Chapter 193 Oil is the mother of inflation
Thursday, February 8, 2024.
On the last trading day of the Year of the Rabbit, the Shanghai Composite Index rose another 1.28% to close at 2865 points.
Micro-cap stocks launched a full-scale counterattack, with a large number of stocks hitting the daily limit. The Shenzhen Component Index rose by 1.29% and the ChiNext Index rose by 1.16%.
If we count from February 6, the Shanghai Composite Index has drawn three consecutive large positive lines, returning to or even exceeding the high point of January 25.
Looking back a few days ago, the Shanghai Composite Index plummeted for six consecutive days, hitting new lows again and again, causing countless investors to wail.
Looking at the continuous surge in the past three days, a feeling of being in another world yet feeling familiar rose in Li Feng's heart.
"Xinyue, look at the stock market conditions these days. Does it look like 2015?" Li Feng turned his head and said to Zhao Xinyue with a smile.
Zhao Xinyue muttered as she worked the floor, "If I really compare them, the market in 2015 was even more extreme. I remember one day, thousands of stocks in the two markets opened at the lower limit, but then closed at the upper limit. That roller coaster ride was truly thrilling."
"I still remember another day when thousands of stocks opened at the daily limit, only to close at the daily limit down... In one night, many margin traders lost millions, some even tens of millions. It was like a sudden change from heaven to hell..."
Li Feng added, "So, even though investors are complaining and blaming everyone in stock forums, the current stock market environment is much better than it was back then... At the very least, the Shanghai Composite Index is at a low level, and it can't fall much further..."
“To put it bluntly, if you can’t even handle this level of volatility, then there’s no point in playing in this market.”
"Because his cognition cannot support his investment decisions, the slightest fluctuation in the market will cause huge waves in his heart. If he enters the market blindly, especially if he rashly controls funds beyond his ability, he will only become a leek that can be harvested by others."
"This is also the investment advice many senior investors give to their juniors: enter the market with small amounts of spare money...pay the tuition first...start as a leek, then slowly learn hard and strive to become a sickle..."
Li Feng looked at the ups and downs of the K-line in front of him and sighed softly.
In this game, newbies are called leeks. They pour into the market with the dream of getting rich quickly, but eventually they become the nutrients that nourish the market.
One crop after another.
Never stop.
In the end, only less than 10% of investors can cross this threshold, recognize the nature of this market, and survive in the market for a long time.
This transformation process is cruel and ruthless.
The slightest mistake will lead to eternal damnation.
Zhao Xinyue paused as she listened and asked, "You keep talking about inflation, inflation, cognition, cognition. So when will this round of inflation come? Why will it come? And when will it end?"
Upon hearing this, Li Feng gently stood up and stood in front of the window.
Outside the window, colorful lanterns are hung, brocade is paved on the road, the community is decorated with lights and children are playing, and a strong festive atmosphere is overwhelming.
It forms a sharp contrast with the ruthless and cold financial game on the cold computer behind him.
Stock investors are a group of people who wander between reality and virtuality.
Some people use reality to subsidize virtuality, while others use virtuality to subsidize reality.
"Looking at this inflation, we can draw some inspiration from the stagflation in the United States in the 1960s and 1970s," Li Feng said slowly. "Back then, due to the oil crisis, oil prices soared from a few dollars to dozens of dollars. The US economy fell directly into stagflation, and the inflation rate soared to more than 10."
"To curb inflation, the US racked its brains, freezing prices, sharply raising interest rates, imposing windfall taxes on oil profits, and so on... However, these sharp interest rate hikes, while leading to economic stagnation, still failed to curb inflation... This directly overturned all economic theories at the time..."
Li Feng said slowly, "The stagflation of that year, in addition to the oil crisis, was also compounded by the dollar crisis, the rise of Japan... the US-Soviet confrontation... it was very complicated..."
"The causes of current inflation are also very complex. On the one hand, there are monetary factors, on the other hand, there are energy issues, and part of the reason is the restructuring of the global production chain caused by anti-globalization..."
"Now, when we observe this round of inflation, the most important thing to pay attention to is the following three points. The first point to observe is the US dollar index, that is, the economic policy of the Federal Reserve... Specifically, is the Federal Reserve's monetary policy tightening or easing..."
"The second point to observe is the price of oil. Oil is the lifeblood of the economy and the mother of inflation. The shaping of modern society is based on the use of energy..."
"Throughout history, all major historical changes have been accompanied by changes in the way energy is used. In ancient times, whether it was hunting or farming, people simply utilized solar energy. Later, the large-scale use of coal directly triggered the Industrial Revolution, and later, oil was discovered..."
"In modern times, whether it's the improvement of productivity or living standards, whether it's food, clothing, housing, or transportation, it's all accompanied by an increase in energy consumption... and oil plays a dominant role..."
"But now, the Russia-Russia war has partially isolated Russia's energy from the global supply chain, and the situation in the Middle East is complicated. But it's clear that OPEC is willing to maintain high oil prices... Therefore, the foundation of global inflation is very solid..."
"In addition, there is a third point: the deglobalization of global industry, which has an even more far-reaching and profound impact..."
Li Feng paused and continued, "The transfer of the global industrial chain can be traced back to the 1950s, 1960s, and 1970s and 1980s. First, the United States and Europe transferred some low-end industrial chains to Japan, and later to Hong Kong, Taiwan, South Korea, and Singapore... and then to China..."
"Global trade and the globalization of production have fully utilized the production factors of countries around the world, greatly reducing the production costs of various commodities. While lowering the cost of living in the United States and Europe and suppressing inflation, it has also increased the income of citizens in major production chain countries and improved their living standards..."
"It's a win-win situation."
"However, the situation has fundamentally changed. The United States is using various means to achieve domestic re-industrialization and transfer production chains from China to other countries as much as possible. It is even using various means to interrupt the supply of various high-tech products, especially chips, to China..."
"This supply chain restructuring cannot be completed overnight. It will take several years, or even more than a decade. This will directly lead to a continuous rise in the prices of various commodities. It is very complicated..."
"So, the last stagflation in the United States was caused by the oil crisis and the dollar crisis. It cannot be solved by simply raising interest rates, because raising interest rates will not increase the supply of oil or commodities..."
"Similarly, this inflation may even turn into stagflation, and relying solely on interest rate hikes to curb it is far from enough..."
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