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Guo Lei: “Macro Research Methods” — An Analytical Framework for Superposition of Macroscopic Cycles

Summary of this issue

The division of the health cycle is a process where benevolent people see each other and wise people think

It is generally not recommended to use the Kangbo cycle as a main analytical framework

An analytical framework for cycle superposition: a more comprehensive perspective to analyze the different driving forces of each economic stage and determine the basic direction of the entire economy

What's in this issue

In this lesson, we will mainly talk about our views on the Kangbo cycle and how to use the cyclical framework to analyze the economy.

Combo cycle, not recommended as the main analytical framework

The Kangbo cycle refers to a cycle pattern of about 45-60 years. It is generally driven by technological revolution, technological innovation, or changes in the global order, so its cycle will be very long. The division of the Kangbo cycle is a process of benevolent people seeing others and wise people seeing each other. There are 7 or 8 mainstream classification methods. What I'm showing you here is just two of the mainstream divisions. As you can see, the conclusions drawn by the different classification methods are still very different.

According to one of these classification methods, we are currently in a declining phase of the Kangbo cycle;

According to another classification method, we may currently still be in the upward phase of the entire Kangbo cycle.

My personal opinion is that studying the Kang Bo cycle can be considered a personal interest, but the entire analytical framework of the Kang Bo cycle is still somewhat falsifiable. Therefore, we generally do not recommend using the Kang Bo cycle as a main analytical framework; we can use it as a reference framework for judging some macro trends ourselves.

Overlay cycles for analysis

In recent lessons, we've shared with you all the different cycles, from the Kuznets cycle, to the Jugra cycle, to the inventory cycle. In realistic macroeconomic analysis, we can superimpose various cycles and use them.

For example, from 2003 to 2004, the Kuznets cycle, that is, the real estate cycle, was clearly in an upward process. The Jugra cycle was also in an upward period, and the inventory cycle was also rising. If all three cycles were upward, the entire economy would generally show a very strong state. At this point, we will see that the entire stock market will also be relatively strong. Interest rates are also rising, and rising interest rates correspond to a bear market in the bond market.

There is one type of phase that is exactly the opposite. For example, from 2014 to 2016, we saw that China's Kuznets cycle had already peaked downward, and that the Jugla cycle and inventory cycle were also declining, facing a combination of three periods of downturn. Naturally, the economy at this time was relatively poor. At this time, equity assets did not perform well, and interest rates were also in a downward period.

There are also periods that are relatively less pure. For example, from the third quarter of 2016 to the second quarter of 2017, both the Kuznets cycle and inventory cycle were declining, but the overall Jugla cycle was in an upward period. At this time, economic performance improved moderately.

In short, such an analytical framework allows us to analyze the different driving forces of each economic stage from a more comprehensive perspective. For example, the Kuznets cycle essentially tells us what kind of impact a driving force such as real estate has on the economy; the Jugra cycle tells us what stage the economy will be at; and the inventory cycle tells us what stage the cyclical drive caused by price fluctuations in traditional manufacturing industries will cause economic fluctuations.

Our cycle superposition framework is equivalent to comprehensively considering these factors to determine the basic position of the entire economy. Still, to find a sense of place, this is the purpose of macroscopic research. For example, it's dark outside now, but whether it's 12 o'clock in the middle of the night or 4 or 5 a.m., these are two different things. The purpose of macroscopic research is to find such a sense of position.

That's the third part we're sharing with you. In this section, we shared with you a few common different cycles, from the population cycle, to the Kuznets cycle, to the Jugra cycle, to the inventory cycle. These cycles are the most common empirical framework for our usual macroscopic research.

That is the content of this course, thank you all.

Speaker: Guo Lei, Ph.D., Economics, Peking University, Chief Economist and Managing Director of GF Securities. 2017-2020 New Wealth Macro Analyst No. 1, Crystal Ball Macro Analyst No. 1.
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Guo Lei: “Macro Research Methods” — An Analytical Framework for Superposition of Macroscopic Cycles -1

Disclaimer: The above content does not constitute any act of financial product marketing, investment offer, or financial advice. Before making any investment decision, investors should consider the risk factors related to investment products based on their own circumstances and consult professional investment advisors where necessary.

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