Chapter 138: Sowing the Seeds of Hope in Winter (Part 2)
"Please look at this new statement, 'Houses are for living in, not for speculation.'" Li Feng pointed here and said.
"Here? What's the problem here?" Zhao Xinyue didn't understand.
Su Xiaoxia didn't understand either.
Only Lin Menghan had a thoughtful expression on her face. After all, she had worked in a TV station and was very sensitive to news. She knew that official documents of this standard must have gone through layers of review and scrutiny. Every sentence and every punctuation mark had been carefully considered, and even the order of each paragraph had to be carefully considered.
She looked at this sentence and said, "Li Feng, compared to last year's Central Economic Work Conference, this sentence seems to be a new statement, as if it is to curb the real estate bubble, but the other paragraph we just read was talking about destocking."
"On the one hand, we need to reduce inventory, and on the other hand, we need to regulate. There seems to be some contradiction in the statements here."
Li Feng nodded, stood up, and emphasized, "You must pay attention. This is a brand new expression. In a conference of this magnitude, a brand new description of this magnitude appears. You must pay close attention and think about it again and again."
"Could it be that this is also related to stock speculation?"
Su Xiaoxia frowned and finally couldn't help asking.
She thought that when trading stocks, one just had to open the market software and either analyze the fundamentals of the stocks or analyze the trend patterns of individual stocks. However, she did not expect that Li Feng would study a document again and again, and act as if he took it very seriously.
It's quite mysterious and weird.
Li Feng looked over and said very sincerely:
"Sister Su, it's true. Last year's Central Economic Work Conference featured the heavyweight new term "destocking." It's precisely around this policy that the home appliance sector investments we've made this year have yielded significant returns. And, going back a bit further, the 2007 Central Economic Work Conference featured the heavyweight new term "preventing overheating and inflation," which was followed by the 2008 bear market."
"That time, I learned a profound lesson. I didn't take that meeting seriously. As a result, by 2008, the amount of funds I invested had been halved from 500,000 yuan, and then halved again, leaving only a little over 100,000 yuan. That bloody scene... Sigh... It couldn't have been more tragic. This is a lesson worth hundreds of thousands of yuan."
Speaking of this, Li Feng's face was filled with extreme pain as he recalled the past.
Zhao Xinyue couldn't help but ask with concern, "Didn't you escape from that big bear back then?"
"No, I really didn't," Li Feng shook his head and recalled, "Back then, my trading system wasn't complete yet. I was only focused on individual stocks and industries, and ignored the overall trend. As a result, I ended up with a full position and took advantage of this bear market."
"At the worst time, I stared at the stocks I held, unable to sleep all night, not knowing what to do. It was like crying out to heaven and earth for help, but no one answered. I didn't even know why I lost money. That's why I keep saying it over and over again: when investing in stocks, you must look at the big picture. You must look at the big picture."
"The general trend cannot be defied. No matter how promising the industry or how excellent the company, in the face of the general trend, it is like a piece of chicken and a pottery dog, vulnerable! You can imagine that the Shanghai Composite Index fell 65.4% in a single year. With such a devastating drop, which stock could remain unscathed?"
"It's like when there's an avalanche, not a single snowflake is innocent."
After saying this, Li Feng’s mind couldn’t help but recall the past.
After a moment, Li Feng came back to his senses and said, "Let's continue. This new statement is actually not inconsistent with destocking. Let's review last year's real estate policies."
"In fact, the real estate market has been under renewed regulation since the third quarter of last year. On September 30th of last year, Beijing introduced the '9.30' new policy, requiring a minimum loan-to-value ratio of 35% for first-home buyers and a minimum down payment of 50% for second-home buyers. This became the strictest real estate regulation policy in history. Subsequently, more than 20 first- and second-tier cities, including Tianjin, Shanghai, Chongqing, Wuhan, Hangzhou, and Suzhou, followed suit."
"Combined with this new statement, there is also the policy of destocking, which means that first- and second-tier cities will regulate to prevent bubbles, while third-tier cities will destock..."
"Li Feng, what you said has something to do with stock trading?" Zhao Xinyue listened for a long time, but still didn't hear a stock code, and couldn't help asking.
"Xinyue, don't worry," Li Feng continued. "The current policy is actually a mixture of loosening on one hand and loosening on the other. Look at the statement about economic policy. Monetary policy must remain 'neutral', but also manage the 'gate' well. This is a new term, and it indicates that after the Federal Reserve raised interest rates on December 15th of last year, our country's monetary policy will also be tightened."
"Tightening?" Lin Menghan frowned slightly after hearing this and said, "You said that the stock market is, to a certain extent, a monetary phenomenon. If that's the case, then when monetary policy is tightened, will it lead to a bear market?"
Li Feng shook his head and said, "In a normal economic cycle, after the currency is derived, a slight initial interest rate hike will not directly lead to a bear market. Instead, it will trigger a rise in the financial cycle and even drive further growth in the broader market."
"During the super bull market from 2005 to 2007, the central bank raised interest rates in April and August 2006, and in March and May 2007, yet the market surged from 1,300 points all the way to its highest point of 6,124 points in 2007!"
"Reasonable inflation and mild, initial interest rate hikes will not lead to a bear market. What the stock market fears is high interest rates after consecutive rate hikes, accompanied by high inflation!"
"This is why I've repeatedly said that a qualified stock investor must at least go through a complete bull and bear cycle before they mature. This is because every classic bull and bear cycle is accompanied by the easing and tightening of monetary policy. When monetary policy is loose, money flows into all areas like a floodgate, leading to a bull market in the stock market and the rise of inflation. This naturally leads to the tightening of monetary policy to curb inflation, thus starting the financial cycle."
"so…"
Zhao Xinyue already felt like she was listening to a divine book, and quickly shouted:
"Stop, stop, stop. You just said that loose monetary policy leads to a bull market. I understand that, after all, there was a bull market in 2015. But why don't I understand that loose monetary policy leads to inflation? Now, does our Guo Jia have inflationary pressure? It seems not. Also, what is a financial cycle? Please be specific and don't use useless nonsense."
Li Feng paused, took a sip of tea, and continued:
"Let me start with the first question. Inflation is a basket that contains many things. However, in many cases, the inflation of some items is offset by the deflation of other items, but that doesn't mean it doesn't exist."
"Right now, it's true that there's no inflation in the statistics, but I want to ask, does the fact that housing prices have increased by almost 50% from last year to now count as inflation? Also, I remember, Xinyue, your salary got a raise, from 3,000 to over 4,000 a month. And the prices of egg-filled pancakes, roujiamo, stone cakes, and jianbingguozi on the street have all gone up from 3 yuan to 5 yuan. Isn't this inflation? They say there's no inflation, but inflation is everywhere."
"Currency and inflation are like floods and beasts; it's easy to release them, but hard to take them back. We no longer see one-cent candies or five-cent popsicles. In the future, we might not even be able to eat five-yuan egg-filled pancakes."
After a pause, Li Feng continued, "The second question is about the financial cycle. I'm referring to the banking and insurance sectors. These two sectors are high-asset, high-liability industries, and are very sensitive to interest rates. Sometimes, a small interest rate fluctuation can lead to major changes in the industry."
"To study these two sectors, we must firmly grasp the key issue of interest rates. When market interest rates enter a downward cycle, they will reset, banks' loan rates will decline, interest rate spreads will narrow, and profits will naturally decline. When market interest rates begin to rise, banks' loan rates will enter an upward channel, and interest rate spreads will naturally widen..."
"In addition to focusing on new business value, it's more important for insurance companies to look at their primary investment – government bonds. Generally speaking, in the government bond market, when the expected yield on 10-year bonds rises, profits improve, and when it falls, profits deteriorate. The expected yield on 10-year bonds broke through the critical 3% level in December of last year, effectively entering an upward trend."
"So, it's clear that the banking and insurance sectors are about to enter an upward cycle."
As he spoke, Li Feng pulled up a chart of the expected yield on ten-year Treasury bonds.
As shown in the chart, the expected yield of 10-year Treasury bonds has soared since December 2, 2016, breaking through the 3.0 mark and reaching a high of 3.383.
Li Feng called up the icon and talked briefly, but the three of them were still confused.
The banking sector has very special financial statements. Residents' deposits are their liabilities, and residents' loans are their assets. It also involves personal business, corporate business, interbank lending, current and fixed interest rates, interest rate spreads, interest rate spreads, bad debts, core and tier 1 capital adequacy ratios, and so on.
Ordinary investors have never heard of these terms, let alone studied them. Even professional investors may not be able to see through them in a short time.
Insurance is three times more difficult than banking. It involves new business value, government bond investment, stock investment, corporate equity investment, auto insurance, life insurance, universal insurance, etc. It is even more complicated.
Whether it is banking or insurance, it takes more than half an hour or even more than an hour to read an ordinary quarterly report. It is unrealistic to expect Li Feng to explain these two industries clearly in such a short time.
If Li Feng's previous analysis of the Central Economic Work Conference and monetary policy was like talking about a heavenly book, then his discussion of the banking and insurance sectors at this moment was simply like a shaman dance for the three of them.
I don't understand at all.
Zhao Xinyue and Su Xiaoxia opened their mouths, but didn't know what to say.
"Can it be simpler?" Lin Menghan said, looking at Li Feng.
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