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The essence of the surge in the stock markets in China and Hong Kong
The reason for the recent stock market rally is the practice of exchanging stocks for bonds, a first in the history of human finance. This objectively reduces the number of stocks, similar to the concept of companies repurchasing stocks to raise stock prices. However, in reality, companies did not spend money to repurchase, but used stocks as collateral, leveraging commercial banks to facilitate the transfer of bonds, and the banks did not actually tie up money or bear risks, as the bonds were issued by the central bank.
This perfectly solves the problem of the central bank issuing bonds to ease the market without directly giving money to companies, as well as the problem of companies wanting to buy back stocks to increase stock value but lacking funds. At minimal cost (500 billion RMB of national debt) without breaking financial rules, the entire stock market is leveraged.
If commercial banks hold onto their equity and do not release it, the number of stocks in the stock market will not increase. Appreciation is inevitable, rather than widespread depreciation. Since Chinese commercial banks are state-owned, they can hold onto equity without incurring costs.
This approach, for the first time in human history, aims to increase the value of shares that have lost value due to a sluggish stock market. The premise is that objectively, Chinese A-shares are not doing well due to psychological factors, not because there is actually no money to invest. The total savings in Chinese society in terms of US dollars exceeds that of the United States and the European Union combined, indicating that it's not that society lacks money, but rather people are afraid to invest due to housing market issues, leading to reduced consumption. Only 40% of China's economy is driven by domestic consumption, with a savings rate of 40%, showing that consumption is too low while savings are too high.
With the stock market on the rise, people theoretically feel they have spare money, even though it's technically in the stock market, not in cash. This affects people's spending psychology, ultimately promoting consumption, avoiding deflation, which is the ultimate goal.
In comparison to the US's market bailout during the 2008 financial crisis, despite being essentially the same, the US government had to buy AIG's equity, reducing the number of AIG stocks to prevent AIG's capital chain from breaking and bankruptcy. This approach can only be applied to individual companies and cannot be targeted at the entire stock market. Eventually, the US had to borrow 3.5 trillion US dollars for these actions and directly give money to banks to save the market.
With a similar economic scale, China only spent 500 billion RMB on market liquidity, taking advantage of the Federal Reserve lowering interest rates which led to a significant capital shift in the US market (1-30 trillion US dollars), as well as the fact that the Chinese capital market fundamentally does not lack money.
Moreover, as it's not a direct cash injection and hasn't changed financial market rules, it prevents international capital from attacking the Renminbi, as happened in the late 1990s in Asia during a similar situation that caused the Asian financial crisis. This prevented international capital from using China's central bank liquidity to short-sell the Renminbi. In such a scenario, China would have had to use foreign exchange reserves to combat this, rather than just issuing Renminbi bonds.
It's not difficult to understand that such a significant event, which is a first-time human financial practice, was not designed in the short term but was the result of discussions over some time. It can be inferred that this was waiting for the Federal Reserve's interest rate cuts, originally an act where the US took advantage globally, but ended up with China benefiting. A rate cut by the Federal Reserve leads to 1 trillion US dollars flowing into China. Speculations now indicate that there might possibly be up to 30 trillion US dollars in movement.
The Federal Reserve's interest rate cut is a necessary measure, sooner or later, China's central bank just needs to wait. The scale is very different with or without a Federal Reserve interest rate cut. If there is no Federal Reserve interest rate cut, the issuance of only 500 billion RMB bonds by the China central bank will definitely not be enough.
Therefore, China has managed to leverage a small proportion of funds to move the entire capital markets of China and the USA, while deleveraging the stock market, which will inevitably rise. Now it is believed that the stock market will have an upward space of 1,000 to 1,500 points, because as long as banks hold shares, the stock market as a whole will not fall, but there will be normal fluctuations during the rise. A thousand points of increase will not be achieved in the short term (it has already exceeded 500 points).
It is undeniable that the Chinese have thoroughly studied the characteristics of capital, the forefather of the Communist Party, Marx's Capital, was not written in vain. It is said that Communist China understands how to play capitalism better than the USA, it is an example.
The real estate market is not the issue to be addressed in this financial design. The direct target of this adjustment is the stock market. When the stock market rises, companies have money, employment will improve, social consumption will increase, avoiding deflation, but not going overboard with liquidity injection, that is the purpose.
However, it may also eventually affect the real estate market with the increase in consumption. Yesterday, it was reported that individual apartments in Shanghai generally increased by hundreds of thousands, with discounts disappearing overnight. This is the secondary housing market, not involving unfinished building issues. As long as consumption is stimulated, even if successful, from the perspective of the financial industry, the person who invented this method should receive the Nobel Prize in Economics.
The real estate market is not the issue to be addressed in this financial design. The direct target of this adjustment is the stock market. When the stock market rises, companies have money, employment will improve, social consumption will increase, avoiding deflation, but not going overboard with liquidity injection, that is the purpose.
However, it may also eventually affect the real estate market with the increase in consumption. Yesterday, it was reported that individual apartments in Shanghai generally increased by hundreds of thousands, with discounts disappearing overnight. This is the secondary housing market, not involving unfinished building issues. As long as consumption is stimulated, even if successful, from the perspective of the financial industry, the person who invented this method should receive the Nobel Prize in Economics.
There is a prerequisite for this, which is that the Communist Party of China has shifted financial management authority from decentralization back to the State Council, controlled by the Central Financial Leading Committee, following the concept of the party commanding finance. However, the purpose of realizing financial reforms is for someone to take responsibility. Theoretically, Xi Jinping is the one responsible for this matter, which is a significant role in China, hence the central bank dares to act. Under the threat of deflation, China needs to devalue the RMB, issue bonds and inject liquidity, this has been discussed for a long time and must be done, but no one has dared to do so. The responsibilities lie with the State Council and not with the Central Political Bureau, which is a very different situation in China.
It was reported yesterday that a company in Shenzhen saw an increase of 1,740% (imagine investing one million and seeing it grow more than 17 times within a few days), the entire Chinese stock market had a daily increase of 25%, entering a bull market state (a 20% increase).
It was reported yesterday that a company in Shenzhen saw an increase of 1,740% (imagine investing one million and seeing it grow more than 17 times within a few days), the entire Chinese stock market had a daily increase of 25%, entering a bull market state (a 20% increase).
In the end, the Chinese are affluent and very clever, taking advantage of the situation where the RMB does not have the status of a dominant currency, they have taken advantage of the US. It can be inferred that China has avoided deflation and will not repeat the thirty years of decline that Japan experienced.
This matter may eventually lead to a bubble, but it will be a few years later, objectively avoiding deflation.
In the simplest terms, if the number of stocks in the stock market decreases, it will inevitably drive up stock prices.
Where did the reduced stocks go, how was it achieved, why did it not lead to financial collapse or international capital intervention, that is the part that is considered worthy of a Nobel Prize.
This matter may eventually lead to a bubble, but it will be a few years later, objectively avoiding deflation.
In the simplest terms, if the number of stocks in the stock market decreases, it will inevitably drive up stock prices.
Where did the reduced stocks go, how was it achieved, why did it not lead to financial collapse or international capital intervention, that is the part that is considered worthy of a Nobel Prize.
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Jan 23 16:54
MicroStrategy Q4 2024 earnings conference call
WODAO : Isn't it just debt-for-equity swaps? The game I played 30 years ago. In the end, the bank had a bad account, and the people paid for it
Avalanche雪崩哥 : Very eloquent, same point of view
Allen750 : Two additional points, 1. Prior to the sharp rise, Chinese stocks were seriously undervalued. 2. With the launch of the Dongfeng 31AG, China became a safe haven for capital due to the chaos in the Middle East.
WODAO Allen750 : Are you the reinforcements sent by the monkey?![[undefined]](https://static.moomoo.com/nnq/emoji/static/image/default/default-black.png?imageMogr2/thumbnail/36x36 "undefined")
74245602 WODAO : Don't laugh. A-shares have been undervalued for a long time. Foreign investors aren't just from overseas Chinese; do you think the agency is really stupid? At least now they think it's profitable
WODAO : The valuation is already low, it can go even lower. The insurance funds have all entered the market, like a gambler with bloodshot eyes. In your opinion, given the current situation in China, if the stock market is skyrocketing, will Wall Street prefer to hold the underlying stocks for the long term or trade options to make quick money and run away?
Allen750 WODAO : Where will the money from Flower Street be withdrawn? US stocks?
WODAO Allen750 : Why not? Where can't you go after making a big profit? There are plenty of choices.
狮子山下01 : Consistent opinions
102947400 Allen750 : Why are you cooperating with him? All in all, he looks like a Wall Street elite, nothing more
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