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Currency-credit: the two sides of the economy, the core and most exciting economic game

author:Macro view Q

This is the second part of the reading notes on Ming Ming's "Debt Cycle and Trading Strategy", which involves the preface.

Currency-credit: the two sides of the economy, the core and most exciting economic game

Money Makes Money: The most intense and thrilling game

What is the most profitable thing in a country? It must be the game of making money with money, from private economic activities to credit and stock trading, all of which are economic activities that skip the links of production, the productive forces, and the relations of production.

Because of this, it is understandable that capital will withdraw from the field of production and move closer to the field of direct investment such as the stock market and the bond market. In the eyes of capital, in the eyes of money, it must be where you can make money, make a lot of money, and the fewer links involved, where will capital and money flow.

Currency-credit: the two sides of the economy, the core and most exciting economic game

As an investor, the most intuitive thing is the government's policy promulgation and planning, such as the five-year plan, such as the China 2025 plan, which guides the influx of massive funds through policy planning and forms an established pricing mechanism and price direction.

Of course, you can also analyze who is the most profitable company and direction through reports, exploring the profit model, profit scale, profit speed, etc.

Naturally, it is also possible to find out where the money is going through the way in which the industries and concepts in the stock market are concentrated, and so on.

For example, stocks can also rely on the corporate profit model to analyze the price of the company, so the convertible bond can only rely on the price of the stock to swim, and the enterprise is separated by another layer.

Currency-credit: the two sides of the economy, the core and most exciting economic game

If we talk about corporate earnings - stock trends - convertible bond trends there are still traces to follow.

Then the stock trend - the primary index (including the Shanghai Stock Exchange, the Shenzhen Index, the Growth Enterprise Market) - the futures index will be even more out of reality, and many of their profit models come from the liquidity shock of the market, and the extreme market brought about by unexpected events has led to the value depression artificially created by the market, and the currency in the financial market is exchanged and reshaped.

This is the charm of finance, but also the destructive ability of finance, just a few seconds of trading, in the passage of time, the gains or losses brought by investment decisions will be constantly magnified, some are full of money, some are out of the game.

Compared with normal economic activities, financial uncertainty and strong financial allocation ability have made investors rush to it.

Currency-credit: the two sides of the economy, the core and most exciting economic game

Interest rate: macroeconomic indicator, pricing basis, asset three-in-one

What is the price of the financial market? In the stock market, it is the spread, which is the idea of technical analysis, and in the eyes of value investors, it is dividends, which is an important means of increasing the value of financial assets.

Broadening the wider spectrum, it's more like an interest rate, a standard for investing in the moment and getting it back.

In the preface of this book, the author mentions that interest rates have three meanings, extending and displaying the value of interest rates from a broader perspective.

1. Interest rates are important macro variables

2. Interest rates are the standard and core of financial asset pricing

3. Interest rates are an asset

To understand that interest rates are important macroeconomic variables, it is necessary to understand the role and significance of interest rates.

Currency-credit: the two sides of the economy, the core and most exciting economic game

To put it simply, the level of interest rates will lead to different changes in the financial market and the industrial economy, which will profoundly affect the development of the market and the economy as a precondition and market observation.

This also shows that the interest rate is essentially a kind of distribution, with capital as the capital, interest rate and time as the return, and become an important participant in the distribution from finance and economic development.

In the reading notes of "Witnessing the Adverse Tide", the author has discussed, especially when it comes to the real economy, interest rate assets are the erosion and crowding of the effect of the real economy, the higher the interest rate, the more obvious the crowding effect, on the contrary, the lower the interest rate, the less obvious.

Currency-credit: the two sides of the economy, the core and most exciting economic game

That's why interest rates are important.

In terms of the second judgment, the lower the bond pricing is when the company is profitable and has more cash, and vice versa. From this point of view, the level of interest rate is an important reference for absorbing funds and returning money.

In fact, interest rates are naturally attractive in the economic equilibrium, especially in a perfectly competitive market, but considering the general market, the average return, security will overwhelm profitability, which is also reflected in liquidity, high interest rates, frequent transactions, low interest rates, fewer transactions.

The three characteristics of capital and money are vividly embodied.

Of course, interest rates are also one of the important factors driving prices, which has also become an important criterion for pricing.

Currency-credit: the two sides of the economy, the core and most exciting economic game

Why we learn about bonds: money and credit are the two sides of the economy

From the perspective of enterprises and individuals, the cash and deposits in the hands constitute money, and from the perspective of the country, money is the national debt issued by the country's credit and assets as the underlying assets.

In the case of the mainland, the path of debt-driven economic development is still quite obvious, and in essence, it is achieved in the form of current currencies to lock in future returns.

Currency is issued by the central bank and flows to enterprises through loans, social financing, etc., and the market built by individuals, in the market competition, the winner forms a profit, that is, money, and the loser forms a liability, that is, a loss.

With the entry into the WTO and intervention in the world trade system, the overall Pareto benefits brought about by this positive welfare system have led to an increase in national tax revenues, an increase in corporate profits, and an increase in personal income.

Currency-credit: the two sides of the economy, the core and most exciting economic game

Currency and credit developed rapidly at this stage, showing a pattern of easy money and easy credit.

Of course, currency and credit still depend on the general rate of return pricing of the overall asset, the underlying asset in the past is real estate, so the interest rate is high, it is normal, after all, there is real estate, the anchor of the current underlying asset has not been able to appear, then it can only be determined by the corporate profit model, profit, which is also the fundamental reason for the LPR reform in 2019, and the key to the continuous decline in interest rates in 2010.

Currency-credit: the two sides of the economy, the core and most exciting economic game

This also means that the upper limit of corporate earnings will in turn determine the upper limit of debt size and space.

From the point of view of economic logic, there is no sky-high interest rate, there is no unlimited debt, the amount of money issued, it will always have an upper limit, and this upper limit is the rate of return of enterprises.

Therefore, the amount and level of corporate profitability will become the current and future debt resolution and debt development direction.

Currency-credit: the two sides of the economy, the core and most exciting economic game

There are two kinds of corporate financing in a country, one is direct financing, which is realized through the stock market and bond market, and the other is indirect financing, which is realized through bank loans.

Considering the increasing size of the bond market, as well as the flexibility, flexibility and various meanings of interest rates, in the rapid and agile transmission of monetary interest rates, the requirements of the bond market are more direct and faster than the transmission of the stock market, and we will inevitably understand the stock market, the financial market and the economy better.

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