock market to continue to fall.

But at this time, the market got out of control!

There has been no such thing as leverage in every bull market in China's history, so the government has little experience with what impact leverage can have on the stock market.

As a result, the 1,000-point plunge in the stock market led to the liquidation of a large number of capital allocation orders, and the company hedged in the stock index futures market in order to reduce losses, and made a large number of short warrant 500 stock index futures.

Stock index futures generated a huge discount, which further led to the entry of arbitrage funds, they were long stock index futures, and at the same time sold a large number of CSI 500 indices and individual stocks in the secondary market, through this operation to earn the difference between futures and indexes.

The sell-off of arbitrage funds further contributed to the decline in the stock market.

Then more financing orders were liquidated and constantly liquidated.

First, 4 or 5 times leveraged allocations were blown up, and then 2x leveraged financing orders and graded funds also began to be liquidated and panic selling.

The entire market is caught in a vicious cycle of panic selling.

It was only at this time that the government realized that it had played a game and began to work hard to save the market. However, relying on the rise of a small number of heavyweight stocks cannot stop the sell-off of tens of millions of shareholders.

As long as the stock market continues to fall, the leveraged market will have to short the stock market to hedge in order not to pose the risk of liquidation, which will further lead to a plunge in the stock market.

Therefore, the only way for the state to save the market is to prohibit the allocation company from using stock index futures for hedging.

On Wednesday evening, the government announced that stock index futures were prohibited from opening new short positions, and the decline in the stock market was immediately halted.

Subsequently, as the market began to rebound, those funds who used the difference between futures and the index to arbitrage began to close their positions after making a profit, and they rebought back the CSI 500 index that they had sold before, so the market had a V-shaped reversal, and individual stocks rose to the limit across the board.

The above is a restoration of the entire market situation over the past month.

So in this case, how will the stock market go in the future?

We need to see that the liquidation caused by this round of capital allocation companies due to liquidation has ended, institutions have begun to go long backhand, and the biggest short position no longer exists.

At the same time, a large number of retail investors' stocks plummeted by more than 50%, and even if the broader market rebounded in the next few days, they were still stuck at a high level and could not be untied.

A stock that has fallen by 50% wants to be unbundled unless there are 6 consecutive up-limit boards. This is obviously very difficult.

In this case, the only way for retail investors to untie their positions is to cover their positions to save themselves. For example, they originally held stocks worth 100,000 yuan, and now if they double their positions, they only need 3 daily limits to unbundle.

On the other hand, in order to save the market this time, the national team has invested hundreds of billions of funds in total, and these funds are not here to be Lei Feng, they have only one purpose, that is, to make money.

Combined with the above situation, it is not difficult to deduce the future trend of the stock market: first, small-cap stocks began to rebound, and then fund companies gradually came out of small-cap stocks and shifted their positions to defensive varieties, including low-valued heavyweight stocks, consumption, pharmaceuticals, etc.

According to the historical practice of rebounding after the stock market crash, the probability of a rebound of about 50% of the entire decline is generally higher, that is, the (highest point + lowest point)/2 of this round of bull market is a more reasonable short-term position for this wave of rebound.

This round of stock market crash, from the current point of view, should be in the past, after the market rose for two consecutive days, many retail investors have not healed their scars, they began to forget the pain, and began to look forward to 8,000 points again.

However, I would like to remind everyone that after this plunge, the stock market has been greatly damaged, and the popularity can no longer be compared with before, so it is very difficult to reach new highs.

Therefore, the most likely situation for the stock market in the future is to get out of the exhaustion wave, of course, if led by the rise of heavyweight stocks, the possibility of a new high in the large market still exists, but it is unlikely that small-cap stocks will return to their former glory.

On the other hand, in this round of bailouts, the national team won on the surface, but in fact it was the biggest loser.

China's overall financial strategy in the future aims to internationalize the renminbi and China's financial market through the Belt and Road Initiative, the liberalization of the capital market, margin financing and securities lending, and stock index futures.

In order to open up the financial market, the first thing is to be fair, just and open. Of course, we know that China is absolutely unfair, there is a lot of inside information, no one has checked the fake accounts, and the premise of disclosure is that the market is open, which is not ideal.

In this stock market crash, in order to save the market, the government even changed the rules of the game many times, first the issuance of new shares that had frozen funds was forcibly suspended, and then changed the rules of the futures market to open short positions in net stock index futures.

China's behavior is a serious violation of the spirit of contract and the principle of fairness in the financial market. Therefore, the result of China's game-changing can only be to force foreign capital to accelerate the withdrawal from the Chinese market -- since you are laid, then sorry, we will not play with you.

Now financial analysts in Europe and the United States are ostensibly singing long about China's stock market, saying that this round of decline has released market risks, and China is expected to get out of the super bull market.

This statement is because their hearts are also trapped, so they must sing more. But once the stock market rebounds sharply, they will definitely withdraw as soon as possible.

So China is really making money in the stock market and losing the future, and it is actually the big loser in the whole financial battle......

So in the end, my advice to you is that the rebound of the market in the future is a variant of the final wave of exhaustion in this bull market, and the role of exhaustion is not to make money for everyone but to give everyone the opportunity to sell stocks.

In the long run, not only should you not be able to increase your position, but you should gradually reduce your position until you are short during the rebound.

That's all for today, King Qin cheated the corpse and put on the hooves of the black donkey......

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