"My God! Is there some mistake? This motion actually passed? Are the high-level officials in the British government crazy?"
After seeing the information disclosure, as the pound exchange rate quickly broke through the 1.5200 mark and continued to plunge rapidly, Satō's brows furrowed noticeably, and he said incredulously.
"This is outrageous, how could this motion have passed?"
Yamamoto Kyuichi also reacted at this moment and couldn't help but complain,
"This completely deviates from the predictions of major global investment institutions, and also completely exceeded everyone's expectations. The outcome of this news... is too far from market expectations. I feel that in the pound exchange rate market, stimulated by this news, long-term confidence will be shaken, and the exchange rate trend will continue to plummet!"
"You mean... we should reduce the newly added long positions with higher holding costs?"
Satō asked.
Yamamoto Kyuichi replied,
"Mr. Satō, I do think so. Our previous expectations for the pound exchange rate trend were quite aggressive, and the basic logic for our bullish expectations was based on the Bank of England, and even high-level government officials, maintaining a stable monetary policy to drive the continued rise of the pound exchange rate.
We also believed that the 'Brexit referendum' motion would 100% not be passed. But now it seems... the underlying logic we previously relied on for our investment strategies and trading operations has clearly deviated.
In the financial market, whether it's the stock market, the futures market, or the foreign exchange market. The direction of prices always revolves around changes in expectations.
Now, the 'Brexit referendum' motion has been passed in the British cabinet meeting, which means that the expectation supporting the continued strength of the pound exchange rate has weakened.
Even if a national referendum by the British public later decides that the UK will remain within the EU system. And even if this outcome is highly probable. But at least the passage of this motion indicates that within the UK, the social ideology and economic development model have problems.
Since contradictions have already appeared in the economic development model. Then, as a currency reflecting economic fundamentals, its market purchasing power and value system will also change, or rather, be re-evaluated. So, I think..."
Yamamoto Kyuichi paused, then glanced at Satō before continuing,
"We probably cannot have too high expectations for the continued strength of the pound exchange rate, nor can we aggressively increase long positions near the 1.5200 mark, which would put us in a relatively passive situation."
While Yamamoto Kyuichi was speaking.
At this time, the pound exchange rate had further plunged to around 1.5170.
Compared to the intraday high before the news release, it had violently plunged by over 50 points in just about 10 minutes.
After listening to Yamamoto Kyuichi's words, Satō smiled and said,
"What you said makes some sense, but we also can't jump to conclusions and rashly change our previously established investment and trading strategies. Admittedly, the British cabinet passing the 'Brexit referendum' motion was somewhat unexpected.
But upon closer analysis. It can be found that the UK and the EU are very closely bound in terms of economy, culture, and politics, and have long been intertwined; it's not so easy to break away.
In other words, whether from the perspective of the UK's own economic development or the political impact on the national system. There is no possibility of the UK leaving the EU. After all, although there are many people with extreme ideas among the populace, the high-level officials are certainly rational.
Since analysis from all aspects shows no possibility of the UK leaving the EU, our previously formulated investment strategies and trading strategies are perfectly appropriate. It can only be said that today's news was indeed somewhat unexpected.
However, as long as its underlying logic has not changed, this news can only affect the sentiment of market investors and speculators. Once the emotional reaction is complete, a small number of long position holders who are speculating on sentiment will close their positions and leave the market.
Or, the short sellers who took the opportunity to launch an offensive will exhaust their strength. I believe that the pound exchange rate will soon experience a strong rebound and return to its previous upward trend, once again standing above the 1.5200 mark, and even push towards higher positions.
Therefore... I believe this position is not an exit point for reducing positions to stop losses, or closing positions to take profits. Instead, it's an entry point to further target short sellers and force a short squeeze with long positions."
"Mr. Satō, do you mean... we should continue to increase our long positions and continue to squeeze the Chinese-funded short-selling institutions in the market?"
Yamamoto Kyuichi said, clearly surprised,
"Doing so carries a very high risk!"
Under his gaze.
In the brief one or two minutes Satō was speaking, the pound exchange rate had continued to plummet to around 1.5150, a sharp drop of another 20 points compared to before.
And this also caused their long positions, increased near the 1.5200 mark, to fall into a considerable loss.
Satō's gaze was sharp, and he nodded firmly, saying,
"Yes, continue to increase long positions, and the timing to strike is now."
Yamamoto Kyuichi still didn't quite agree with Satō's view.
At the same time, he felt a subtle unease in his heart.
However, he was just a trader, while Satō was the investment manager.
According to their country's workplace rules, when he disagreed with his superior, he did not have the power to refuse to execute his superior's trading instructions.
So, after a brief hesitation, Yamamoto Kyuichi.
He still quickly executed Satō's trading instructions, ordering the group of traders behind him to continue increasing long positions in the pound exchange rate near the 1.5150 mark.
With the execution of the trading instructions...
And with the investment of hundreds of thousands, millions of dollars.
Yamamoto Kyuichi had originally thought that the pound exchange rate would continue to fall under the negative impact of the 'Brexit referendum' motion passing, and he had expected that the numerous long positions added at this point would inevitably incur losses.
But unexpectedly, contrary to his relatively cautious expectations.
After briefly hovering around the 1.5150 mark, the pound exchange rate surprisingly began to rebound relatively quickly, and in just about ten minutes, it recovered the 1.5170 mark.
"Oh... Mr. Satō, the trend of the pound exchange rate is actually exactly as you predicted."
Seeing the pound exchange rate recover the 1.5170 mark, Yamamoto Kyuichi's expression was extremely surprised, and when his gaze turned to Satō, his eyes also showed intense admiration.
Satō chuckled, not showing too much excitement or surprise at the rapid recovery of the pound exchange rate to the 1.5170 mark.
He just gave a slight laugh and said,
"It seems that the final expectations of most global long-holding institutions and many investment research institutions regarding the British cabinet's decision to pass the 'Brexit referendum' motion are quite consistent with mine."
The so-called market trend will fully reflect changes in expectations.
Since the pound exchange rate could quickly recover its intraday plunge after a sharp drop.
Then, the attitude of market funds is relatively optimistic.
In other words, the actual market reaction has confirmed the predictions and judgments he just made, so... it's time to continue pressing the advantage and massively increase positions.
"Since the expectations of the mainstream market funds haven't changed, there's nothing to worry about,"
Satō continued after a pause,
"Increase position investments. I believe... the pound exchange rate will soon recover all its previous losses from the plunge and create new recent exchange rate highs."
And just as Satō predicted...
After the news of the 'Brexit referendum' was released, its stimulating effect on market sentiment completely subsided.
A group of long-holding institutions in the pound exchange rate market, such as Huifeng Global Asset Management, Pacific Capital, Barclays Bank Foreign Exchange Department, Navigator Capital, UBS International Capital, Nomura Bank Investment Department, Blackstone Global Asset Management Center Foreign Exchange Investment Department, Fanligao Hedge Fund, Hashimoto Assets, Tianhe Capital, etc., and their relevant key investment managers, also made the same judgment as him.
Thus, as subsequent market trading time progressed.
On the pound exchange rate chart, long positions once again gained absolute dominance, continuously squeezing short sellers.
"What's going on? Such big news, but it doesn't seem to have much impact on the pound exchange rate trend!"
Seeing that after the pound exchange rate continued to plunge by over 70 points, it actually returned above 1.5180 in just about half an hour, recovering almost half of the plunge, and was still rising, Qu Zecai, inside the Huayi Capital Hong Kong branch office, specifically the Huayi Chengyuan No. 1 Hedge Fund trading room, frowned as he looked at the rapidly expanding fund holding loss on the main fund control computer.
He didn't quite understand this market trend.
Su Yi stood in the center of the large trading room, his gaze fixed on the pound exchange rate trend on the large screen.
His expression remained calm.
Hearing Qu Zecai's complaint, he smiled and said,
"Cognitive biases based on conventional thinking are difficult to change before a low-probability event, or 'black swan' event, occurs.
In a sense... The changes in market trends are a continuous evolution and correction of everyone's perceptions and expectations.
The fact that the pound exchange rate could quickly recover means that most global investors believe that even though the British cabinet passed the 'Brexit referendum' motion, a substantive Brexit is fundamentally impossible and will not happen.
However, since this motion passed. Those British politicians who consider their future political careers and are unwilling to directly offend public opinion have placed the future fate of the country in the hands of all citizens.
This implies that the occurrence of an extreme outcome, no matter how small the probability, is still possible. In the financial market, every 'black swan' event is an extremely low-probability event. But even with a very low probability, such events can be extremely devastating to market investors.
I still remember January last year. Before the 'Swiss franc black swan' occurred, everyone believed that the Swiss National Bank would keep its promise to support the Swiss franc exchange rate and maintain the stability of the exchange rate market.
But unexpectedly, the Swiss National Bank suddenly abandoned its plan to maintain the exchange rate. This instantly caused a concentrated stampede of long position covering, leading to a plunge of over 7000 points in the Swiss franc exchange rate overnight."
"Mr. Su, are you saying..."
Qu Zecai pondered for a moment and replied,
"That in the 'Brexit referendum' event, something unexpected, similar to a 'black swan', will happen?"
Su Yi replied,
"I'm just guessing, I just think it's possible."
"Probably not. Are they really going to leave the EU?"
Qu Zecai said.
"But no matter how things unfold next... The various contradictions within the UK will only become sharper, and the potential for economic growth will only get lower. In other words... although the pound exchange rate is still continuously breaking upwards, the underlying logic of our previously formulated investment strategies and trading plans has actually strengthened considerably after this major news was announced."
Su Yi said.
"That is indeed true,"
Qu Zecai nodded slightly.
Su Yi smiled and said,
"Since there's no problem with the underlying logic of our investment trading and trading plan, and this logic is continuously being validated amidst changes in the news, then on the market, in the actual holding process, there's absolutely no need to be led by the nose by the exchange rate trend and sentiment.
Let these long-position institutions continue to squeeze out shorts, continue to push prices higher. There's a saying, the higher you climb, the harder you fall when the situation reverses."
In Su Yi's trading understanding.
Although he knew that price changes reflect changes in market expectations, he believed that in the financial market, due to the dominance of short-term emotions, there would also be a so-called 'herd mentality', leading to a divergence between expectations and the actual fundamental logic of the market, and also causing temporary mispricing.
"Okay,"
Qu Zecai's emotions settled considerably after hearing Su Yi's words.
Although he didn't have as deep an understanding of the pound exchange rate's trend changes and future situation as Su Yi, nor was he as optimistic as Su Yi.
But he believed in Su Yi's judgment.
He also believed that in this battle between bulls and bears, they could withstand the continuous short squeeze by the bulls and win the final reversal of the market situation.
And just as the entire Huayi Chengyuan No. 1 Hedge Fund, while the pound exchange rate plunged, did not reduce a single position, continued to maintain high-level holdings, and continued to adhere to its initial entry strategy.
Dennis, who was also in a short market position, holding many pound exchange rate short contracts for Aberdeen Asset Management Group's Hong Kong branch, specifically the Evolution No. 1 Hedge Fund trading department, as a core trader and head of the trading team for this fund product, his original bearish view had begun to waver.
"Teacher, the market trend of the pound exchange rate and the expected feedback are completely diverging from the news!"
Dennis, who noticed the abnormal trend of the pound exchange rate, hurriedly reported to Frederick, the fund manager of Evolution No. 1 Hedge Fund.
Frederick stared at the pound exchange rate trend, remained silent for a while, and said,
"It has indeed diverged."
"The fact that it can recover shows that the long power in the pound exchange rate market is still very strong. The hopes of short sellers are dashed. If the long side continues its strong short squeeze at this position, I'm afraid many short-holding investors in the market will experience a confidence collapse and won't be able to hold on, thus being forced to close positions to stop losses."
Dennis said.
Frederick turned his gaze to Dennis, his expression calm, and he smiled faintly, saying,
"It's not that many short-holding investors' confidence will collapse, it's your confidence that has collapsed, isn't it? Seeing the market trend completely diverging from the news, based on the principle of respecting market trends, do you think your previous judgment was wrong?"
(End of Chapter)