Why is it that even though the Federal Reserve is cutting interest rates and global stock markets are rising, the A-share market is the only one to fall? Why has the China Securities Regulatory Commission's reduction of stamp duty and suspension of securities lending failed to have any effect despite various policies? Why is it that even with reduced down payments and interest rates, the real estate market still can't pick up? Today's article will clarify the truth behind these phenomena for you!
Let's first look at the recently released data: the residential sales area has decreased by 20.4%. The sales of new commercial housing amounted to 59,723 billion yuan, a decline of 23.6%.
You might not feel much from seeing these numbers, so let's delve deeper into the interpretation. From 2018 to 2023, the real estate sales area was 9.46 billion square meters. On average, if each unit is 100 square meters, that means there were 94 million households. These people account for 30% of the home-buying population over the past 24 years, and they bought at the peak of housing prices! So what does this mean?
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First: Household and personal balance sheet recession!
When housing prices fall, many people still owe money to the bank even if they sell their homes! For example, if you bought a house for 1 million yuan with a down payment of 300,000 yuan, you would owe the bank 700,000 yuan. Now, if housing prices fall by 30%, it means your down payment has been completely lost, and for many, even selling the house is not enough to repay the bank. Originally, the debt was 70%, but now it's 100% or more. This is a balance sheet recession! The direct consequence is that these people no longer spend money on consumption but choose to save money to repay debts, rendering consumption stimulation and monetary policy ineffective on them! These people are not a few, but 94 million households! This directly affects our economic data, with CPI remaining at a low level for several months, M1 declining, and fewer people taking out loans...
Second: Deflation spiral
If the entire market has 100 yuan, and 10 yuan is taken out for consumption, and the 10 yuan consumed is saved and not spent, then the money in the entire market becomes 90 yuan. Then, if 9 yuan is taken out to spend, and 9 yuan is saved again, the entire market only has 81 yuan. In this way, the money circulating in the market becomes less and less, which is the deflation spiral. While some people save money, others must take out loans and consume to escape the deflation spiral! Looking at two more sets of data!
These data indicate that the government's revenue is also decreasing, which thus constrains fiscal expenditure! Companies are no exception; in the first half of 2024, the operating income of listed companies was 34.87 trillion yuan, a decrease of 0.51%, and the net profit growth rate has turned from deceleration to negative growth!Thirdly: Can the Federal Reserve's interest rate cut drive China's real estate and stock markets?
Our issue is a balance sheet recession, where enterprises and residents with high debt prioritize saving money to repay their debts. Therefore, no matter how much interest rates are lowered, they do not borrow money. When A-share companies release positive news, the public's choice is to sell stocks rather than continue investing. At this point, the effect of monetary policy is not significant. The real solution is to help enterprises and residents repair their balance sheets!
Fourthly: How to solve the problem of insufficient effective demand?
The core reason for insufficient effective demand is the balance sheet recession. Relying on stimulating consumption is difficult to achieve the expected results. The most direct method should be to increase residents' income and repair the balance sheet. For example, a person with a debt of 700,000 yuan, if his family repays 70,000 yuan, it will take 10 years to pay off. If he repays 30 yuan per year, it will take more than 20 years. If his income increases quickly, he can repay the debt soon, and naturally, he will be willing to consume and invest!
1. Create more job opportunities
2. Increase income
3. Stronger fiscal stimulus!Fifthly: How should we ordinary people respond?
1. When will the stock and real estate markets bottom out? It depends on the repair of balance sheets and expectations, which currently seem to require a considerable amount of time. This is because various data such as CPI and M1 remain pessimistic!
2. How should we allocate our assets?
Firstly, our judgment is that interest rates will remain low for a long time. Companies going global will undergo a revaluation of their value. Additionally, we believe that when the most difficult times arrive, the most effective solutions will definitely be forced out!