这是我们20190131 的报告《
洪灝
峰回路转：狗年的教诲
》的英文原版。感谢阅读。
---------------------------
Cycles matter.
Cycles mattered a lot for ancient agrarian economies. Yet, they continue to exert significant influence on today’s societies. In China, “nong-li”, or China’s agricultural calendar defining a year by seasons, is still strictly followed. Now that the Dog and the Hog are changing guards, the short cycle is healing. Stocks are appearing attractive from an asset allocation perspective – although it will not be without twists (
Figure 1-3
). Since 2017, we have published a series of definitive guides on China’s economic cycle. It is for the first time a comprehensive quantitative study on the topic.
In this report series, we demonstrate the similarity and simultaneity of fluctuations across various macro-economic variables and across countries, and oscillation of cycles rhythmically around an underlying trend. As the theory of economic cycle belongs to an archaic and inscrutable school of thoughts, our first reports in 2017 were met with open scorns and disbeliefs – till in 2018 their intellectual rigor and precision of market timing were attested by the epic market volatility. Incidentally, Ray Dalio and Howard Marks each published a bestseller on cycles in 2018.
Timing matters.
In our line of business, being too early is wrong, too. In January 2018, markets pulled off a historic stretch of consecutive rises. While our cycle model pointed to economic deceleration ahead, our proprietary market timing model augured for new high in early December 2017 when we published our 2018 outlook, and then flashed a strong warning on an imminent crash on January 30, 2018 because of momentum exhaustion. Our report titled “
The Colliding Cycles of the US and China
” was published right at the peak of the US market, which plunged 20% into a technical bear market subsequently till Christmas Eve. (
Figure 4
)
With our track records in the past decade after returning to China from Wall Street, we have proved that the “Efficient Market Theory” largely remains a hypothesis. It hasn’t been infallible, and will never be, but the right price is THE fundamental when it comes to investing.
How will it all end?
We have written a report series to decode the phenomenon of secular disinflation. We believe that the falling 10y yield is a history of surplus value exploitation. As labor is under-compensated for its productivity gain, there will be insufficient demand from workers, and oversupply ensues. Meanwhile, income disparity grows. As such, an unequal society must also be a surplus economy – with consistent pressure on prices. The privileged access to capital by the elite over the hoi polloi during QE has divided society even further. We have passed the point of no return. While most are still obsessed with central banks’ next interest rate moves, workers’ claims on their productivity gain will insinuate inflation. Populism will exacerbate this pressure, and widen the social rifts with surging volatility. There is no beginning, nor end to economic cycles. The fall of the last cycle is impregnated with the rise of the next – as is now.
“From Maeve and all that juggling plain, nor gave God thanks till overhead, the clouds were brightening with the dawn”. --- The Hour Before Dawn, W. B. Yeats.
We wish you and your family a prosperous Year of the Pig.
Hao Hong, CFA
Figure 1: Our proprietary economic cycle model suggests China’s economic cycle is bottoming
Figure 2: As China’s economic cycle is bottoming, asset prices are starting to turn
