In the early morning of the 14th, Beijing time, the December FOMC (Federal Reserve Interest Rate Meeting) came to an end. In line with market expectations, the Fed continued to stop raising interest rates and maintained its benchmark interest rate at 525%~5.5%, which is the third consecutive pause in interest rate hikes after raising interest rates by 25bp in July, and is also regarded by the market as a de facto halt to rate hikes.
After the release of the interest rate decision, the three major U.S. stock indexes all closed higher, and the Dow rose 140%, a record high, and the Nasdaq rose 138%, and the S&P 500 rose 137%, just one step away from an all-time high.
The market is more concerned about when to cut interest rates than the end of interest rate hikes, which has become an established fact, after all, the market has begun to trade in advance a total of 5 rate cuts starting in March next year. At this point, the Fed's posture is more "dovish" than the market expected, not only the dot plot suggests that there may be three interest rate cuts in 2024, but also compared with Powell two weeks ago, when he believed that the discussion of interest rate cuts is still premature, this time he said that the discussion of interest rate cuts "gradually entered the field of vision, and there are also significant changes." The market was once worried that it would be "beaten" by the Fed if it had too much front-running, but the result was that the Fed "moved closer" to the market. Boosted by this, the 10-year U.S. Treasury fell rapidly to 4%, and the U.S. dollar**, U.S. stocks and ** rose sharply. Interest rates** imply six cuts throughout the year, starting in March.
The Federal Reserve continued to hold its benchmark interest rate at 5 at its December FOMC meeting25%~5.5%
Although the momentum of U.S. stocks is like a rainbow, but while the iceberg is in flames, the A-shares on the other side can be described as "a wail", the Shanghai Composite Index is still stuck at the important threshold of 3,000 points, and the Shanghai Composite 50 Index has fallen back to the 2,440-point price in 2018. Some people say that the weakness of A-shares is due to the large-scale sell-off of northbound funds since August, which is a precursor to a "hard landing" of real estate. Today, let's diagnose the current A-shares from the perspective of the economic cycle.
Economic cycles are inevitable
The business cycle, also known as the business cycle, refers to the regular expansion and contraction of overall economic activity along with the general trend of economic growth.
According to the length of time the cycle fluctuates, the cycle can be divided into long cycles (long wave cycles, Kondraev cycles): the average length of the cycle is 50-60 years;Medium cycle (big cycle, Jugola cycle): The average cycle length is about 8 years, which has a large and obvious impact on the economy, and is also the most concerned by people;Short cycle (small cycle, Kitchin cycle): The average cycle length is 3-5 years.
In the financial world, there is a famous saying: "Life and wealth depend on Kangbo". This is a sentence from Mr. Zhou Jintao, a contemporary macroeconomic analyst and a master of cycle research.
So what does this sentence mean?First of all, getting rich is probably what everyone wants to happen, and the "Compo cycle" that Compo refers to is the long cycle, the Kondraev cycle.
The core meaning of Zhou Jintao's cycle theory is that if a person wants to get rich and obtain wealth, he must understand the operation of the economic cycle.
And this round of domestic economic winter began with the big contraction of real estate.
As we all know, the real estate cycle has a strong force, on the one hand, it can drive the upstream and downstream industrial groups, on the other hand, the rise of real estate will bring significant wealth effect to promote economic prosperity, so the real estate cycle is also known as the mother of the cycle. In China, real estate is the pillar industry of the national economy, the added value of the real estate industry accounts for about 7% of GDP, if you count land development, housing construction, and the pull of the upstream and downstream industrial chains, the actual contribution of the real estate industry to GDP is more than 20%.
The cyclical fluctuation of the real estate industry is the fluctuation of the level of the real estate economy, and is manifested as a certain cycle of economic phenomenon, which is manifested in the real estate industry in the process of economic operation alternately in the two stages of expansion and contraction, cycle and recovery, prosperity, recession and depression.
Real estate and wealth have a natural close relationship, with the ** of assets**, can create a lot of wealth, and then promote consumption. The real estate industry is the pillar industry of our country, but also a new economic growth point, can drive the development of a series of related industries such as finance, insurance, social capital, etc., for enterprises and individuals, real estate is a good means of investment, the money into capital, through the purchase of rental and the first can bring more income, to achieve the preservation and appreciation of assets.
Among the "troika" of consumption, investment, and import and export that drive economic growth, investment in fixed assets is a major driving factor for China's economic growth. The continuous growth of the total investment in real estate development has promoted the rapid increase in investment in fixed assets, thereby promoting the growth of the national economy.
In recent years, under the constraints of the "three red lines", Sunac, Evergrande, Country Garden, etc. have fallen into difficulties one after another, affecting the development of the entire real estate market, and the overall market value of the sector has shrunk significantly, and even the former "top students" Vanke, Longfor, Poly, etc. have also fallen into difficulties. In addition, a number of listed companies involved in the real estate business are also "not welcomed", and the valuation level of banking, insurance, household appliances, cement materials and other industries continues to decline, which are important reasons for the sluggishness of A-shares at this stage.
Seizing the cycle is the key to achieving "buy low and sell high".
In the book "Cycle", Howard Marks describes such a diagram: the intrinsic value of a company grows, and there is a range of cheap and too expensive around the fluctuation of value, which is the time point of "buying low" and "selling high". According to Max, "this phenomenon of things fluctuating up and down around a central point or a long-term trend is the cycle", which is the key to buying low and selling high.
Therefore, the asset** has been cyclically fluctuating around its intrinsic value, resulting in the time point of "buy low" and "sell high".
So how to effectively judge the magnitude of ** deviation from its intrinsic value or the possible future trend?
In 2004, based on the study of 30 years of historical data from 1973 to 2004 in the United States, Merrill Lynch proposed the Merrill Lynch Investment Clock, which linked the economic cycle with asset rotation and industry strategy.
Merrill Lynch's investment clock divides the economic cycle into four phases: recession, recovery, overheating and stagflation, and divides the asset class into four categories: bonds, commodities and cash, based on two indicators: output gap and inflation.
Starting from the lower left of Merrill Lynch's investment clock, turning clockwise, the economy rotates along the cycle of recession-recovery-overheating-stagflation, while the income of the bond market, commodities and cash leads the major categories of assets in turn.
Merrill Lynch Clock is a method proposed by Merrill Lynch in the United States to link the economic cycle with asset and industry rotation, with the purpose of helping investors identify the inflection point in the economic cycle and make the right investment choices. Merrill Lynch verified the rationality of Merrill Lynch's clock with more than 30 years of complete U.S. asset and industry return data from April 1973 to July 2004.
Since the long-term growth of the economy is determined by capital, labor and total factor productivity, if there is a deviation in the short term, the financial market often mistakes this deviation for a change in the long-term growth rate, resulting in mispricing of assets and generating ** volatility. When the short-term economic volatility is too large, the inflation volatility will become larger, and the central bank will calm the volatility and return the economy to the long-term equilibrium value. Therefore, the fundamental driving force of the economic cycle is abnormal economic growth and inflation, and the central bank's behavior of erasing the anomaly and returning the economy to the long-term average target is the direct driving force of the economic cycle.
Therefore, the Merrill Lynch clock identifies the different stages of the economic cycle from the two dimensions of economic growth and inflation, through economic growth rate indicators (GDP, PMI, etc.) and inflation rate indicators (CPI, PPI, etc.). And the economic cycle is linked to asset allocation, and a specific type of asset that outperforms the market in different stages is given.
Recently, the ** Economic Work Conference was held in Beijing to comprehensively summarize the economic work in 2023, deeply analyze the current economic situation, and systematically deploy the economic work in 2024. Experts pointed out that the meeting reaffirmed the importance and necessity of reform and opening up, emphasized that adhering to high-quality development is the "last word in the new era", and reflected an enterprising signal with development as the focus. At the same time, the meeting's judgment on the current situation is plain, objective and realistic, and many measures put forward around the nine key tasks next year are pragmatic and accurate, emphasizing the continuity and coordination of policies everywhere, reflecting the systematic and overall situation of decision-making.
Obviously, the economic work conference pointed out the direction for the economic conference, and investors may wish to reverse the trend and choose some low-valuation targets for investment. This cycle of economic contraction caused by real estate will always pass, and the spring will bloom and the economic recovery will come.