8 Economists' Investment Tips
Fu Peng: “Gold Investment Thinking Special Training” -- Gold Mesoscopic Framework: Real Interest Rates
Summary of this issue
· The three important stages of gold
· Interest rate disease under globalization
What's in this issue
Hello everyone, Wall Street News users and friends, I'm Fu Peng.
The image below is the most important picture at the mesoscopic level. It can explain all of our concerns at the mesoscopic level. The one on the right is the same framework we talked about earlier, and you'll find that its influence variables are completely different. The biggest problem here is that when analyzing the history of gold, we need to talk about this framework first. If we don't talk about this, it can be said that they are all scoundrels. Why? In the middle of each stage, the influence variables of gold are not the same.
Everyone should pay attention to the post-2002 framework. It is very interesting. Gold and real interest rates are affected by real interest rates. At this point, I can answer everyone's question: Is gold resistant to inflation? This is actually a typical cognitive bias we talked about earlier. Who told you that gold will rise if inflation is inflated, and gold will not rise if deflation occurs? This chart clearly shows that among the variables affected by gold, more than 80% is driven by a decline in nominal interest rates, not due to inflation.
So quite simply, after 2002, you can confidently say that gold doesn't have much to do with inflation to some extent. Who told you that gold is resistant to inflation? Generally speaking, bank sales staff tell people that gold is resistant to inflation and can be bought and bought. If you ask him why gold resists inflation, he'll say he doesn't know; banks always say this when training knowledge about precious metals. Has gold ever withstood inflation? It did resist, but before.
The transmission of inflation is the same. Inflation and nominal interest rates generate actual interest rates and affect gold, so don't skip the real interest rate level under any circumstances. When we discuss changes in any variable, we first discuss how it affects real interest rates, and then discuss its relationship with gold.
The brown line in the chart represents the actual interest rate, the bar chart below represents the actual interest rate for a single month, and the blue line is the nominal interest rate that everyone sees. As we can see from the chart, to be precise, it is not from 2002; it should be said that starting in the year 1990, the trends of these two lines are basically completely consistent, that is, the actual interest rate and the nominal interest rate are basically completely consistent.
It can actually answer another question: what has plagued the US over the past 20 years is not the problem of inflation, but the problem of deflation, or what is called the problem of deflation expectations. It can be said that hyperinflation before Reagan or Paul Walker's era is gone. How did this happen? I've talked to you about the transmission of inflation in the framework of analysis of major asset classes before. The most important point brought about by the global division of labor is that debt is yours, and inflation is yours.
Simply put, if you want to make this money, you have to bear inflation. And because of your production, processing, and manufacturing, the price of my imported products is very low. Therefore, under this model of globalization, the US bears cheap products imported from China, and they are getting cheaper. why? Commodities are getting cheaper, which is equivalent to China's overcapacity. It's that simple. The more China has excess production capacity, the cheaper things it exports.
I went back to China once around 2002 and 2003. At that time, Yiwu Commodity City had just developed. I often tell you this story. After visiting small commodity stores, even foreigners learn how to bargain. They will say that you are selling too expensive; the old king next door is two cents cheaper than you. If you want to grab an order, they'll say it's fine. I'm cheaper than Lao Wang next door; I'll give you three cents cheaper. Foreigners will say OK. Wait, I'll go next door and ask again.
The reason is simple — overcapacity, homogenization, and no technical content. The biggest problem with this model of production, processing, manufacturing, and export is that the global division of labor does not allocate technology to you. So quite simply, you are just a producer. The price the producer pays is that you bear all the rising prices of raw materials, you bear all the problems of inflation, but your exports are deflationary. Simply put, the difference between China's inflation and America's inflation is the profit of Chinese companies.
We are growing more and more, and US inflation just doesn't rise. The result is only one — the profits of Chinese companies are getting lower and lower, because we use our corporate profits to make up for the rise in raw material prices to guarantee that the price of our orders to the US is very low, because as soon as the price rises, the orders are transferred. So when China starts to deflate, that is, when there is no inflation, what does that mean? It shows that the logic of making a fortune through production has come to an end. When will this logic end in China? To be precise, since 2012 and 2013, China has been completely different from China 20 or 30 years ago.
The entire framework of the world will change drastically in the future. Of course, there will be drastic changes based on ours, and there won't be much deviation, because the whole game is nothing more than changing people and playing again. You can follow this framework to find your next target. For example, who will be the next inflator? The reason is the same. Find places with many people, find places that are young, find places where inflation can grow, carry out production, processing, and manufacturing, and continue to import deflation into the world. Do people really think America's anti-globalization is just an industrial return? No, I just don't want to distribute it to you; this is the path of anti-globalization in the true sense of the word.
In this way, we can sort out the three important stages of gold. These three important stages are very critical. In fact, take a closer look. Out of these three important stages, in the middle of the first two stages, how did US stocks go from 1970 to 1985? If you look at the index, it just happened to be the end of Buffett's investment in the “Beautiful 50.” US stocks have fluctuated up and down for 15 years.
Why did US stocks fluctuate for 15 years at that time? Or why did gold suddenly change at that time, why did so many major events happen at that time, and why did it end around 1985 again? This history is not only an important history of gold, nor is it an important history of US stocks, and not only can it be used to see the essence of the Sino-US trade war. This period of history is actually the latest restructuring of the global debt credit system.
Of course, as a result of that restructuring, it wasn't really a reconstruction. After the end of the Bretton Woods system, the US was not defeated; rather, the US completed a transition on its own; it was just a strengthening of the dollar system. But this time, simply put, if we get through, we are likely to face drastic changes in the entire Bretton Woods system framework; if we don't survive, we will continue to supplement our dollar credit. So how should everyone bet? What does it mean to buy gold denominated in US dollars and also buy gold denominated in RMB? If you don't gamble to win or lose, anyone can win.
The latter half of this picture is actually interest rate disease under globalization, which is our second topic. The previous section can be said to be an early restructuring of debt credit, which is currently the most critical one. There were a few important people and a few important events in that period of history.
First, gold decoupling. There is a lot of content involved here. Regarding the total gold bank, etc., I'm not doing too much repetition here. It's not as simple as what everyone sees in the novel. Charles de Gaulle is not happy, and he wants to crowd out America. That's not the case. There aren't that many conspiracy theories. What is actually involved here is not a conspiracy, but rather a conspiracy; that is, the whole system works there, and of course it can't go away.
Therefore, it cannot simply be said that Europeans want to overthrow America. In principle, everyone has been squandered, Europe has also been squandered, and America has also been crushed, so the entire anchor cannot be maintained. Therefore, at that time, they will discuss the German issue, the British issue, the total gold bank issue, the US issue, etc. After reading it, you'll find that it's not a simple conspiracy theory; you can understand it as a problem with all the links linked to the exchange rate system; of course, it can't continue.
Let's not talk about that period of history; what we need to talk about is why the linked exchange rate system couldn't continue at that time. Actually, at the end of the day, this is related to the overall economic development framework after the war. 1950-1975, after the end of World War II, was the best 25 years for US stocks, that is, the era when the “Beautiful 50” was born in the US stock market and Buffett's return on investment was the best. Who did America look like in those 25 years? At the time, America's economic structure was more like China in the past, because now it's 2020. I can only talk about China as it used to be, not China now.
Relying on World War II, the United States began production, processing, manufacturing, and export. What was the big problem in America at that time? As I mentioned before, the major problem with production, processing, manufacturing, and export was the accumulation of large surpluses. At the time, the surplus was gold. Very simple. In the post-World War II system, who has more gold will decide, so the fall of the British Empire and the rise of America are indeed closely related to World War II. Without the US making money and allocating credit on a large scale during World War II, the post-World War II credit system wouldn't count.
In the process, you'll find that America's bigger problem is that the generation of young people who produce, process, manufacture, export, or gold, is very similar to the current generation of young people in China. Under such circumstances, the US is prone to inflation, so until then, nominal interest rates and levels of inflation were extremely high. In other words, as long as you make money, have production, management, and employment, you can have inflation in the true sense of the word, and high interest rates in the real sense of the word.
This can actually answer everyone's question. Who told you that if interest rates are high, the economy won't work; if interest rates are low, the economy is fine? Very wrong; the reality is just the opposite. The better the economy, the higher the interest rate; the worse the economy, the lower the interest rate. Of course, the lower the interest rate, the worse the economy. It will lead to unequal income distribution, widening the gap between the rich and the poor, and will eventually breed an outcome — killing the rich and helping the poor. In fact, all the core problems are there.
That is the content of this course, thank you all.
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