8 Economists' Investment Tips
Fu Peng: “Framework Handbook for Major Asset Classes” -- Three Core Issues in Building an Economic World
Summary of this issue
Three major problems in the economic world and two masters
What's in this issue
If everyone has a foundation in economics, the three major problems in the economic world are actually quite simple. These three issues can be found in economics textbooks, in the earliest “Wealth of Nations”. I have summarized them as division of labor & distribution, debt & leverage, and income & wealth. The issues involved are not the same. Financial practitioners like us actually focus more on debt and leverage at a mesoscopic level. However, if we are real policy makers or macro-strategy thinkers, we actually have to deal with cultural and social science issues, that is, income and wealth; otherwise, we will be confused by some issues. For example, many people think that the economy is a monetary phenomenon. There is a lot of water, everything is peaceful, and it's fine. Why can't we do this? When you put these three questions together, you'll find that the conflict it creates will break out of the field of economics and become a cultural and social science issue, which is the last question — the question of income and wealth.
In fact, a long time ago, our seniors and masters understood it very clearly. Therefore, the cycle of the economic cycle, in principle, has accumulated a large number of disadvantages in the process of releasing its benefits, so it needs to use this process of depression and recession to rebalance social problems and balance wealth distribution issues. Therefore, throughout the Western economic cycle, we have seen round after round of prosperity, recession, and depression. In fact, to be precise, they are all dealing with the contradictions in this process.
In fact, I'm actually quite worried about the 2008 financial crisis. Although everyone sees asset prices rise and fall, there are fluctuations, but from a worldview perspective, I always think that the 2008 financial crisis has continued until now, and it has continued to a very dangerous situation, that is, it is already affecting our last and most feared problem — the contradiction between income and the rich and poor. In fact, if you observe some social phenomenon, whether it is our internal social phenomenon or the global turbulent pattern, you will more or less understand the question I want to talk about.
What is the relationship between these three questions? “The Wealth of Nations Theory” tells us that with division of labor, distribution, and incentives, there can be an increase in income and economic growth. This is true; in fact, the most primitive wealth comes from the division of labor and distribution of income. This stuff was explained very clearly by “The Wealth of Nations” a few hundred years ago. It talks about the division of labor and distribution within a single society, but it is further extended from it, that is, the integration of the global economy that everyone is very familiar with. Global economic integration is nothing more than division of labor and distribution relationships between countries. However, any division of labor and distribution essentially has advantages and disadvantages. Especially after adding debt and leverage, the pros and cons will be very obvious.
Why does everyone like to work in finance? Very simply, because the financial industry, or financial service industry practitioners, are either people who create debt and leverage, or people who use debt and leverage, we have the lifeblood of wealth expansion. What exactly does wealth expansion come from? In fact, it comes from the use of debt and leverage. Wouldn't the world be better without finance? I can tell you the world wouldn't be worse without finance. Many people will have a misconception that expanding and strengthening the financial industry is to serve the real economy; this is actually a layer of sacred clothing we have put on ourselves. In principle, the financial industry is half angel and half devil. When we create wealth, we also bring disaster. What is a disaster? A huge gap between the rich and the poor. Therefore, people have long since learned that the use of debt and leverage will widen the gap between income and the rich and the poor, and that social classes will be staggered. Then you will find that the rich get rich and the poor stay poor, and the value of labor is weakening. It's a very broad perception, but blending it together creates a general model that can be used to explain not only our macro problems, but also our micro assets. The same goes for single assets. They are all issues of wealth creation, wealth expansion, and distribution of wealth. In fact, the path of any asset can be explained using this model.
The two people I want to talk about next are real masters; we can only count them. I'd like to share with you the best part of their perception. The first person was Soros. As early as I remember, 20 or 30 years ago, many people tried to interpret Mr. Soros' “Financial Alchemy.” Many people explained that, uh, they couldn't seem to understand what the previous section of partial science was talking about. OK, we directly gave it the name of philosophy. Philosophy is easy to talk about and understand. But don't forget, Soros is a standard science student. The vast amount of content in “Financial Alchemy” is actually a combination of standard feedback paths for global economic integration; however, it is not a simple philosophical, spiritual soup of life. We can only say that most readers at the time didn't have a deep understanding of this. Perhaps some scholars could easily understand what he was talking about earlier, but I still want to recommend this book. I think Soros's most honorable point is his understanding of international division of labor and distribution. When he sniped Hong Kong in 1997, he took advantage of the medium and micro conflicts he caused between the international division of labor and capital flows, but his worldview was more based on understanding the extreme values of division of labor, distribution, and income distribution.
The second one is Mr. Dalio. In fact, everyone has read his book. It is more about discussions on debt problems, debt generation, debt destruction, debt treatment, and debt solutions. It should be said that his understanding of debt and leverage is very profound.
Finally, with regard to income and wealth, I don't think anyone in the financial community has discussed this issue too much, because it doesn't fall within our category; our only focus is making money. Of course, when you make a certain amount of money and start thinking about changing society, you successfully enter the third level and begin to consider questions about income and wealth. You can donate your wealth, do charity, and change the world. This is a third-level problem, but almost no one writes a book to discuss it. But our society needs us to do that now.
That is the content of this course, thank you all.
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