<h2>I. Global Walsh Trading</h2>
(1) How to understand Walsh's &#34;rate cut + balance sheet reduction&#34; approach?
From high dimensions to low dimensions, we can summarize Walsh's philosophy into three relationships: First, reshaping the relationship between monetary and fiscal policy. Walsh opposes excessive quantitative easing and supports the central bank's balance sheet reduction (but does not deny the overall value of QE, acknowledging that necessary QE operations during crises are valid). Second, reconstructing the relationship between money and technology. He believes that the productivity boom brought by the development of AI technology and regulatory relaxation can drive the economy to achieve growth without inflation, focusing on AI's role in releasing supply-side potential. Third, reconstructing the relationship between monetary policy and the market: he believes that the Federal Reserve's decision-making logic should shift towards strategic trend judgment, rather than the current data-driven decision-making model dominated by Powell, and also opposes the current excessive communication between the Federal Reserve and the market, believing it creates a policy dependency syndrome in the market.
Combining these three dimensions of thought, we see the widely circulated Walsh policy combination: &#34;balance sheet reduction + rate cut,&#34; which seems contradictory, but its underlying logic is coherent. Specifically:
First, the core logic of rate cuts: The current market has a consensus judgment about the U.S. economy, namely that the constraints on U.S. economic growth are not on the demand side, but rather on the supply side. If AI technology can drive a prosperous increase in productivity and production efficiency, allowing the supply side to keep pace with the demand side, the U.S. economy can achieve a combination of high growth and low inflation, at which point the neutral interest rate is likely to decline, and there is room for policy interest rates to be lowered, which is the core basis for rate cuts.
Second, the core logic of balance sheet reduction: The main body of resource allocation should dynamically adjust according to the development status of the private sector—when the private sector achieves smooth productivity improvements relying on the technological revolution, market-driven resource allocation is most efficient; when the private sector is caught in a deleveraging cycle and productivity growth stagnates, government leverage is needed to help the economy through crises, with government intervention and resource allocation, such as after the 2008 financial crisis when the U.S. private sector fell into development difficulties and productivity growth stagnated, necessitating government leverage and central bank balance sheet expansion, with the government leading resource allocation. If, as Walsh judges, AI can usher in a new round of technological revolution in the private sector in the U.S., achieving steady productivity improvements, then resource allocation rights should be returned to the market, while reducing fiscal intervention in the economy. In this context, the central bank should choose to reduce its balance sheet, and banks should relax regulations to expand their balance sheets, allowing banks to conduct credit and credit expansion based on market logic, with the central bank's balance sheet reduction and banks' balance sheet expansion forming a hedge, which can reshape the boundaries between monetary and fiscal policy while maintaining stability in the liabilities of the financial sector to the real sector.
Third, the policy idea of &#34;balance sheet reduction + rate cut,&#34; this combination can alleviate the fiscal debt dilemma in the U.S. from multiple aspects, which is the core value of this combination. High growth will lead to an expanded tax base while reducing safety net fiscal expenditures; low interest rates can reduce the government's debt interest expenditures, and the combination of the two achieves the reshaping of the boundaries between money and fiscal policy, which is also likely the main reason why Trump emphasizes nominating Walsh
(2) What impact does this have on U.S. monetary policy?
The above ideas of Walsh have to be viewed in terms of their impact on Federal Reserve monetary policy in the short and medium term:
First, the short-term impact is limited: On one hand, Walsh has not made a clear statement regarding a significant rate cut in 2026, and in the context of employment data not weakening further, it will be difficult for him to quickly persuade the hawkish voting members of the Federal Open Market Committee (FOMC) after taking office; on the other hand, the productivity boom brought about by AI is still a narrative that requires time to validate, rather than a given fact. In addition, the current Federal Reserve does not have the conditions to quickly reduce its balance sheet. If it were to restart balance sheet reduction without first easing regulatory restrictions on banks, it would likely trigger a liquidity crisis in the money market and a significant rise in long-term interest rates, which contradicts Trump's desire to lower government debt financing costs.
Second, attention should be paid to the implementation of AI in the medium term: If the Federal Reserve under Walsh reaches a consensus on the &#34;low interest rate, no inflation growth achievable under the trend of productivity boom,&#34; then the Fed will further open up policy space for rate cuts and balance sheet reduction.
(3) What impact does this have on the market?
First, we believe that the recent market volatility is not triggered by the nomination of Walsh alone, as the market had already laid the groundwork the previous day. On January 29, the U.S. dollar index basically bottomed out, gold showed a doji trading characteristic, and Microsoft's earnings report exceeded expectations, with its AI-related business performance and growth surpassing market expectations, confirming that the narrative of AI prosperity is still being realized. Walsh's nomination further reinforced this logic, leading the market to believe that his ideas could reshape the discipline of U.S. debt and currency, boosting confidence in the dollar, which resulted in a rebound in the dollar index. At the same time, we observed that gold, silver, and Bitcoin, which were previously seen as alternatives to the collapse of dollar credit, all experienced varying degrees of pullback, while commodities directly related to economic fundamentals, such as oil and copper, showed smaller fluctuations.
Second, market volatility may amplify in 2026: If Walsh reduces communication with the market and forward guidance after taking office, it may increase market volatility while the market has not yet adapted. This impact will be more pronounced in 2026, as the two-year rate-cutting wave in most countries around the world from 2024 to 2025 is nearing its end. The phase of global monetary policy turning is inherently a period where asset price fluctuations are easily amplified, and combined with changes in Walsh's policy communication style, market volatility may become more pronounced.
Third, in the medium to long term, the core contradiction in the global market still lies in the evolution of political order and industrial structure. The viability of dollar assets does not fundamentally depend on who Walsh is, but rather on whether the productivity boom in the U.S. can transition from narrative to reality. If Walsh's narrative judgment is validated, and the U.S. achieves high growth and low inflation through rate cuts, reversing the narrative of fiscal deficits, and easing the supply-demand contradiction of U.S. Treasuries, it will significantly benefit dollar assets; if proven false, and if preemptive rate cuts are rashly implemented before the trend is clear, it will likely trigger an unexpected rebound in inflation, forcing the Federal Reserve to adopt more aggressive tightening policies, further exacerbating the supply-demand distortion of U.S. Treasuries and making it more difficult to reduce the U.S. fiscal deficit, which will significantly harm dollar assets. In the near future, the main trading line in the global market will likely revolve around these two paths
<h2>II. Mapping of Chinese Assets</h2>
Based on the previous analysis, the global Wash trading's mapping to Chinese assets can be summarized in four points:
First, the global interest rate cut cycle is nearing its end, and asset volatility is likely to amplify. From the monetary policies of major economies, the market expects the Federal Reserve to cut rates only twice in 2026, the European Central Bank is expected to basically stop cutting rates in 2026, and the Bank of Japan is likely to start raising rates. Countries like Canada, New Zealand, and Chile have clearly entered the end of their rate-cutting cycles, and Australia may even restart rate hikes in February 2026. The volatility of global asset prices will likely amplify in accordance with this transition in monetary policy cycles, and the Chinese asset market must also consider this global context.
Second, attention should be paid to the narrative of AI prosperity in the U.S., which will affect whether foreign capital flows into China. If the U.S. can maintain the narrative of AI prosperity while achieving stable inflation, combined with Wash's guidance and statements on reshaping the boundaries of monetary and fiscal policy, the U.S. dollar is expected to show a volatile rebound, and market confidence in dollar assets is likely to persist. The process of significant foreign capital inflow into the Chinese asset market will still require patience. Conversely, if the narrative of AI prosperity in the U.S. is debunked, we can expect a rebalancing of foreign capital back to China. From the current situation, the narrative of AI prosperity in the U.S. has not yet been debunked and is still on the first path.
Third, market attention will shift towards fundamentals, earnings, and dividend support. With the global liquidity shift, the valuation rally in China expected in 2025 being relatively sufficient, and the timing of the Chinese New Year in 2026 being later, under these three backgrounds, the Chinese asset market will face two key nodes after the Spring Festival: first, the end of a two-month data vacuum period, with various economic data being released intensively; second, the National Two Sessions will be held on March 8, where policy strength will gradually become clear, and this session will include the &#34;14th Five-Year&#34; development plan. Therefore, under this context, the market's focus may gradually shift towards fundamentals, safety margins, corporate earnings performance, and dividends.
Fourth, the pricing logic of gold is fundamentally different from that of silver, copper, and Bitcoin. The pricing logic of gold transcends others; it is based on the logic of global order reconstruction. Therefore, we maintain a strategic bullish view on gold. In contrast, while silver and copper have properties as materials for new industries, their prices depend on actual demand. If supply and demand balance can be measured, then their prices also have a clear upper limit. The pricing logic of Bitcoin is fundamentally different from the first three; it essentially acts as a 2-3 times amplifier of market risk appetite and does not hold a trading status comparable to gold. It also does not meet the characteristic of low correlation with major global asset classes, and as a digital cryptocurrency, it theoretically faces threats from quantum computing. These factors determine that its pricing logic is fundamentally different from that of gold.
<h2>III. Core Viewpoints</h2>
**In summary, we believe that who Wash is does not matter; what is most important is whether the narrative of AI prosperity can be translated into reality. The current core constraint of the U.S. economy lies on the supply side. If AI and robotics technology can alleviate supply constraints, they will become an important support for the U.S. economy. In contrast, the core constraint of the Chinese economy is different from that of the U.S. Our productivity has sufficient capacity, and the core contradiction lies on the demand side. If domestic policies to expand internal demand can make substantial progress, it will become a key node for the pricing of Chinese assets
**
Risk Warning and Disclaimer
The market has risks, and investment should be cautious. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article align with their specific circumstances. Investment based on this is at one's own risk

The concept of global Walsh trading includes reshaping the relationship between currency and finance, reconstructing the relationship between currency and technology, and reconstructing the relationship between monetary policy and the market. Walsh advocates for a policy combination of "interest rate cuts + balance sheet reduction," believing that the constraints on U.S. economic growth lie on the supply side, and that AI technology can enhance productivity to achieve high growth with low inflation. The basis for interest rate cuts is that the neutral interest rate may decline, while balance sheet reduction should be adjusted according to the dynamics of the private sector, emphasizing the efficiency of market resource allocation

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