An accepted saying is that liquidity creates a bull market.

However, this is only a general theory, how exactly does liquidity shape a bull market? Why is it that sometimes it is a blue chip bull market, sometimes it is a concept stock bull market, sometimes it is a real estate bull market?

This article makes some discussion on this topic.

01

Liquidity is controlled by the central bank, which sometimes releases liquidity and sometimes withdraws it.

Liquidity corresponds to the cash flow statement of the enterprise. Most investors pay more attention to the enterprise's profit statement and balance sheet, but pay less attention to the cash flow statement.

Correspondingly, PE can be valued according to the income statement, PB can be valued according to the balance sheet, and it is not very good according to the cash flow statement.

You might say that there is a valuation method called free cash flow multiple, which does exist abroad, but it is not used much at home. However, free cash flow only involves cash flow from business activities and cash outflows from investment activities, not cash flow from fund-raising activities.

The cash flow of fund-raising activities has the greatest and immediate impact on the short-term valuation of enterprises.

For example, Tesla, Inc., whose cash flow dried up and was on the verge of bankruptcy more than half a year ago, became the most shorted stock in the world, and the stock price fell below 200.

Then Chinese banks gave it loans, China gave it land and quick approval, and Tesla, Inc. 's governor's second pulse (cash flow) was finally cleared, and the share price went from 180 to 800 in one breath.

Wanda, for example, delisted from Hong Kong stocks that year to return to A shares. As a result, the bank suddenly cut off its loans, the A-share listing also came to naught, the cash flow of fund-raising activities dried up and was shut down and beat the dog. In the end, he was forced to sell more than a dozen cultural travel projects to Rongchuang for 50 billion.

Had it not been for the drying up of cash flow, I am afraid these cultural and travel projects would not have been sold to 150 billion Wanda. But when the cash flow dries up, it's only worth $50 billion.

For example, A shares, Hong Kong stocks and US-listed stocks reached their peak at the same time in January 18, fell sharply the following year, and bottomed out at the same time, and have been on an upward trend since the beginning of last year. What makes their rhythm so consistent? It is the monetary cycle of the central bank.

The period from January to the end of 18 years is the monetary tightening cycle, and the beginning of 19 years to the present is the monetary easing cycle.

As soon as the central bank tightens, the vast majority of stocks will suffer, and as soon as the central bank relaxes, the vast majority of stocks will rise.

XIAOMI was able to fall to 8 yuan because the primary market was so short of money that those early investors had to cash in for liquidity.

This is the power of liquidity.

But in 18 years, some stocks can rise against the trend, such as spirits, food and beverages, airports, water and electricity, and so on. Why?

Because the certainty of these stocks is particularly strong and the dividend rate is high, when the central bank recovers liquidity, they can provide operating cash flow to shareholders without the impact of the financial cycle, in order to make up for the cash flow of fund-raising activities lost by shareholders. In extraordinary times, this is very precious.

By the time the central bank releases liquidity, the market is full of money, it is easy to raise money to get cash flow, and few people want their dividends. So their share prices began to fluctuate and fall.

In addition to the central bank gate, there are also some institutions that can provide cash flow.

For example, new energy subsidies, tens of billions a year, can provide operating cash flow for relevant enterprises; for example, integrated circuit industry investment funds can provide cash flow for fund-raising activities for relevant enterprises.

Enterprises get the money, began to recruit, build factories to buy equipment, high-intensity investment in research and development, the production of exquisite ppt, toss through the first round and then a second curve. After such an operation, the stock price must react.

A basic rule is that stock prices will soar wherever cash flows go, which may even have nothing to do with profits.

Mobility is like a gust of wind, sometimes it comes and sometimes goes.

When liquidity comes, excellent enterprises can take advantage of the opportunity to do a good job in internal skills, repair the moat, and so on when the mobility disappears, rely on the moat to survive and drag their competitors to death. When the next round of liquidity comes, it will be exclusive.

This is value investment, which only focuses on the moat and ignores liquidity.

02

However, there is a core question: the central bank determines the direction of liquidity, whether to recover or release. But how exactly should it be released and recycled?

In "Iron Tooth Bronze Tooth Ji Xiaolan", Hezuo made such remarks to Ji Xiaolan:

Save the people first save the officials, officials can not live, but also save the people. Tens of thousands of victims, who is going to give them food relief money, you or I?

Similarly, the central bank wants to release liquidity to the majority of small and medium-sized enterprises, but who will give it to small and medium-sized enterprises? Only through banks, insurance, securities firms, trusts, state-owned enterprises, shadow banks, treasury bonds, local government bonds, special bonds, urban investment bonds, capital market ipo, refinancing, bond issuance, etc., first give the money to them, and then they will indirectly release it to the vast number of small and medium-sized enterprises.

Liquidity is once in the hands of these institutions, which must feed themselves and burp before they are willing to release liquidity to small and medium-sized enterprises. This is the depletion of liquidity.

With 100 points of liquidity, only 20 points may have gone to small and medium-sized enterprises, and 80 points have been intercepted by various institutions to their own pools.

03

In the past, there were problems with China's governance system and capacity, and it was unable to implement policies accurately, so it could only open and close policies.

For example, the main gate is either flooded or money shortage.

For example, real estate should be strictly regulated to bring small and medium-sized developers to the brink of bankruptcy, or vigorously stimulate real estate speculation among the whole people.

Credit markets, for example, either encourage banks to lend, or even encourage P2P, or manage new rules and forcibly withdraw loans.

For example, the manufacturing industry can either spare no effort to protect small and medium-sized enterprises, give tax cuts, give loans, and protect the legitimate rights and interests of entrepreneurs, or supply-side reforms will be closed.
For example, environmental protection is either completely ignored and put on show, or it will be shut down regardless of whether it passes the acceptance inspection or not.

Capital markets, for example, either suspend ipo, try their best to rescue the market, or even promote a national bull market, or more than one ipo400 a year, pumping water crazily. Either encourage goblins to enter the market and create an artificial bull market, or crack down on goblins and easily guide them through the window.

The policy is simple and brutal, across the board, and does not have the ability to regulate and control precisely. If you put it, it will be messy, and if you put it, you will die.

In addition, there are shadow banks and urban investment platforms, outside the supervision of the central bank, their behavior is out of control, where there is an opportunity, they will frantically release liquidity and brew a big bubble.

As a result, China's financial fluctuation is particularly large, the stability of economic operation is very poor, enterprises can not develop healthily in a stable environment, and the social speculation is very strong.

04

However, great progress has been made in the past two years.

Since last year, we can see that flooding and cash shortages are no longer happening, and the accuracy of central bank regulation and control has been greatly improved.

On real estate, the policy has been running between 0.4 and 0.6, keeping the overall stability of real estate.

In the credit market, the central bank broke the recessive lower limit of loans through lpr reform, alleviating the financing difficulties and high financing costs of small and medium-sized enterprises to a certain extent, and narrowing the low-rated credit spreads. 100 points of liquidity hit, now there may be 25 points to reach small and medium-sized enterprises.

Capital markets, which opened under pressure in early February, did not make an absurd closure. When the stock market was in the doldrums last year, slow down the pace of ipo, rather than stop as it did in the past. Treat goblins, give them a certain space for hype, but when the hype is too prosperous, they will still come out for window guidance. For example, on February 14th, both the Shanghai Stock Exchange and the Shenzhen Stock Exchange announced measures to monitor and monitor the abnormal fluctuations of some stocks.

Under this governance system, the stability of the financial market has been greatly enhanced, and there will not be any major fluctuations.

However, after the opening of the market in February, in the case of stagnant real economy, the stock market is booming, gem rose 45 degrees, a three-year high, momentum comparable to 15 years, how is this?

It is still necessary to go back to the framework of liquidity to explain.

05

From February 3 to 7, the central bank launched 1.7 trillion reverse repurchase, with a net investment of 1.32 trillion.

However, the money invested cannot enter the real economy, because during the epidemic, the flow of people, logistics and cash flow all stagnated, and the money could only be idled in the financial markets.

A year ago, enterprises concentrated settlement, and a large amount of funds were transferred from large enterprises to small and medium-sized enterprises and self-employed enterprises. During the Spring Festival, these funds should have been consumed vigorously, and these funds would flow out of the hands of self-employed and ordinary people. After the beginning of the New year, the investment is exuberant. The liquidity provided by the central bank and the special bonds issued by the Ministry of Finance should be transformed into investments by large enterprises.

Now it's all stopped, and everyone stays at home with nothing to do, so they start a collective online gamble-- stock speculation, and a large number of stagnant funds are attracted in.

That is why there is such a strange phenomenon, physical stagnation, stock market boom. It is the stagnation of entities that has led to a boom in the stock market.

The core reason for the stock market boom is not the 1.32 trillion of liquidity provided by the central bank, but because the entity is stagnant and there is nowhere to go.

Many people attribute the reason to the flood irrigation of the central bank. 1.32 trillion can be regarded as flood irrigation.

06

So what happens in the future?

In the epidemic situation, the data outside the province decreased for 12 consecutive days, the number of cured people per day exceeded the number of newly diagnosed people, and the number of infected people in the stock was decreasing. Hubei has launched a comprehensive general attack.

At present, all regions have been required to resume work in an orderly manner, and the county as a unit will implement the policy of resuming work according to the epidemic situation. These days, returning to work has become one of the core topics.

1.8 trillion of the special debt was issued ahead of schedule, and various localities are allocating it one after another.

Real estate policies in some cities have been relaxed.

From February 17, toll roads across the country will be exempted from tolls until the end of epidemic prevention and control.

All these measures require funds to flow from the financial markets to the real economy. Under such circumstances, what will happen in the future if the short-term small bets in the stock market are gradually withdrawn?

Since February 11th, government bond yields have risen and government bond futures have fallen, reflecting this trend.

However, there is one, the CSRC issued new refinancing rules to increase the financing function of the stock market.

In the short term, this will attract some over-the-counter funds to participate in the fixed increase, providing more liquidity for the corresponding enterprises, similar to the effect of the integrated circuit industry investment fund, which will lead to a rise in stock prices.

Half a year later, the over-the-counter funds are gradually reduced, will they withdraw immediately? I don't think so. They should look for new targets, continue to participate in a new round of fixed growth, and continue to provide liquidity.

Only when the central bank starts to withdraw the liquidity will it really withdraw and withdraw the liquidity from the stock market.

So in the short and medium term, the new refinancing rules are positive, and it will only become negative when the central bank tightens.

I think this policy is used for hedging. After getting back to work, the funds are out of reality and evacuated after a short bet in the stock market, the stock market has a certain risk, and a certain degree of hedging is carried out through this policy.

07

Where is the hot spot of the stock market for some time to come?

I think in infrastructure and real estate. After the money is out of the void, it will flow into the infrastructure and real estate sectors, and the cash flow of the infrastructure and real estate sectors will soon become abundant.

As I said earlier, the stock price will soar wherever the cash flows.

In fact, real estate and cement have risen in recent weeks, almost back to where they were before the epidemic, and smart money reacted quickly.

I think there is a better opportunity now in steel, rebar 2010 futures up 10 in a row, has returned to the position before the epidemic, the pace is in line with the stock prices of real estate and cement stocks. Only the share prices of steel stocks are still far from where they were before the epidemic, and the stock market deviates from futures.

One side is always wrong. I think the stock market is wrong. Let's wait and see.

08

What will happen in the future?

I posted an article a few days before the moon breeze."We stand at the golden starting point of a bull market in liquidity structures."。

The article believes that the epidemic outbreak is in the early stage of the upward recovery of the inventory cycle, as long as it can induce enterprises to restore investment and replenish inventory, it can stimulate a number of liquidity. This time the real estate will participate, but not starring, starring in the enterprise's investment recovery and inventory replenishment.

I totally agree with this paragraph.

However, he also believes that growth technology stocks will be the main line for the whole year, and some white horse stocks that are partial to consumption and cycle may rest until the second half of the year because:

Not once in history have tech growth stocks missed the expected liquidity easing, because every time the water comes, the first thing that floats is always light rubbish, followed by the boat.

I don't quite agree with this part.

09

Let's look back at history here.

A from 2010 to 2011, the central bank continuously raised the benchmark interest rate and the required reserve ratio, and the growth rates of M1 and M2 plummeted.

During this period, the Shanghai Stock Exchange 50 continued to fall, the gem jumped for a while at the beginning of the listing, and then plummeted, while China Securities Liquor rose against the trend, like 2018?

B in the first half of 2012, the central bank continuously cut reserve requirements and interest rates, the monetary policy was relatively loose, and M1 and M2 moved upward at the same time.

During this period, the Shanghai Stock Exchange rose 50% in the first half of the year, while the gem declined slightly; in the second half of the year, both fell at the same time, probably because the rate cut stopped in the second half of the year and was not strong enough.

Please note that the easing cycle in 2012 did not bring a rise to the gem. For the whole year, the gem is not as good as the Shanghai Stock Exchange.

C in 2013, monetary policy was sound and neutral, benchmark interest rates and reserve requirements were not adjusted, M1 and M2 went down, and overall liquidity was slightly tight. A cash crunch in the middle of the year can be regarded as the central bank's warning of financial chaos.

In such a slightly tightening environment, the SSE 50 continued to decline slightly, the CSI liquor plummeted, the gem rose explosively, and the performance of the small and medium-sized board was also good. How does the gem realize the reverse financial cycle?

I think there are several reasons.

At that time, the economy was in transition, and these companies had low balance sheets and were relatively clean when they just went public, which was in line with the theme of transformation.

After the suspension of ipo at the end of 2012, the scarcity of these companies was greatly improved, and liquidity on the floor was no longer extracted.

In 2013, the refinancing amount of the main board is the same as that of 2012, and the refinancing of the small and medium-sized board and gem broke out, which brings a lot of liquidity to the small and medium-sized board.

In March 2013, the five rules of the new country of real estate regulation and control were released, and then the real estate peak began to fall back gradually, and the money had nowhere to go.

As a result, in the overall social mobility slightly tightened environment, the gem small and medium-sized board has been partially improved mobility, has become the only hot spot in the whole society.

D in 2014, monetary policy was sound and neutral, M1 and M2 growth rates have been volatile, there is no obvious upward and downward trend.

From the beginning of the year to November, the stock market has been running sideways, with the Shanghai Stock Exchange 50, gem and China Liquor all up 10%, without much fluctuation.

It can be said that this year is the most stable and neutral year of monetary policy, but also the most boring year for the stock market.

E from November 2014 to October 2015, the central bank continuously cut reserve requirements and interest rates. M1 burst, M2 slightly upward, liquidity loose.

Do you think the gem will directly break out and throw a face on the certificate 50?

No, the Shanghai Stock Exchange 50 broke out first. In a month and a half, the Shanghai Stock Exchange rose 60% by 50%, and the gem remained motionless.

Why can the SSE 50 have such a strong explosive power? Because from the second half of 12 to the end of 14 years, the central bank has been in a partial tightening cycle, the sequelae of 4 trillion continue to ferment, blue-chip stocks are worse off than dead, the debt ratio is high, the cash flow is very tight, and state-owned enterprises suffer large losses.

At this time, the cut of reserve requirements and interest rates, such as dry firewood, instantly alleviated the cash flow of blue-chip stocks, just as Chinese banks eased the cash flow of Tesla, Inc., and the Shanghai 50 finally broke out.

But one and a half months later, the gem began to break out and lasted for five months. During this period, the rise of the gem was much larger than that of blue chips. Why?

Because during these six months, the real estate did not relax obviously, the NDRC and the Ministry of Finance did not give full support to the infrastructure policy, and the liquidity released by the central bank did not have much carrying capacity in the real economy, which led to the shortage of funds and idling in the financial markets.

Just at that time, shadow banking, over-the-counter allocation of capital in a state of unsupervised, funds finally rushed to the stock market, gem plate is small, become the main target of speculation.

F later, the stock market bubble burst and money poured out of the stock market, just when the policy started real estate destocking, shed monetization, and real estate liquidity, which led to the real estate bull market in the following two years, which led to a several-fold increase in Evergrande in one year.

Then there are 18 years of new capital management rules, violent deleveraging, real estate infrastructure manufacturing gem stalled at the same time, only the core assets stand out, similar to 10-11 years.

10

Please pay attention to several facts:

13 years in a tightening cycle, but the gem ushered in the first wave of outbreak.

When the water was released at the end of 14 years, the first outbreak was not the gem, but the SSE 50; later, because the real economy could not carry liquidity because the real estate and infrastructure policies were not relaxed, it led to a second outbreak of the gem; then the real estate relaxed and all the liquidity poured into the real estate, which led to the 17-year financing of Evergrande multiplying several times a year.

A conclusion can be drawn from this:

It depends not only on whether liquidity is relaxed or tightened, but also on where it flows.

If you flock to real estate infrastructure, blue chips will explode; if you flock to manufacturing, manufacturing will explode; if you flock to technology stocks through industrial funds and industrial subsidies, technology stocks will explode; if the real economy cannot support it, idling in the financial markets, conceptual stocks will explode.

Please note that although concept stocks and technology stocks overlap, they are not the same thing.

In the past years, China has often fallen into an one-size-fits-all or rush to encourage policy. When certain areas are blocked across the board and others are unimpeded, money will pour into this area, creating a big bubble in this area.

When all physical areas are blocked, money will pour into the stock market for conceptual speculation.

11

Why did the concept speculation revive in the second half of last year? Why has the concept hype returned to its peak in the last two weeks?

Liquidity was released because the central bank resumed a slightly easing cycle last year.

Because of the trade war, the real economy, especially the manufacturing industry, is very cautious and does not dare to invest rashly. As a result, the carrying capacity of the real economy to liquidity is not enough, and some funds are out of reality and hyped in the stock market.

After the first phase of the trade agreement was established, the manufacturing industry has begun to invest. In November and December, M1 continued to move upward, the economy showed signs of recovery, and macroeconomic-related stocks finally began to rise.

Who knows, the outbreak of the virus, the interruption of the flow of people, logistics, and funds during the epidemic prevention period, and the release of some liquidity by the central bank, which lasted for more than two months, turned into a more thorough reversal, and funds wantonly hyped concept stocks in the stock market, comparable to 2015.

But the virus is always wiped out. With the resumption of work, the slight relaxation of real estate, the launch of infrastructure projects and the issuance of special bonds in advance, liquidity will inevitably be absorbed by the real economy. Yuefeng also believes that the recovery of enterprise investment and replenishment of inventory is the main theme of the future.

So in the next two years, will the main theme of the stock market still be concept stock speculation?

12

The question here is also the release of liquidity, why the US economy is getting better and better out of the quagmire, while the European economy has been in the doldrums? Why can't negative interest rates in Europe generate inflation?

I think the essential difference is the carrying capacity of the real economy to liquidity.

There is too much regulation in the European economy, which is equivalent to setting up cards everywhere in the canal, which is impassable here and there, and money cannot flow smoothly in the economy.

For example, European companies can not casually fire employees, can not fire employees, do not dare to recruit new employees, nor dare to invest in new projects at will, the business style will be very conservative.

For example, Europe can clearly develop cheap petrochemical energy and nuclear energy, but it has to take the initiative to restrict it, resulting in a huge energy industry being abandoned.

There are five EU regulations on pillowcases, 109 on pillow contents, 225on glasses, 118on shampoo, 454on towels, 1246 on bread and a staggering 12653 on milk. And the EU is creating new standards at the rate of thousands of regulatory instruments a year.

Compliance costs in Europe are too high for small and medium-sized enterprises for entrepreneurs to survive.

Some scholars believe that the proliferation of EU departmental legislation is the result of the evil done by lobbying groups of large European companies, by lobbying the European Commission to curb competition from small and medium-sized enterprises and foreign competitors in the same industry in the name of regulations.

By comparison, the United States has much less regulation. Especially after Trump took office, he stipulated that every time a new regulation is introduced, two old controls should be abolished. Trump also liberalized a bunch of controls on traditional petrochemical energy and manufacturing.

This has spawned the prosperity of the American economy in the last two or three years.

The road of China's reform and opening up is to reduce regulation. From Xiaogang village to household, to price breakthrough in 1988, market economy in 1994, to Zhu Rongji's merger of ministries and commissions, streamlining administration and delegating powers, separation of management and management, marketization of real estate, and opening up the authority of private enterprises to enter some industries.

However, all this stopped in 2005, with the red line of 1.8 billion mu of arable land, strict control of the population of big cities, national advance and private retreat, government-led industrial plans, supply-side reforms, and more and more regulation in the fields of health care, education and culture, leading to more and more Europeanized economy.

After years of development, the existing investment areas, real estate infrastructure has been basically saturated, the manufacturing industry is making more and more profits under control, and the whole society has overcapacity and lack of new investment space.

When the central bank releases water, it can either enter the real estate infrastructure sector, increase leverage, or idling in the financial markets, causing stock market speculation. Either way, it is creating a bubble.

But the turnaround finally came.

A trade war and a first-stage trade agreement are, in my opinion, a great opportunity. China is further open to foreign investment, and automobiles, bank insurance, securities fund management, credit rating, electronic payment, oil and gas, and entertainment venues are all open to foreign investment.

After foreign investment comes in, we always have to hire Chinese people, look for suppliers and cooperation between upstream and downstream, which will bring a lot of investment opportunities.

In addition, these areas are open to foreign investment and invisible barriers are eliminated, so private enterprises should be treated equally.

I have read some of the terms of the trade agreement. Some of the contents are that China must approve the technical standards approved by the US government, and China must also approve the manufacturing enterprises approved by the US government.

In the case of masks, there was a situation during the epidemic prevention period. Many enterprises specialize in export business. They export masks and protective clothing abroad, but they cannot supply them internally at this time.

Why don't they apply for a domestic license? Because it is too expensive and troublesome to apply for domestic licenses, the domestic license processing mechanism is originally made by large domestic enterprises in conjunction with the government, with the aim of seeking rent and restricting domestic small enterprises from participating in competition.

It is a major deregulation to recognize the technical standards of the United States and not to set separate Chinese standards. I suspect that there will be many private enterprises in the future. If you register in the United States and sell in China in the name of an American license, you will be able to get through without hindrance.

Another is the medical field.

Over the past decade, China's medical institutions have been completely controlled by the state, resulting in a lack of presence in community hospitals and private clinics. In this epidemic, graded diagnosis and treatment and multi-level medical institutions were put forward again.

In the future, doctors may be encouraged to practice more, deregulate doctors and private clinics, and encourage the development of multi-tier medical institutions, which will also bring new investment opportunities.

Both the trade agreement and the outbreak of the virus will bring deregulation and new investment opportunities emerge in the real economy.

13

Finally, let's sum up.

In addition to focusing on whether liquidity is tightened or relaxed, we should also pay attention to the flow of liquidity, whether it is out of reality or into reality, and what kind of reality it is, infrastructure, real estate, manufacturing or technology.

Only by judging the flow of funds can we judge the direction of the stock market.

After trade negotiations, virus outbreaks and deregulation, a large number of investment opportunities will emerge in the real economy, which will be the main line for the next two years.

After writing this article, I feel that my brain has been hollowed out.