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Comment: Inflation Is A Phenomenon Of Productivity.

2010/8/16 15:54:00 70

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July

CPI

Before the announcement, many experts and research institutes were singing in chorus, and their prediction "July data will be a year-round high."

I was very surprised at that time, because when they did not know the data in July, they had predicted the data.

After the release of the data, the relevant departments also conveyed the message through the media: "the CPI data after July will probably oscillate at the level of July".

In the stock market, the word "shock" is generally a euphemistic way of expressing a low opinion of the market.

Therefore, I estimate that the departments concerned are prepared for further progress in the CPI data in the second half of this year.

At the same time, some experts and scholars further suggested that the original CPI annual target 3% is not scientific, but should be extended to 5%.

I guess the main purpose of these remarks may be to greet everyone with a euphemism, and I hope that everyone will adapt to the rising price situation psychologically ahead of schedule.

At the same time, various financial media have reported the news that Russia's drought has led to the suspension of wheat exports. Combined with the natural disasters in China, it seems that the price increase of agricultural products (18.35,0.26,1.44%) is an inevitable conclusion.

I think the logic is very problematic. The core idea is that the supply and demand determine the price of agricultural products. As long as the supply is reduced due to natural disasters, the price will rise, and the farmers will be reluctant to sell their mindset to cover up the grain. (I am glad that our media still has a sense of justice, only criticizing the real estate speculators, and never criticizing farmers for covering food).

In my view, China's annual grain supply and demand is basically balanced, coupled with the forward-looking policy of grain reserves implemented by the government over the years. The market does not support the reason that prices are rising due to shortage of supply.

Let's recall that about 10 years ago, China also had such a dilemma: Although the government's grain depots were buying farmers' surplus grain, farmers complained about the difficulty of selling grain.

At that time, our country was experiencing severe deflation. Although the central bank lowered the interest rate and reserve ratio of banks and guaranteed sufficient liquidity, prices still fell all the way.

In the past 10 years, the balance of grain balance has not changed. It is impossible for the food price to change so dramatically because of the imbalance between supply and demand.

Therefore, some people put forward the reasons for monetary policy. They quoted a famous American economist as saying that "inflation is a monetary phenomenon".

The logic behind it is that the issuance of money has become more and more at once, so the price is rising. This logic is also very abrupt.

If only multiple currencies were issued, why did housing and grain soar, while wages remained stable and stocks fell? Why did liquidity floods not raise all asset prices?

I insist on this view:

Inflation

Fundamentally, it is the result of the decline in productivity, and monetary policy will magnify the result. The market speculators use the pretext of natural disasters to push up the price. As the level of productivity falls, the stock price falls, the price rises, and the actual purchasing power of wages has shrunk.

This logic is mainly based on the doctrine of "whole process, hedging, holding errors", and the inspiration of Guo Moruo, an old schoolmate.

Lao Guo runs a textile mill. He always faces such a predicament: he can borrow money to expand the scale, but the risk is that if there is not enough order in the future, he can borrow money to buy a new Japanese loom, and then take some orders of high gross profit and small quantity, so there are risks. If the staff can not master these new equipment, they will face a claim for the fabric with poor technical requirements.

These are two totally different risks. The former is to make you engage in financial ventures, to raise leverage, which is equivalent to financing stocks. The latter allows you to undertake R & D risks, explore unknown areas, and master advanced technology, which is bound to be risky.

In a hypothetical financial market, Lao Guo, in order to overcome the previous risk, can buy Cotton warrant and buy it first according to his own production level.

Cloth

Bearer warrants, if there is a positive difference between the two, and the difference is higher than the production cost of Lao Guo, Lao Guo can rest assured to expand the scale of production without having to worry about technological progress.

If everyone in the market is doing this, the price difference between the two warrants will soon narrow, otherwise there will be no risk arbitrage opportunities.

Then we will soon find that cotton is rising and cotton is not selling well.

This is what we see today as a rise in the price of basic agricultural products and a decline in the level of manufacturing.

The stagnation of downstream technology level and the solidification of production and operation mode will lead to higher price of upstream raw materials and enter the inflation cycle.

Unless Lao Guo develops new technology and new technology, spinning the better cotton line with the same cotton or weaving a more advanced cloth, he can re expand the spread of the two warrants.

If I were an investor, I found that Lao Guo's textile mill had the technology that was higher than the average level of the industry, and I would short the stock of other factories and make a lot of Lao Guo's textile mill, which pushed up the valuation of Lao Guo. This high estimate encouraged everyone to go to scientific research and development, and ultimately enhance the valuation of the stock market. Please refer to my stock exchange in Shanghai stock exchange, the reason is not the result.

If Lao Guo made high wool cloth from the same cotton, in order to compete for the market share, he would push the market at a more competitive price, resulting in the price of the original fabric can only be reduced, forcing the ordinary fabric factories to create new craft and weaving with less cotton so as to maintain their competitive position with Lao Guo.

Imagine if investors in the capital market generally expect the textile industry to usher in a round of technological progress, will they also actively push up cotton prices?

As a result of technological progress, cotton prices have fallen, while textile mills' valuation has been raised.

Investors' frequent conversion is very fast, far faster than technological progress.

Readers need not worry about Lao Guo. The real situation is that he borrowed money from banks to buy real estate. His income has far exceeded any industry. He has neither intention to expand the scale of production nor to raise the level of technology.

In fact, to some extent, this is the portrayal of our market today.