8 Economists' Investment Tips
Fu Peng: “Framework Handbook for Major Asset Classes” - Understanding the Three Core Issues from Economic Models
The economic model behind “division of labor - allocation, debt - leverage, income - rich and poor”
Summary of this issue
An economic path reflected in a simple model
What's in this issue
We can make a simple model. Although it's a model, we can't explain it in a pure mathematical way, so the model we made here is very simple.
From my point of view, economic growth and efficiency improvement, in principle, come from two parts: division of labor and distribution, which is income. We put it in the denominator part. The numerator part is debt and leverage. In other words, the creation of wealth and the expansion of wealth are combined to form the growth and efficiency of the entire economy.
Everyone knows that technological innovation is the only way to improve efficiency. That is right, under the premise of division of labor and distribution, we create a growth rate and create a slope, a slope of technology.
However, when labor reaches a certain level, it doesn't mean that you can share the dividends brought by economic growth. At this point, there will be a bias. This bias will begin to be affected by other factors, namely debt and leverage. We will map it to these two functions, and then generate these two graphs. In fact, many people are no stranger to this, but few people think about these three things together.
Let's take a look at the picture on the right. It actually reflects these three major problems in the economic world. You will notice that there are two slashes in the chart. The slope of these two lines is different. The difference in slope is due to the improvement in production efficiency I just mentioned. Improved technology will change the efficiency of output, so the slope will change.
Simply put, as human civilization progresses and technology improves, our overall income level will also increase the amount of wealth obtained per unit of time. This is a law of nature. However, you will find that there is also a black curve called the degree of financialization in the chart. This curve contains many of the problems we are facing now.
In the first stage, you will find that the black curve basically matches the slash line; this is the value of labor. Simply put, all young people only need to work hard and don't give up. In principle, what you can get for the rest of your life is normal growth on this slope.
To take the simplest example, you're 18 years old, and your master, for example, is a chef. Your master's monthly income is probably 20,000 to 30,000 yuan, or even higher, but you're only 2,000 yuan. That's OK; it's just a matter of time value in the middle. In other words, as long as you work hard, as long as you study hard, and as long as you work hard with your master, your income will increase at this rate over time, and you will receive the same wealth when you reach the age of your master.
Assuming that everyone lives 60 years, when weighted, you'll find that everyone's slope is almost the same, which means that the value created by labor is almost the same throughout life. Of course, not everyone is the same; there will be some differences in the middle. For example, family background, social resources, education level, etc. will cause everyone's slope to be different. Although it causes a gap between the rich and the poor, it does not cause the most serious problem of the gap between rich and poor.
In the second stage, everyone will find that this curve has deviated very much. In other words, even if you're in the middle class, you're already working hard at the company, but you'll find that some people probably make a lot more money than you. This part is called debt value in my framework. That is, in the second stage up to this point, some people have begun to understand the truth that income alone is not enough. Can I see a profitable business and then borrow money?
The conclusion that debt generates higher income begins to emerge. At this point, the wealth gap between debtors and savers will widen. Simply put, people who only save will cry when they get old; the more they borrow money, they begin to become richer. The value of debt is reflected in everyone's income distribution at this stage.
Further on, the highest stage is the financial industry where everyone is willing to work. Why are people willing to work in the financial industry and unwilling to leave the factory? The reason is actually quite simple, leverage.
After the debt value stage has passed, what we need to think about is how we can borrow more money to obtain higher returns in a short period of time, and the principle of leverage has emerged. The basic principle of any financial transaction, financial design, or financial product that everyone is doing now is the question of how to obtain debt in a balance sheet and the question of how to increase leverage. This is how all designs come about.
When entering the age of high leverage, everyone will find that wealth is accumulated in a very short period of time, and the slope of this curve will be even higher. This part is called the degree of financialization in my framework. What does that mean? Simply put, the higher the degree of financialization, the more opportunities there are to achieve life-changing wealth in the short term.
These three stages, the labor value part, the debt value part, and the leveraged value part, are combined to form such a curve. The middle part of the difference is the gap between the rich and the poor.
What if we put it in macroeconomics? These three parts correspond respectively to the real economy, debt led by real estate, and leverage led by finance. Therefore, everyone will have a kind of confusion. They say that working in real estate is better than working in real estate, and that working in finance is better than working in real estate. Of course, finance can't be pure, so let's take the physical part and add leverage to form finance, so we all want our kids to learn finance. Although if you work in a technical type of work, you may be able to get 20,000 to 30,000 yuan a month's salary, but everyone feels that this is not enough, so the distribution of wealth begins.
All countries are the same. Don't think I'm talking about China; that's not the case; this model applies to all countries.
The problem it poses is also simple: the gap between the rich and the poor. In fact, this theory can explain some of the problems that people are seeing now, that is, the rapid accumulation of debt and leverage will cause the income portion to shift. At this time, the so-called bubble actually appeared. It is nothing more than what field this debt and leverage are reflected in the residential sector, government department, or enterprise sector, but sooner or later, it will return.
So generally speaking, reversing it is a process of deleveraging and debt removal. In fact, in an economic cycle that is long enough, we have been experiencing recovery, prosperity, recession, and depression. It's nothing more than which department did we complete the accumulation of debt and leverage, complete the process of debt removal and deleveraging, and complete a return to efficiency.
A simple model, plus its reverse operation, and then superimposes it, forms the economic path that everyone sees.
That is the content of this course, thank you all.
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