Hello, you must have been waiting for a long time Today we'll continue with global economy outlook In the last episode, we talked about Japan’s troubles and India’s strength. In this episode, we will continue to talk about the situation in the United States and Europe in the past two years. At the end of the video I'll share with you some ideas and methodologies when I look at the economic outlook of these countries I will give you a brief peek at my little knowledge tree. Okay, without further ado, let’s first look at the United States First, let me show you a comparison. We'll take 2019 before the pandemic as a benchmark and take a look at the GDP growth of the G7 countries. It is very obvious that the United States is far behind others and the ones at the bottom unsurprisingly, are Germany and United Kingdom To sum up US economy in one word it might be words like strong, stable etc but I would sum it up as inexplicable Why do I say this? Saying that their economy is stable, which is normal but it is inexplicably stable So stable that it subverted the understanding of many economists I'm not exaggerating Look at this Bloomberg's article in 2022 Economists have given a 100% probability that the United States will fall into a short-term recession. If you look at the US 2023 data it is as steady as an old dog even subverted the Phillips Curve even the market was confused It's like there is a person if I punch him, he doesn't get angry or fight back or scold me. Instead, he treats me even better It's just so inexplicable So today let’s explore what’s going on with this First, as usual, let’s take an overview of the U.S. economy. In 2023, U.S. GDP growth is about 2.5%. Inflation dropped from it's high point of 9% to less than 4%. The unemployment rate remained at a historical position of below 4%. Wage growth remained very strong while remaining around 5%. The stock market rose by nearly 30% with the help of generative AI. The central bank began to shrink its balance sheet and preparing to stop hiking up interest rates. It was expected that things will start to return to normal in 2024. However, at the same time, there are actually quite a lot of problems. For example, the debt problem of the U.S. government, which keeps breaking through the ceiling the commercial real estate problem that you may often hear about. We will talk about it in a moment First, let's go back to the 2022 Bloomberg report just now Let's take a look at why the market expected that US would 100% fall into recession. Look at what the state of the US was at the end of 2022. Inflation was flying in the sky, the Fed was raising interest rates rapidly. economy is tightening, and the world is facing an energy crisis, supply chain shortages, and the U.S. stock market has fallen by about 20%. Geopolitical risks are still very high and more Looking at this situation who would be optimistic about the U.S. economy? So everyone says it is 100% in recession It was considered a bonus question at the time. Then at the beginning of 2023, not only did many banks in US collapsed also the collapse of Credit Suisse, which actually confirmed everyone’s expectations for the United States. Although it was very turbulent but the market had a certain feeling that what should happen has happened Who would have thought that the US economy would suddenly change its course The crisis in the banking industry did not spread to the real economy and inflation also went down on its own. Some may think that it's reasonable that inflation has gone down After all, the Fed is raising interest rates like crazy but if you look at the GDP and employment rate of the US they are still very strong so it's amazing that it hasn't been so affected by the interest rate hikes. Actually, the problems and risks we just mentioned are still there, but there is a powerful force here carrying all the burden like wild horse and pulling the GDP of the US forward. This wild horse is consumption It's very strange that Americans are really capable when it comes to spending money. You should know that although an economy is very complex we talked about exports, chips and mortgages all day long but in fact the most important and most powerful engine is actually the consumption of each of us. Because if you spend one dollar, others will earn one dollar, right? It might just be one dollar but the economic gears will start to move. Having such strong consumption in the US drives Europe and Japan in jealousy. For the past decades they used up all tricks in the sleeve but still can't bring consumption up Everyone just doesn't spend money. The United States is just the opposite. x it doesn't matter how much you raise the interest rates Everyone still buys things aggressively. Look at the consumption data of the United States. It doesn't look like there's an interest rate hike There's only a dip during pandemic and after that it still goes up it's like being drawn with a ruler. And the retail data, they don't drop even a little What are people buying? Actually its services are declining It is similar in every country during pandemic But in the US there's a strong growth of something called Durable Goods Durable Goods such as electronic products, fitness equipment, bicycles, etc. Why do you think it is? Why is it that depsite the Fed raised interest rates to such a rate U.S. consumption is still rushing forward like a stubborn donkey, no, like a wild horse keeps moving up To be honest, I'm not exactly sure too. Even the market does not have a consistent explanation. After all, economists have predicted a 100% recession before now they are being slapped in the face so they can only look for some small reasons, which may more or less have some impact on stimulating consumption and stimulating the economy. But as for which is the main reason, I think it is up to everyone to make their own judgment. I will first give three explanations that I think may be more reliable. The first reason is because currently, consumers in the US have very low sensitivity to interest rates. What does that mean? Because the US did not directly raise interest rates this time. Before this rate increase, in response to the pandemic, there was a wave of large-scale stimulus measures and interest rate cuts. Therefore, many companies and individuals borrowed with loans under such low interest rate environment Many of my friends in the United States took out loans to buy houses in that low interest rate environment. Actually it greatly released the demand for loans in the economy. After that, the Fed increase interest rates, right? Anyway, the mortgage is already locked, raising interest rates actually has nothing to do with me. I still pay those mortgages every month. This is the so-called reduction of interest rate sensitivity. It actually comes from the interest rate falling first and then rising. The rise after that was because everyone had hedged and locked it up, so the impact of raising interest rates on the entire economy was not that big More or less like that Let’s skip the minor details. The second explanation towards Americans high consumption is because they are consuming their extra savings. Before the pandemic US had been in low interest rate environment the momentum of economic development was also very strong. This actually gave everyone a lot of extra savings in their hands. At the beginning of the pandemic, the U.S. government focused on spending money on subsidies for everyone, so that made everyone had more money. So after the interest rate hike, although there were difficulties and prices increased but because everyone still had money, they could still maintain the original consumption level This is why many economists predicted that in 2024 the consumption momentum in the US will not be as strong You can see from this graph that the money in everyone's hands has actually been consumed. In fact, the Fed has also published many articles to discuss the issue of additional savings. It also feels that this thing is persuasive but not strong. The third explanation is that some of the US government's fiscal stimulus policies including infrastructure stimulus are still having an effect. This is relatively intuitive. In addition, there are some explanations such as artificial intelligence has activated the market, and the rise in stock prices has brought about wealth effects There are also changes in everyone's psychology. After the pandemic, people figured out that just spend as you like and many more. In short, the rise of US consumption has driven up GDP. Yes this question is not over yet, think about it slowly the Fed raising interest rates if it does not strongly suppress demand then the rate hike which ought to play its part that is suppressing economy did not work. This explains why the demand is strong but the inflation rate still drop. It ’s interesting to see the problems are connected one by one. What is the reason for this? The most important thing that brings down the inflation rate is not demand or the Fed it is supply Let’s take a look at how this round of inflation started On the one hand, it’s a problem on the demand side, right? The government prints money for everyone, and everyone’s demand starts strong. Consumption leads to rising prices But at the same time, part of the reason is caused by insufficient supply on the supply side. For example, the oil crisis The shortage of chips in 2022 and various supply chain problems led to rising prices So why did inflation drop in 2023? It's not because the demand has cooled down, but because the supply side has recovered. Everyone has returned to normal. It’s time to get back to work When inflation rises, the U.S. government also very reasonably changed the original stimulus on the demand side to the current stimulus on the supply side. Originally they give money directly to consumers, but now it has turned into subsidising and stimulating factories and companies. They also passed various bills such as the "Infrastructure Investment and Job Act" "Inflation Reduction Act", "Chip and Science Act", etc. Anyway, it is strengthening supply strengthens infrastructure So did you notice that the Fed raising interest rates, it may not be the most critical reason for suppressing inflation. Instead, it may be that the U.S. government provides some reform subsidies to the supply side that suppress inflation. Maybe even if the U.S. government does nothing, just resumes production normally after the pandemic. Everyone get back to work the inflation may automatically come down The wonderful thing about the economy actually lies in how these factors link with each other or intricate relationship between them. Actually some investment platforms we can follow these key economic data to help us judge the economic situation For example, the global Chinese-friendly one-stop trading platform moomoo has key indicators of financial data. We talked about the key data and policies of the US moomoo can receive the news rapidly and can directly compare historical data and expectations to facilitate investors to quickly grasp market signals. In addition to macro data and company's financial report, moomoo also has excellent financial report snapshots and summary of highlights integrating it according to the logic of financial analysis which saves us the need to collect information across platforms. For example, NVIDIA just by one swipe you can know that its focus is on the growth of data center business. moomoo is also very useful for tracking market hot spots. For example, Pelosi, who is highly discussed by everyone you can directly see her positions in the concept section. There are also six advanced condition orders. For example, options support trailing stop loss, which can more efficiently execute your own investment strategy and control risks Recently, moomoo has also landed in Malaysia, the seventh country. Currently, with more than 21 million users worldwide you can invest in U.S. stocks, Malaysian stocks, Singapore, Macau and Hong Kong stocks, A-share funds, options and bonds with one account. moomoo also prepared account opening benefits for users in various regions. There are 15 US stocks transfer to moomoo to get rebate up to US$5,000 and Canadian is $2,400 Canadian dollars. Malaysian users also get to enjoy benefits Its cash income plan gift called Cash Plus is also continuously upgrading Cash deposited and withdrawn at any time in the account can have safe and high-yield I have put the information at the top of the comments. those of you who are interested can get it there. Let’s go back to the United States. Next, let’s take a look at some of the biggest potential risks or hidden dangers faced by the U.S. economy. The first is real estate. If you look at the breakdown of the US economy over the past two years the most disappointing is real estate investment. This is actually very easy to understand. 30-year loan interest rate, was at 3% in 2021 now it's 7% Such a big change in interest rates will definitely cool down the housing market. However, in terms of personal real estate, it actually does not have the biggest impact. After all, the demand is there and housing prices have not dropped. The biggest problem is probably the biggest risk that the US cannot avoid in the past year. We often hear that the biggest risk that US cannot avoid is commercial real estate. Why is that? It’s not just a matter of high interest rates. Because of the pandemic, many people may have discovered that working from home is actually not bad and this has greatly reduced the market demand for commercial real estate Moreover, it is very likely an irreversible structural change from bottom up This has led to the rapid decline in commercial real estate prices. Look at the change in commercial real estate prices every time the Fed raises interest rates. This time, the decline is the most obvious. Since the interest rate hikes, commercial real estate prices has fallen by more than 10%. Some high-end office buildings in places like Manhattan and Los Angeles have even been sold at half-price clearance sales. Let me tell you, this is not as simple as just the owner losing a little money because these commercial properties carry huge sums of loans behind them. and a quarter of these loans will mature within the next two years. At such a high interest rate, if demand continues to drop off a cliff, banks or financial intermediaries holding these collaterals may be facing huge losses, and may even explode. In other words, these commercial properties have tied themselves to the entire financial market through bank loans or leverage of securitisation instruments such as MBS. If it collapse it is likely to spread quickly to the entire market or even the world. On the surface these banks especially small banks may seem calm but actually their balance sheets have begun to seriously deteriorate How much has it actually deteriorated? What will happen next? What measures will the Federal Reserve take? We can only wait and see what happens. In the long run, the U.S. government still has a potentially huge risk. It can be said that its biggest long-term problem is its debt problem In fact, it is not just the United States, governments globally are facing the same problem Repeated rises in interest rates may cause the government's debt costs to continue to rise. In the short term, you may not feel that this problem is big. Governments such as the United States and Japan still can afford to pay the interest but it’s unsustainable. You can't have the government go and borrow money to settle whatever problems arise in the economy. Like the United States, they have actually tried to limit their debt expansion through bipartisan games, government shutdowns, etc. but it seems that the effect is not very good at the moment. As for this issue, it is not very urgent. For the government, it is more just words and to actually implement it how to specifically reduce expenditures In short term it seems like there's always more urgent things that need to be stimulated and that need to spend money These problems in the United States whether it is government debt or commercial real estate, are actually quite deep problems we briefly touched on them today and will discuss them in detail if we have the opportunity. This is the general outlook of the U.S. economy. Because the chain we just mentioned is relatively long, let me sort it out for you. We talked about how it might fall into recession, but it did not reason being the consumption is strong. So why is consumption strong? We talked about few reasons but why can inflation fall despite strong consumption/. OK, because supply has increased and strong consumption has indirectly led to strong employment. Then we talked about its risks including its financial products, commercial real estate, which may come from the U.S. government debt in the long term. Generally speaking, in 2024, the market generally predicts that the US economic growth will not be as strong as in 2023, but whether it can achieve a soft landing and avoid recession actually depends on this year. The IMF predicts that the US economic growth will be 2.1%. The World Bank is 1.6%. As for the Fed’s interest rate cut rate actually in December last year, its official dot plot almost made it clear that it would cut by 75 basis points in 2024 but the market just didn’t believe it. I looked at the futures market at that time, it is expected that the Fednwill cut interest rates by 150 basis points in 2024. I don’t know why Wall Street views the Fed so aggressively As a result, when the inflation data came out in January and February this year, it seemed that there would be a rebound, and Wall Street immediately gave in Sorry. It turns out that the idea of 150 basis points was too naive. I took it back and the futures market immediately returned to 75 basis points. It is roughly expected to cut interest rates three times, which falls in the same range. This is reasonable. It cannot be too radical, after all, this is an election year. The Fed wants to avoid misunderstandings that it is taking side So in an election year, its actions are relatively cautious. Next, let’s take a look at the European economy. I won’t specify to each individual country It'll be about European Union + UK I don't know if you get this feeling that when mentioning the European economy it makes people feel like yawning. So we try to get through it faster and make you feel less sleepy I can sum up the European economy in one word Lifeless Europe's GDP growth in 2023 is 0.4% (updated) If we want to be optimistic, we can say that it almost avoid falling into recession. However, this is not easy. After all, the energy crisis in 2022 actually hit Europe very hard. The good part is that inflation has dropped from 10% at the beginning of 2023 to just over 3% now. Actually, part of the reason is that the economic cooling has indeed been relatively severe, and even if inflation has been extinguished, the unemployment rate has remained at a historically low level. The worst performing countries in Europe is the former European economic engine Germany Let’s take a look at the ranking of the world’s major economies in terms of growth rate in 2023. Germany’s GDP shrank by 0.3%, third from the bottom Netherland fourth from the bottom, UK fifth from the bottom, European Union as a whole and further forward is Italy and France. What's going on in Europe? Actually, the problems faced by these countries are relatively similar and Germany is the most prominent and extreme one here. So we'll use it as example and talk about what are the dilemma they are facing now. First of all, the most basic is Europe is indeed facing high interest rates and fiscal austerity in various countries. After all, controlling inflation must be the first priority Moreover unlike US, Europe does not have inexplicably high consumption. Actually, employment in Europe is pretty good and even wages have risen a lot. Europeans tend to choose to save rather than consume. This is also a normal reaction of the market when facing a crisis. I feel that our market situation may not be good, if you have money, you must save it first. When everyone saves money and prepares for the winter, winter will really come. If you look carefully at Germany's consumption, it is still reasonable, not that bad but if you look at what it spends on is mainly on necessities such as energy and food, rather than heavy industry, chemical industry, etc., These are Germany’s strong point When the economy cannot turn around it will naturally face the risk of recession There is also an energy crisis. In fact, after 2022, the energy crisis in most countries around the world has been basically alleviated, but Europe has been hit really hard. We have done a special episode before to talk about this energy crisis Among European countries Germany is the most dependent on Russia's natural gas Originally there's a pipeline that was inserted directly into the heart of Germany. Now it suddenly stopped. Look at this graph the impact was a cliff-like decline especially in Germany a country with very heavy industry, chemical industry, and automobile manufacturing, etc they are very dependent on energy. It is not as simple as spend money to buy some energy elsewhere. The key is that if the energy cannot keep up, then production capacity must be cut. Chemical giant BASF, have been forced to lay off 2,600 people This is not over yet. There is also a third very big impact, which is the automobile industry that Germany is most proud of. Look at its two main export targets, Europe itself and China. Actually, the demand is not very good to make it worse it has also been greatly impacted by the wave of electrified. China's automobile exports have increased five-fold in three years. Look at Germany. Originally, the export side was facing weak demand and now the competition is so fierce. This has caused Germany's automobile exports to drop by 40% compared with before the pandemic. What pushed Germany to the altar before? Almost unlimited demand of global industrial product, cheap energy, tight globalisation but these factors have almost all reversed in the past two years. It is unavoidable that Germany goes into recession And I think this is purely my personal opinion. The German government is really very self-disciplined. Note that I put this self-discipline in quotation marks. It does not mean that everyone goes to bed early and gets up early every day to exercise but that it is very self-disciplined in terms of financial policy and has very strict self-requirements. They don't borrow money unless when desperate, they don't invest. Under normal circumstances, when facing such a large-scale global impact, the government should take up the banner and make targeted investments to actively stimulate. However, Germany does not do it Their government debt to GDP lay still at around 50%-60%, doesn't move much It feels a bit like everyone is driving over in the United States and Japan, they are soaring and flying. meanwhile in Germany, you're so slow that you're about to stop. not only that you are pressing on brake and pulling hand brake Time to time, they may adjust the seat belt or something. This kind of self-discipline is indeed a good thing in the long term. But in the short term, you will feel that there is a lack of flexibility, which will cause Germany to fall into short-term pain. Actually, the fundamental of the European economy, including the German economy, is not a day or two If we extend this timeline a little longer and compare the GDP of the EU and the United States, you will find that before the financial crisis, they were still clinging on to each other After the financial crisis, they broke apart. It cannot be said that the United States threw the EU away. It's the European Union that's just lying there. On the surface, we can say it's the European debt crisis, inflation, etc. But the fundamental reason is actually the innovation and system, the aging population, etc. To be honest, I've researched these issues for a long time I thought it was meaningless Let's not waste our brain cell leave this problem to the Europeans to figure out a solution slowly. In 2024, the EU predicts that GDP will increase by 0.9% and inflation will be controlled at 3% which is probably better than in 2023 but not much. Fundamental problems are definitely not that easy to solve in a short while. So if you look at the European economy, it makes sense to say that it is lifeless. Well, we have spent a lot of effort and 20,000 words to have a general overview of the global economy I don’t know how everyone feels. I hope you won’t feel particularly bored. Anyway, I tried my best. To be honest, when I read those reports before, it really gave me a headache. They were very obscure and boring It’s not human language at all. I basically have to stand up and rest for a while after reading a page Those of you who make it through here, here comes your bonus Let’s briefly talk about how I look these countries and how to understand their complicated economy. Last year I made a video to talk to you about how to learn and think about the importance of building a knowledge tree. Today is a good case study. I think those who can listen to it even if you have never studied economics before you can get it. Let's look at the paradigm for looking at this economic issue. On the fundamental level, we look at 3 things the economy, prices, and employment, which generally correspond to the three most common economic indicators GDP, CPI, and unemployment rate So generally the central bank or the goal of the government to put it bluntly, is to make these three figures look better. What is reflected behind it is that its economy is generally not too bad. I think there is another one that may be very important to people's livelihood but many economists are not particularly concerned about that is the wealth gap. The ones mentioned are first-level factors, which are a trunk of the big economic tree. So if you look at every country and every economy we mentioned just now we actually mainly look at these three things These are actually like an ultimate indicator. It's like saying what score you got in the final exam. Once you know what score you got, you will definitely have to go back and look up why I failed, which question did I get wrong? This is equivalent to looking at secondary data to find out the reasons, there may be more subdivided data such as PMI, core inflation wage growth, retail sales, etc. This will have different emphasis in different countries and periods. For example, in the United States focus on the employment data they look at Nonfarm Payrolls later the market focus on inflation But if you just look at CPI, there might be too many interference so you have to dig deeper to see whether it is rental housing, oil, or food. These subdivided economic data are used to measure the economy. Only then will you know that you may have made more mistakes in this area. Now let’s think about how to change So how to change? You look at the government’s fiscal policy , including the central bank’s monetary policy. combine with some major asset prices, such as stocks, treasury bonds, real estate, foreign exchange, etc., to form such a set of analysis frameworks. The complexity lies in the connections among these data Therefore, the more professional people may be, the more detailed they will look At the fundamental layer it is simple Let me repeat it: Economic, prices and employment It is actually top-down primary to secondary from key points to details analysis framework. Does it sound simple? Is it that simple? That’s right, it's that simple. Although it sounds simple it has been really helpful for me to understand the economies of these countries in the past two years. Sometimes when you see that the details are very complicated, it is easy to get confused. So what should you do at this time? pull it out and jump to the upperlevel so you don't get caught up in the details and can find the main contradiction. If you don't have such a framework of economic data then when you read news report about consumption rate, savings rate and the youth unemployment rate you may feel that there is a lot of information input but your mind may go blank in the end. You may not be able to remember anything. Once you form such a basic framework, even if you have no economic foundation, your knowledge framework will become more and more complete every time you listen to the news and every time you watch Lin's video Instead of a bunch of bits and pieces of details that you can't remember When you have this primary and secondary framework, it will actually help you find the main problems and main contradictions. It's akin to when you get test result that says you failed After the analysis, you may have a general conclusion. For example, You didn't learn linear algebra well or was too slow in answering the questions. These attributions are your reasonable attempts to find some main contradictions But if you tell me that I failed this time because I get the third question wrong, how do you explain the remaining twenty-seven questions? This is a matter of not grasping the priority. You may think this is too simple Who would make such a mistake? Actually when it comes to some very complex economic issues and economic systems, you may not be so good at judging the weight between various factors. For example, if I analyse that the sharp rise in the Indian stock market make investors happy which ignite economy growth This analysis may sound logical at first glance but in fact, because the proportion of investors in India is very low, some data say it is 5%, and some data say it may be more than ten percent In short, it is relatively niche. it does have a certain driving effect but its weight is too small so generally it is not the main factor. If we change to another country, such as the United States, it is possible because the United States is a country with the financial market as its financing center. You see, everyone’s pension funds are placed in it A conservative estimate is probably more than half of the population invested in stocks For example, if I say that ASML’s revenue surge has led the development of the Dutch economy growth many people will think it makes sense. Think about it, ASML has monopolise on high-end lithography in the world. Of course it is the engine of Netherland's economy. Does it push the growth? It definitely did but the main factor for Netherland economic growth is not ASML Look at its stock price in 2023 , it is indeed very good. But the economy of the Netherlands is miserable. Didn’t we just look at the 2023 GDP growth ranking? The Netherlands is ranked ahead of Germany and third from the bottom It is a country with a GDP of more than trillions. Factors such as sluggish real estate and weak consumption are actually far greater than a performing ASML. It's like if I say Moutai's good performance has promoted China's economy, you may think it's a bit ridiculous after listening to this. That's how it is So you see when analysing complex issues such as the economy, it is not just establishing a logical chain and that the story sounds interesting. The stock market soar and led to Indian economic growth ASML lift the GDP of the Netherlands. These chains are all reasonable but they are not the main problem. Why do people sometimes say in the comments that Lin’s explanation is very simple and easy to understand, but I may be a bit boastful, but I really don’t to come up with a bunch of information and a bunch of data and slap it in your face For example, in this episode I can actually put all the points in this research report about what affect the Indian economy and factors that affect the development of US and listed all of them out Saves me the time But you may be confused at the end. I try my best to tell you these not so important details Saying which part you don't need to know clarify the main part sorting out the main ideas are the most difficult thing in writing the draft. What I want to convey in the video may not be about the operation of the Fed, or the twenty algorithms to calculate inflation and the messy operations of shorting stocks but the common underlying logic behind them. The underlying logic of the Fed’s economic decision-making, the underlying logic of the linkage between inflation and the economy or those messy short selling methods There is a set of underlying logic behind it. It may not be correct, but it is indeed the outcome of my research and thinking process. So you see actually moomoo's macro data collection and company financial reports are quite valuable. Why? Just like the knowledge tree we just talked about, it doesn't just pile all the information on you in one go but it combed through it and summarise it logically it also filter out some key and core data to help you simplify the complex and find the main contradiction moomoo also keeps giving out bonuses Sounds great right? I will leave the details of the bonuses in the comment section. We have talked a lot. I just hope that these two videos can be helpful for everyone to understand the world or help you to establish how to look at this world. If you have your own opinions, thoughts or understandings towards the topics or countries mentioned in these two episodes You can splurge your heart out in the comment.
