The wave after wave of sharp declines approaching the Spring Festival first saw the collapse of gold and silver from high levels, followed by a flood-like, unsupported drop in crypto, breaking through all key support levels. Finally, US stocks, Hong Kong stocks, and A-shares all plummeted one after another. Losses occurred during the day and at night, on the left and on the right. Asset allocation was spread across different vehicles, but all vehicles crashed.

Fortunately, I had mostly cleared out my crypto assets before, but I couldn’t avoid the sharp drop in the stock market. Some stocks, such as Figma and XPeng Motors, saw their holdings fall by more than 70% (not 70% of all assets, forgive me for using clickbait).

There are several main interpretations in the market:
· Some say that Anthropic’s legal AI is too powerful, and in the future, there will be no need to use professional software; large models will be enough, so software stocks are collapsing.
· Some say that although Google’s financial report performance is good, its capital expenditure guidance is too high, 50% higher than market expectations.
· Some say that because the incoming Federal Reserve Chairman Warsh is hawkish, he will maintain a strong dollar, not easily cut interest rates, and may even reduce the balance sheet.

I think all of the above is Bullshit.

Analysts often find seemingly reasonable reasons for the decline after the market falls, but these reasons are often noise, burying the market’s true core theme and operating logic.

No matter how powerful Anthropic’s legal AI is, how much revenue has it sold? Is the revenue expected to exceed SAP’s? Are SAP and other software vendors just waiting to be subverted without doing anything?

If Google’s capital expenditure is high, you say you are worried about cash flow; if capital expenditure is low, you will definitely worry about insufficient expenditure, and the upstream and downstream of the AI industry chain lack funds, and Google AI will lag behind.

Warsh is even more ridiculous. He hasn’t even taken office yet, and you’re already fantasizing about what will happen after he takes office. You can fantasize even more than retail investors. Even if Warsh takes office, it will be difficult to completely overturn the Fed’s previous policy stance. After all, the terrible employment data is there, and it is difficult to be hawkish.

I believe that this wave of decline is a sharp market fluctuation caused by tight liquidity + high valuations: just like Alex climbing Taipei 101, the higher he climbs, the greater the impact of the wind. On the ground, you feel a gentle breeze, but at a height of 100 meters, the wind is stronger and my heart is more turbulent.

What is the current valuation level of US stocks?

There is a Buffett indicator, which represents the ratio of the total market value of the stock market to the domestic production value GDP. Buffett believes that the ratio of 75%-90% is reasonable, and if it exceeds 120% or higher, it is seriously overvalued, like “playing with fire.” You should know that the current indicator is 230%.

Of course, we all know that high valuations do not necessarily mean a collapse. The Buffett indicator may not actually be so exaggerated due to the lag in GDP data statistics.

But stocks are definitely not in the undervalued range, which will definitely amplify market volatility, because institutions with abundant profits may take profits at any time.

The S&P 500 Forward P/E ratio is 22.0x, relative to the 30-year average: 17.1x; 22.0x is approximately (22.0-17.1)/(20.4-17.1) ≈ +1.5 standard deviations. That is to say, the valuation is in the “significantly expensive” range, already higher than the “+1σ line” (20.4x). It is close to the 2000 Internet bubble stage’s P/E ratio of 25.2x.

At the same time, the tightening of funds is like the wind in the sky, roaring towards the market:

1. First, the first axe to tighten liquidity comes from Japanese bonds.

Every jump in Japanese government bond yields is extracting liquidity from the global market.

Because Japan is the world’s largest creditor nation, the long-term zero-interest-rate policy has spawned a huge “Yen Carry Trade”. Global investors borrow low-cost yen and invest in high-yield overseas assets (such as US stocks).

Once Japanese bond yields rise rapidly, the interest rate spread narrows, and the attractiveness of arbitrage transactions declines or even suffers losses, it will trigger a large-scale liquidation: investors need to sell overseas assets and exchange them back into yen to repay loans. This process will trigger a global “deleveraging” and asset sell-off.

It can be seen that in early February, the spread between the middle and short ends, that is, the US dollar 2-year interest rate minus the Japanese yen 2-year interest rate, has a significant drop; that is, to a large extent, the arbitrage carry trade will continue to reduce leverage and consolidate funds.

1. TGA account and Treasury bond issuance: drawing firewood from under the pot

The United States Treasury General Account (TGA) is a key variable affecting market liquidity. When the Treasury Department increases the TGA balance through bond issuance or taxation, it is equivalent to withdrawing funds from the financial system, leading to a decline in bank reserves, thereby tightening liquidity. Conversely, when the Treasury Department spends (reducing the TGA balance), it injects liquidity into the market.

In early February 2026, the market is facing the dual pressure of TGA reconstruction and large-scale Treasury bond issuance:

High TGA balance: As of early February, the TGA balance remained at a high level of approximately $893.20B. The U.S. Treasury Department plans to maintain the balance at $850.00B by the end of March and reach a peak of approximately $1.025T during the tax season at the end of April. This means that the Treasury Department will continue to withdraw funds from the market.

Large-scale Treasury bond issuance: To supplement the TGA and finance the fiscal deficit, the Treasury Department announced a large-scale quarterly refinancing plan in early February, further exacerbating the market’s tight funding situation.

This “drawing firewood from under the pot” operation directly led to a decline in bank reserves, forcing financial institutions to shrink credit and sell assets to obtain liquidity, thereby triggering a chain reaction in the market.

1. CME increases margin: historical “deleveraging”

When extreme fluctuations occur in the precious metals market, the Chicago Mercantile Exchange (CME) forces the market to deleverage by increasing the margin requirements for futures contracts. This move has historically played the role of a bull market terminator many times.

The precious metals crash in early February 2026 is highly correlated with CME’s continuous intervention. After silver prices hit a record high, CME raised the margin for gold and silver futures six times in a row, with the initial margin for silver being raised from 11% all the way to 18%. For bulls who have already been hit hard, this is tantamount to “rubbing salt in the wound”, directly triggering a stampede of liquidations.

The following are several famous historical increases in margin and their subsequent impact:

The problem of liquidity needs to be solved by focusing on liquidity.

In addition to studying the fundamentals of US stock companies and the macro Fed meeting statements, I think the following liquidity indicators must be given key attention:

1) Settlement layer funds (water level)
Net liquidity = Fed total assets – TGA – ON RRP (Overnight Reverse Repurchase)
It is a directional indicator of “available cash in the market”. A decline in net liquidity generally means that the funding environment is tightening.

2) Short-end funding price (how expensive is money)
SOFR (Secured Overnight Financing Rate)
An abnormal rise in SOFR indicates that short-end funds are becoming more expensive, and the market is more prone to fluctuations.

3) Interest rate volatility (can market makers and leverage withstand it)
MOVE (Merrill Lynch Option Volatility Estimate)
An upward MOVE means that interest rate volatility is increasing, intermediaries are reducing their balance sheets, leverage is decreasing, and risk assets are more likely to fall passively.

4) Global deleveraging chain (one of the most common reasons for “sudden tightening”)
USDJPY (whether there is a rapid appreciation of the Japanese yen)
US2Y – JP2Y spread (whether the carry trade base is narrowing)
Yen appreciation combined with a narrowing spread is more like the start of carry trade deleveraging.

5) Credit confirmation (whether the tension has spread to the financing end)
HY OAS (High Yield Option-Adjusted Spread)
A widening HY OAS indicates that the financing environment is deteriorating, and the decline in risk assets is more likely to spread.