The year of 2020 is a historical year for everyone in every field to study. In a financial view, the U.S. market was hit first and dropped dramatically then quickly recovered. All these fascinating events happened so quickly within the same year give us no time to thoroughly think about them at the time they happened. Now, as things starting to get settled and vaccines have been delivered, it is the time to have a look with the raise and fall within the stock market during the year of pandemic.
The market in the U.S. during the year of 2020 was mainly moved by two countries, the States and China. The first move was initialed in China when the virus outbreak hit the city of Wuhan.
First Hit in China
“We know it is going to crash at some point in the near future, but we just don’t know exactly when. ”
Around the end of 2019, Covid outbreak hit a large city of China, Wuhan, and it suddenly became a national emergency for the Chinese government. At first, the Chinese government was trying to cover things up as they have always been doing regarding this type of emergency, but they quickly found out that this is not something they were able to cover it up easily. As for Chinese people, especially Chinese investors, they always have a low trust on the news put out in public which has been heavily censored by their government historically, and so do they this time. Starting around December 2019 when the rumors first came out, investors in China started moving their assets into the U.S. market, and we can see the continue rising of SP500 during the end of year 2019 even though it was not quite expected by U.S. investors.
Starting around the early of 2019, there was a strong voice among the U.S. stock market which concerns a lot regarding the market vulnerability under Trump’s administration. After a lot of policies issued by the Federal Reserve to cut the interests which were encouraged by the Trump administration, most of professionals in the stock market become very worried and conservative of further investment moves. “We know it is going to crash at some point in the near future, but we just don’t know exactly when”, as stated by a Berkeley student I met during mid 2019. Also believed by myself, there was a clear sign among the stock market suggests that the market can crash anytime. Thus, these professionals could not figure out why the market was still raising during the end of 2019. And amusedly, Trump was quite delighted about this market raising and believed this raise occurred thanks to his good work.
As we brushing through, this market raise happened during the end 2019 and early 2020 before the Covid outbreak finally hit the U.S. was mainly driven by the money escaping from China, instead of money within the U.S. Starting from the notice put out by Dr. Wenliang Li, a lot of investors in China began their contingency plan of finding ways to hedge their portfolios, and the biggest market outside of China is the U.S. market. The U.S. market has always been believed much safer than the Chinese market by Chinese investors since it is closer to the definition of a “free market”. Unlike the limited power of the U.S. government on the U.S. market, the Chinese government is able to directly interfere and control the Chinese market. In which way, as a Chinese investor investing in the Chinese market, the Chinese government can take away one’s assets at any time as they wish. This situation very rarely happen but this is a huge risk since this is allowed to happen in Chinese market. Undeniably, public general investors in the U.S. was influenced by the unusual market raising during this period of time. The only thing they see from the surface is that market is still raising, even though most of professional investors are not saying the market is going to raise. So, in some ways, the general public started to believe the market is going to raise no matter what. With the help of mobile trading apps such as Robinhood and Webull, more small investors in the U.S. with the belief of a bull market entered and started trading during this period of time.
During the time of the end of 2019 to early 2020, many Chinese investors I know started putting a part of their portfolio into the U.S. market or the European markets since they don’t believe that the Chinese government is capable of getting Covid under control in a short period of time. The HSI dropped dramatically reflecting to all these assets re-allocations made by Chinese investors. During the end of 2019, I also encountered a lot of first-time investors from China trying to put money into the U.S. market because they literally lost faith in the Chinese government. This extreme fear can be tracked back to the SARS during 2003. The SARS pandemic in China during 2003 almost destroyed the Chinese market and no one can afford it once again. The Chinese government promised after SARS that they would do better to not cover things up next time, but they failed the general public once again. Many Chinese investors were even afraid that the Chinese market would crash into dusts and the Chinese govern-ship was going to switch. However, the only mistake these Chinese investors made under such a horrible fear is putting their faith on a wrong country, the U.S. Specifically, the Trump administration.
Finally, the U.S. Market
With the belief of the U.S. market and the U.S. government, these Chinese investors believe that the U.S. could control the Covid better and the U.S. market is much safer than the Chinese market. However, after the pandemic hit the U.S., there is no more safe market for everyone. During March 2020, the U.S. market finally crashed because of the lock down. The SP500, Dow Jones, and Nasdaq dropped tremendously. All of the two-years work of raising the stock price done by the Trump administration became a bursted bubble. This time, both of the general public investors in China and the U.S. lost their hope. So, where to go then? It is not too hard to guess that they chose the only place left, the Crypto market, specifically, the Bitcoin.
Since the time Bitcoin was invented, it has been used for Money laundry to move money from China to outside for years.
Bitcoin, a currency which was created for hard-to-trace transactions in order to protect privacy, probably has never expected itself becoming an investing tool to hedge the portfolio risk. The first raise of Bitcoin can be traced back to 2017. The highest price reached during that time was almost $20k. Then it crashed and remain the price of couple of thousands for years. During the end of 2019, there was a small raise of Bitcoin which might be caused by some Chinese investors who believe in the value of Bitcoin. But this should be a small amount of money which should not have moved the Bitcoin market that much. In my opinion, this raise was caused by Chinese people who are trying to move money from China out using Bitcoin. Since there is a $50k limit for each Chinese on how much foreign currency they can exchange using RMB every year, there is an underground money laundry service for moving large amount of RMB outside of China. Since the time Bitcoin was invented, it has been used for Money laundry to move money from China to outside for years. Although there are many other safer ways to break this $50k limit, Bitcoin is the most accessible way for the general Chinese public. There is no need for any other contacts within the destination country outside of China and anyone can do it as long as one has a Bitcoin wallet. If you understand Chinese, you might even find tutorials for how to do this by simply searching online. Besides, it is hard to trace back if anyone laundries using Bitcoin. This also explains that the reason Bitcoin dropped after the Covid hit the U.S. as people stopped moving large amount of cash outside of China and started worried about the value of USD as well.
The Craziness of Bitcoin
The market will always reflect what people actually believe instead of what they are told to believe or what others say they believe.
After the small jump of Bitcoin price during the end of 2019, the price of Bitcoin literally shoot to the moon during the end of 2020.
There are many reasons which caused this raise, and the most important reason I can come up with is the money in China started escaping again. Although it is all over the news both in U.S. and China that Chinese people are very satisfied with how the Chinese government handled this pandemic, the market doesn’t say so. The market will always reflect what people actually believe instead of what they are told to believe or what others say they believe. In order to control the Covid, the Chinese government pushed many extreme polices in China, and reasonable Chinese people become very terrified because of these policies. In other words, how the Chinese government handled the Covid become many Chinese people’s last push to immigrate to other countries. Unlike what the news says, many young Chinese people in China started realizing the fact of dictatorship of Chinese government because of the Covid. According to one of my young friends who stayed in China after college, “The Chinese government is controlling how much basic needs Chinese people can get so Chinese people would struggle in finding resources to cover housing, food, medical expenses, and child care instead of thinking about humanity or democracy”. This is very different from the young Chinese people who are already in the U.S. during the Covid and are extremely mislead by news to go back to China.
After the Covid situation settled in the U.S. and many other European countries, more and more Chinese people in China started put their immigration process into real actions instead of just planning. In order to escape China, the first thing is the currency, and Bitcoin is the perfect tool to laundry money out of China to bypass the $50k limit.
In addition to the Bitcoin money laundry business which moved the price of Bitcoin a lot, the stimulate check also helped. After getting the stimulate checks during the second half of year 2020 when the market recored, many new investors started thinking about saving and putting this “free money” into the stock market to grow. Thanks to the flooding advertisements put out by many online trading tools such as Robinhood, many new investors with their stimulate checks entered the market. Within these new investors, young people is a large portion of them. With no doubt, young adults are more easily to accept new things comparing to elder people who are not willing to risk their retirement money. However, these young and new investors who do not have much investing experiences are extremely easy to be mislead and mamipulated by the platform.
Fore these young investors, digging out the profits reports and study all those companies by numbers on Nasdaq is something brand new to them. Logically, they need to equip the proper knowledge prior making investing moves, but education works too slow to earn profits for the online trading platforms. Unfortunately, the most popular platform within all these online trading tools, Robinhood, does not try to educate their users at all. On the contrary, they try to encourages dangerous trading strategies. Trading index funds or mutual funds are too hard to understand? No problem! You don’t need to try to understand those garbage, just trade Bitcoin! Simple and easy, and it is the future! In Robinhood, day trade, margin, options, and trading cryptos are encouraged, and there is barely any penalty for day trade. After all, learning how to plan assets for more than 50 years seems too much of knowledge to acquire. They might be afraid that after educating their users too much, their users are going to realize the obvious flaws they have within their software design. Not just Robinhood, many other online platforms are also following this type of advertising strategy to encourage dangerous moves. The risk is always written in the minimal size of font and people do not get much educational information nor enough warning through these platforms. For example, the extended trading hour is put on Robinhood as a paid feature which make people feel like it is always an advantage to trade in pre-market and after hours. However, it is not always true, and there is a high risk for trading in extended hours. As for Crypto, Robinhood has made the Bitcoin trading even easier than their stock trading process. Bitcoin is also advertised as a “good investment tool” in Robinhood which will preserve your capital. By couple of clicks, you can trade as much Bitcoin as you wish. This made me wonder whether their Software Engineers are big fans of the casinos design mechanism in Las Vegas. For me, it does indeed feel like being inside of a casino instead of a bank while using Robinhood.
It is totally understandable that when a new investor open a proper brokerage account, one is overwhelmed by all the charts and numbers. While having a simple and neat online platform with a simple trading product available, these new traders are more willingly to use it. But, these online platforms are not doing the correct thing by encourage dangerous strategies. And these encouragements on dangerous strategies have sever consequences. There is a 20-years-old young adult who commented suicide because he saw he owed $730k while trading options using Robinhood. Trading options, margins, extended hours, and Cryptos have a much higher risks than general assets allocating strategies, but these online platform failed to educate their user to be aware of that. Even worse, they encourage their user to use these dangerous strategies.
“Please leave my IRA and 529 alone, thank you.”
During the summer of 2020, I was in a portfolio management class at Haas, and most of my classmates use Robinhood. Under the influence of Robinhood, they all have a very radical strategy on their portfolio management. I know one of them allocated a big portion of her assets in Bitcoin, another person does day trading, another does short term trading on Tech stocks such as Tesla, and another only trades options. All of them are quite satisfied with what they have achieved so far and don’t understand why I am still keeping an old-fashioned investment strategy at all. As I am not a Haas student, I don’t know whether these students are going to be the type of most professional portfolio managers working in the Wall Street during the next decade, but I hope not. I would say, “please leave my IRA and 529 alone, thank you”.
Interesting Side Discussions
After the U.S. market crashed because of Covid and the Trump administration failed to control the virus for over a year, there are something quite interesting happened within the U.S. investors.
Chinese Market, a Better Place to Go?
The first thing which amused me a lot is that quite a few U.S. investors started putting money into the Chinese market without a good understanding of the Chinese government or the Chinese market. To be honest, if I cannot read Chinese nor can I access to many ordinary Chinese people, I would do the same thing as these U.S. investors do. By reading the news published in he U.S., the only thing I can conclude is that Chinese government did a great job and got the virus under controlled very quickly, but the U.S. government has been doing a very shitty job on this. Thus, if this happened again, my money would be safer in the Chinese market than the U.S. market, right? No, I personally do not think so at all. On the contrary, anyone who shifted one’s opinion on the Chinese market simply based on how the Chinese government performed during the pandemic is completely letting one’s fear get the best of it.
If we only care about getting Covid under controlled without caring about how, the easiest thing a government could have done is simply killing all people with Covid.
As we all aware, how a government perform during the pandemic is just one factor to evaluate a specific geography-based market. There are many U.S. investors short seeing other disadvantages of Chinese market and started desperately moving money into Chinese market after the Covid outbreak inside of the U.S. Besides the fact that the Chinese government controlled the Covid quickly enough, there are many other factors to consider when we talk about the Chinese market vulnerability. Also, when we consider the quick actions made by the Chinese government to control Covid, there is something we cannot ignore which is the extreme policies made by the Chinese government. For example, people are absolutely not allowed to go out of their house if they are suspected to have a close contact to Covid, and this policy is enforced by locking people inside of their place literally using a physical huge lock outside of their doors. There is also a schedule for each household to go out for grocery at most once per week and there is no way to get any emergency additional grocery visit at all. People who need emergency visit outside their places were ignored in most of cases, even for emergency hospital visits. All of these policies caused huge problems and to be honest, the success of controlling Covid in China is done by sacrificing Chinese people’s lives. If we only care about getting Covid under controlled without caring about how, the easiest thing a government could have done is simply killing all people with Covid. In which case, there will be no Covid case at all. But is this kind of government doing a good job? Absolutely NO! And I am very sure about this, if sacrificing money from U.S. investors would benefit the Chinese government in any way, the Chinese government would do it without a second thought. Thus, I wouldn’t dare putting my money into such a vulnerable market which is controlled publicly by a group of dictators.
Bitcoin, the Future of Investment?
Investing is not gambling but investing strategy can be made as gambling. They made their investing strategy into gambling and people who gamble always lose in the end.
For money laundry, the price of Bitcoin actually does not matter at all. The ultimate goal for them is moving money instead of keeping it as Bitcoin and caring the raise and fall for the price of their laundering tool. However, the raise of the price of Bitcoin caused by money laundry business implied the false information among the U.S. investors.
Historically, the Bitcoin has been believed by professional investors in U.S. to have no actual value in it, and many investors still believe so today. When I was taking classes at Haas, our professor made a very good statement regarding Bitcoins. “Bitcoins are like sands in cans, as long as people are willing to buy it, the market would ship these cans. However, whenever people stopped buying and you open those cans you have, the only thing you have are sands”. But, the high profits yield of Bitcoin is extremely attractive for many investors. Who would resist an investment which gives you more than ten times of profits within months? I guess the only thing which is more profitable than Bitcoin from the time of 2020 to 2021 is written in the criminal law in every country. Because of this huge profit achieved by Bitcoin, many investors around me who used to firmly believe there is no future for Bitcoin as an investment tool started doubting their decisions. After all, the price of Bitcoin raised from 3k to 60k since 2019.
However, in my opinion, this crazy raise of Bitcoin will eventually stop at some point. Bitcoin won’t disappear though, but just goes back to its original designed purpose, as a currency. For people who actually use Bitcoin as what it was designed for, there is not much difference either the price of Bitcoin is low or high. They would still trade Bitcoin as a middle currency to preserve privacy. The only group of people who would be influenced by the raise or drop for the price of Bitcoin is the group of people who treat Bitcoin as an investment tool instead of a safe digital currency. There is no way to predict the price of Bitcoin whatsoever since the price of it does not reflect its usage, so investing Bitcoin is completely gambling. Investing is not gambling but investing strategy can be made as gambling. They made their investing strategy into gambling and people who gamble always lose in the end.
The Immigration of Chinese People
For these Chinese people, immigrating to U.S. is not a life choice, it is rather a personal gaol or even a dream.
The interesting thing happened within Chinese immigrants during the year of pandemic is people in China want to get out and people outside of China want to go back. This really showed how much influence media can make on people. For Chinese people inside of China, it is quite normal for many of them pursuing an immigration life in other countries. However, it is not usual at all for so many Chinese immigrants outside of China finding ways to go back. This happened during the year of 2020. Even when the plane tickets for going back to China reached $20k for a single trip, they were sold out in seconds. Especially in the U.S., the country most Chinese immigrants choose to arrive, has been through an immigrants lost during pandemic.
This immigrants lost has even influenced me while banking with Bank of America. Many Chinese parents have an obsess of making their children go to business schools, so there are many bankers who are actually Chinese immigrants in the U.S. Especially in SoCal with such a huge Chinese population, banks are quite willing to sponsor bankers who are bilingual in both English and Chinese. However, many Chinese bankers left during the pandemic. By the time of early 2021, all branches of Bank of America in Pasadena are closed and the closest Bank of America branch I can visit located in Temple City. The reason for the branch closure provided by a banker is that they do not have enough bankers to reopen branches in Pasadena. Also when I was in the Temple City branch, there were only two bankers available.
Before this global pandemic, immigrants in the U.S. were considered having some sort of privilege to remain in the U.S. There was one time I was talking to a Chinese investor regarding the issues around the U.S. society, he responded to me that I am lucky enough to be here in the U.S. and I shouldn’t complain that much. For these Chinese people, immigrating to U.S. is not a life choice, it is rather a personal gaol or even a dream. And, if you visit China with either an U.S. permanent residency or citizenship, you would be considered somehow a “higher class” within the Chinese society. Thus, in order to achieve the “climbing to higher class” dream, for many people who are already in the U.S. without either permanent residency or citizenship, one of their ultimate goal is immigration. These Chinese people might not be able to visit back China freely because of the fear of getting denied on their visa. However, the fear of Covid made them blind on the reason they escaped China in the first place. Especially when they saw the public news put out by the Chinese government which is always praising how well the Chinese government does and how bad situations are in the U.S., they lost their critical thinking ability.
Now, the only difference here is they treat “going back to China” as a solution to their problems. As if every problem they encountered here in the U.S. is going to be resolved at the time they arrived in China.
These people who are in the U.S. are mainly young students and young workers who are very easy to be manipulated by the media. And these Chinese people have been staying in the U.S. for too long to recall how much truth there is in the news published by the Chinese government. During the year of 2020, a lot of college students, college graduates, and even workers with H1B visa I know went back to China. They believe China is the future according to the Chinese news. But most of them didn’t end up with what they wished at the time they board the plane back to China. One college student I know was not able to come back to finish his college, and he ended up retaking high school in China again. College graduates flee back found out it is not very easy for them to find a job in China either. My friend who graduated from UCLA in 2019 and went back to China conveyed to me that she has not landed any job yet now in 2021. The most importantly, the sever competition between Chinese people. I guess these Chinese students either arrived in the U.S. when they are too young, or they have stayed here for too long to remember how sever the competition in China is. They have become too soft to survive in China.
If we think about this more, we would realize that the issue here is these Chinese immigrants treat a method, immigrating to U.S., as a goal. For them at first, immigrating to U.S. could solve all problems, and they expect that they wouldn’t need to worry about anything else after successfully immigrated to the U.S. Now, the only difference here is they treat “going back to China” as a solution to their problems. As if every problem they encountered in the U.S. is going to be resolved at the time they arrived in China. Of course we know this is not true, but people are so easy to be controlled by their fear as we have seen so many times in the history. And exactly, the only thing everyone learned from the history is not learning anything at all.