The Essential Wisdom for Understanding the Current Capital Market
2007/6/18 8:18:39
Whether one is a regulator or an investor, everyone should possess the following essential wisdom regarding the current capital market:
I. The capital market can not only serve as a barometer for the economy but can also become the core driving force of economic development.
If we say that the rural reform starting with the household responsibility system led to the first great liberation of productive forces after Reform and Opening Up, and that the urban reform starting with the establishment of a market economy led to the second great liberation of productive forces, then the great transformation of the capital market starting with the split-share structure reform will lead to a third liberation of productive forces far more significant than the previous two. The first two liberations of productive forces were both at the level of the real economy, products of a time when economic development was still at a low level. The latter is something that can only emerge—and will inevitably emerge—once real economic development reaches a certain level. Compared to the first two, its impact on Chinese society will be far more profound. Failing to recognize this means lacking the most basic historical perspective needed to view the current capital market. The capital market can not only serve as a barometer for the economy but can also become the core driving force of economic development. Failing to recognize this can only be described as historical shortsightedness.
If the first liberation of productive forces brought about the "10,000-yuan households" and township enterprises; the second brought about more than a decade of China's economic miracle; then the third liberation of productive forces will produce a group of world-class enterprises, a group of world-class wealth giants, a world-class capital market and capital platform, and most importantly, lay the most fundamental and solid foundation for China's ultimate victory in this great race of capital globalization. This is a comprehensive competition encompassing economics, culture, military, and other domains, but economics plays the decisive role. In an era of capital globalization, without the power of capital and the driving force of capital markets, it is impossible to become an economic powerhouse, let alone a world power with stable, sustained, and comprehensive global influence.
II. Society's concept of wealth will be fundamentally transformed, bringing about profound changes in social structure and thought.
Culture and concepts have no right or wrong—only whether they are timely. Capital is a form of culture, a form of concept. Whether you like it or not, capital is the fountainhead of all the most powerful cultures today. In an era of capital globalization, any force attempting to attack or destroy capital must itself rely on the power of capital. Capital is omnipresent. Capital, along with its corresponding wealth culture and concepts, constitutes the most basic backdrop of today's world.
When social wealth accumulates to a certain level, material conditions determine consciousness, which inevitably leads to changes in the public's concept of wealth. When Chinese society was still dominated by the real economy, the public's wealth was mainly concentrated in tangible assets. But when the virtual economy emerges and gradually matures, it inevitably corresponds to the popularization of investment in intangible assets such as equity, which brings about a profound transformation in social wealth concepts and financial awareness, thereby laying a solid foundation for further market development.
The old concept of tangible wealth built on the real economy will be shattered; the new concept of intangible wealth based on the virtual economy will be established. Both are historical trends that no one's will can prevent. Whether or not history is a grand narrative, the wheels of history always grand-narratively crush all mantis arms that try to stop the chariot. And the society constituted by people with this new wealth concept will inevitably undergo profound changes in its structure and thought. An economic system built around the capital market will gradually take shape. The capital market will become the nexus of economic structure, and the culture and concepts forged by the capital market will gradually permeate into social culture and concepts, profoundly affecting the living conditions of all people.
Capital-based existence will be the basic state of Chinese people going forward. Capitalization—that is where the collective karma of all Chinese people lies hereafter.
III. The virtual economy is inherently uncontrollable—it can only be effectively supervised.
The virtual economy uses the design of equity systems to embody future wealth in current asset prices through securitization and other virtual forms. The virtual economy takes expectations as its variable and is forward-looking—this is fundamentally different from the real economy, which relies on past accumulation. Securitized asset prices will inevitably reflect future economic expectations in advance, and these expectations constantly change over time, which constitutes market volatility. In the virtual economy, prices deviating from the so-called reasonable value of reality is the norm. The saying that "rises overshoot and falls overshoot" is natural, self-evident, and taken for granted. That's just how the virtual economy works—it's determined by its very nature. If you fail to recognize this and use the old lens of the real economy to view new problems, you'll only get slapped from both sides and be made a fool of by the market.
From the perspective of the virtual economy, there's no such thing as overshooting up or down—everything reflects the current expectation of the future. Any person buys stocks only because they expect them to rise, and sells stocks only because they expect them to fall. The reasons for expectations are varied, but the essence of expectations is the same. Market movements are essentially the resultant force of all expectations. And a so-called regulatory intervention is essentially just making market expectations change, but what it cannot change is this: market movements are still essentially the resultant force of all expectations. And humans are not God. Human expectations can never be precise or uniform. All assumptions about rational expectations are shattered by the emotional farce of the market. Therefore, a capital market dominated by regulation is one in which the regulators are destined to be exhausted, shuttling between suppression and bailout.
Precisely because the virtual economy is uncontrollable, the confirmation and maintenance of rules become the only viable and effective means of supervising the virtual economy. The logic is as simple as a referee who cannot control the outcome of a match but can maintain the progress of the game according to the rules. Yet this seemingly simple point is apparently not understood by everyone who should understand it. Any market inevitably has counterfeit goods, but one cannot launch an all-out assault on the market just because of some counterfeits. Instead, one should strengthen supervision and inspection, crack down on counterfeits, and increase the supply of quality stocks. That is what a good regulator should do.
IV. Capital-based existence gives anyone the possibility of leapfrog development.
At the level of the real economy, for a person to succeed and gain commercial profit, they must master various social relationships and spend large amounts of time wheeling and dealing within them. But in the virtual economy of capital-based existence, anyone is given the possibility of leapfrog development. For an individual to rely solely on their own wisdom to independently conquer the market—this possibility is greatly increased. In this mode of existence, whether a person succeeds can depend far more on personal cultivation and self-mastery, without needing to read anyone's mood. It's no longer closely tied to age, physical strength, or gender.
In the virtual economy of capital-based existence, the world becomes even flatter, and the distance between anyone and success or failure becomes even shorter. A so-called successful person can become a failure in the very next second. Wealth of any magnitude is not worth mentioning in the virtual economy and capital market. And the developmental reality of the virtual economy and capital market has surpassed all old theories. How to break old concepts, create new ones, and make theory serve reality rather than the other way around—this is a brand-new question left by the market's development.
For individuals, it is a brand-new opportunity, a brand-new world, and everything will be redefined. Of course, there are so-called frontrunners here, but these people's distance from failure is no farther than any so-called laggard's distance from success. And this distance is determined by each person's greed, fear, and wisdom.
Appendix:
After 4144 points is held, the script calls for efforts to continue making new highs. Therefore today's movement is perfectly normal—just part of that effort. Since today left a gap, the next few days will involve oscillation to confirm the nature of this gap. Judging short-term oscillation—there have been many past experiences with this, so it's not hard to grasp. As long as the oscillation doesn't produce a 1-minute third-type sell point that effectively breaks below 4224 points, it's a strong oscillation. Otherwise, the pressure to fill the gap increases. If you can't read charts, just watch the 5-day moving average. On individual stocks, among those 16, today 600635 also made new highs, and the others will follow suit. So there's not much to say.
I need to go to Yizhuang right now to look at a project—the car is waiting outside, so I have to go. Sorry about cutting it short. Good morning tomorrow.
Replies
缠中说禅 2007/6/18 15:16:38
After 4144 points is held, the script calls for efforts to continue making new highs. Therefore today's movement is perfectly normal—just part of that effort. Since today left a gap, the next few days will involve oscillation to confirm the nature of this gap. Judging short-term oscillation—there have been many past experiences with this, so it's not hard to grasp. As long as the oscillation doesn't produce a 1-minute third-type sell point that effectively breaks below 4224 points, it's a strong oscillation. Otherwise, the pressure to fill the gap increases. If you can't read charts, just watch the 5-day moving average. On individual stocks, among those 16, today 600635 also made new highs, and the others will follow suit. So there's not much to say.
I need to go to Yizhuang right now to look at a project—the car is waiting outside, so I have to go. Sorry about cutting it short. Good morning tomorrow.
缠中说禅 2007/6/18 8:20:07
Today's market commentary will be appended to this post after 3:30 PM. Heading out now, see you later.