Stock Debt Double Bull Trend Is Expected To Continue

For the first thing, it is understood that "stimulus" measures; for second things, some people think that this is the central government explicitly does not rescue the local debt, worried that rigid payment will be broken; for the third matter, some people worry that the Fed's interest rate increase is expected to become clearer. If it can not be accepted by the market, the high balance of offshore debt will be broken, forming a "double kill".

Looking at the first two things, it seems that all of them are reasonable, they feel conflicted and the economic policy is relaxed or tightened. All along, the biggest worry of policymakers on economic growth comes from two aspects: first, employment, and two, systemic financial risks.

Personally, the decision level is basically unified on the two issues, otherwise the "new normal" formulation will not come out.

On the one hand, there is a structural inflection point in the job market, that is, from demand leading to supply leading. China's dependency ratio has passed, and the working age of the working age population has been reduced by 400-500. Therefore, in 2007, the nominal growth rate of the 23% economy can achieve 12 million new jobs, while the current 8% nominal growth rate has reached 10 million new jobs in the first 8 months of this year.

The supply oriented employment market is characterized by short-term factors.

Despite the economic downturn, employment will not deteriorate, and economic growth will be disjointed with employment.

This means that nominal economic growth can be further downward.

On the other hand, as long as financial stability is achieved, the economy can get rid of the "hard landing" expectation, that is, "keep the bottom line of systemic risk free."

Therefore, it is impossible for the central authorities to allow local debts to default.

From the perspective of historical experience and institutional logic, the probability of an economic hard landing will be very low as long as finance is isolated and protected to some extent.

When the economic downturn accelerates, if the financial sector has the capability of re leverage, it will be able to quickly guide the credit to benefit the structural policy (fiscal discount and tax reduction) in the direction of effective supply, which can considerably hedge the impact of the shrinking of the excess sector and the high debt sector.

The author believes that a series of hidden monetary and financial mechanisms are in the process of formation.

For example, at present, the central bank has relaxed the restrictions on mortgage loans, and banks have no intention of lending. The real estate funds in the future may increasingly rely on the "two housing" mechanism, that is, buying MBS bonds through the central bank or the shadow central bank.

This way of thinking about financial regulation will also be reflected in many aspects.

At present, all policies focusing on the demand side seem to be only a "post validation" for the economic downturn, which is subtle compared with the previous "stimulus" mentality.

Simply speaking, before the fear of economic growth downward, and the current policy thinking is that the downward trend of economic growth is inevitable, but only more "cushion".

This difference has obvious impact on investment allocation.

And the factors that support the stock market are all from the supply side.

Supply side contraction will lead to a decline in invalid demand, capital expenditure continued to slow down, resulting in labor costs and financial costs significantly reduced, revenue deceleration but profit growth began to appear.

There were similar experiences in the period of economic restructuring in Japan and South Korea. The molecular part of stock valuation may be improved.

The demand for non interest will shrink and the demand for corporate debt financing will drop.

With the adjustment of the lever sector and the function of the generalized monetary authority as the lender of last resort, the tail risk decreases and the stock risk premium decreases.

And bonds may remain "cow flat" state, that is, the demand for endogenous shrinkage, the long end yield downward, forcing the short end yield downward (monetary policy is in the state of the demand for atrophy after confirmation), this is a slow release risk (reduce leverage) rhythm.

The downside of risk free interest rate and the decrease of risk premium are the same level, and the combination of decisions is the policy choice.

From this perspective, China's economy is probably on the right track.

The market should be interpreting this cognition, which is reflected in the significant changes in the relationship between the three commodities, stocks and bonds.

In the past, stocks and commodities were positively related, and negatively related to bonds; but now it is a debt cow, and it continues to deviate from the trend of commodities. This trend will continue in the trend.

Of course, external uncertainties still exist.

Over the past 40 years, every time it enters the dollar, it will lead to a reversal of cross-border capital flows, leading to the world.

There is a great upheaval, but the author feels vagueness that this history may not be repeated simply because there are great changes in some elements of the global basic pattern.

First, the basic condition supporting the period of great easing (from 80s to 2007 of last century) - excessive savings is rapidly disappearing.

This means that the central growth potential of the world has reached a new stage, "low growth, low inflation" or "new normal" of the global economy.

The rate of return above 3% is not an easy task.

Therefore, the United States may raise interest rates next year, but there may be limited space to raise interest rates.

The two is global.

Restructuring, the "G2" pattern is virtually impossible to change.

That is to say, the United States and China are at stake.

In the next ten years, the economic volume of "G2" may be close to 35% of the world. Such a structure will objectively reduce the intensity of cross-border capital flows.

As long as one side does not collapse, the probability of large-scale outflow of funds is not large.

To some extent, it is understandable why foreign exchange holdings have been reduced in recent years, which is more reflected in the rise in foreign exchange deposits than in capital flight.

Therefore, the dollar factor will not cause too much volatility in China's economic and capital markets.