While it seems inevitable to assume that market price movements and public sentiment are linked to actual economic conditions. According to Richard Evans’s article on The Telegraph, ‘How to invest like … George Soros’ published on 08.April 2014, George Soros mentioned about Bubble Economy, ‘Every bubble has two components: an underlying trend that prevails in reality and a misconception relating to that trend’. He further states that,
‘investors often differentiate between market sentiment and business fundamentals’, suggesting that focusing on the latter and disregarding the former can lead to higher returns. But he highlighted that there were two issues with this attitude:
- Firstly, due to the high complexity of today’s markets, it is inevitable for anyone to have complete knowledge of its fundamentals.
- Secondly, he became aware that investor sentiment not only impacts stock prices, but it can also alter economic fundamentals.
The second one is really interesting and cannot be overlooked, this is because it is the mainstream media that controls the mass market sentiment. And many of the main media funding sources are linked to hedge funds.
If the market trend is strong and the public believes that economic growth will continue, even if the market is actually weak, it could recover and go higher, and hedge funds can make a lot of money by capitalizing on this or even reversing it.
Cutting to the chase, do you think the economy will continue to grow between 2023 and 2025? In my opinion, it will. I have 2 possible scenarios. The first point is a somewhat unfortunate prediction, but it is based on the belief that advancements in AI will enable companies to operate more efficiently. This is due to the reduction of labor costs from significant restructuring and the streamlining of processes through automation. In fact, in November 2022, Amazon announced it would cut 10,000 employees, while Meta (formerly Facebook) plans to reduce its workforce by 11,000 in 2023. Mark Zuckerberg has declared that ‘2023 is the year of efficiency,’ and it is expected that AI language models such as Chat GPT will replace news article editors. Corporate restructuring that involves redundancies can lead to cost savings for companies, which may amount to 5-10% of the global workforce. This can result in increased profits for the company and benefits for shareholders. However, in the long run, such restructuring will be unhealthy and have negative impacts on the economy as it leads to higher rates of unemployment.
Another potential driver of share price appreciation is the financial situation in Japan. According to the Bank of Japan’s 2022 data, the total financial assets of Japanese citizens are projected to reach JPY 2,000 trillion which is approximately US 15 trillion dollars. This figure includes cash, bonds, securities, and insurance, but excludes real estate. Notably, around 50% of these assets, or approximately ¥1,000 trillion, are held in cash. This substantial cash reserve can be seamlessly added to the stock and bond markets without the need to sell any other assets. Consequently, there is no reason why Wall Street hedge funds should overlook this significant opportunity.
To facilitate the transition of cash to financial investment products, the Japanese government last year revised the NISA, an accumulation and savings type fund, by tripling the annual investment limit for individuals to 3.6 million yen and making the tax-free holding period indefinite, to be implemented from 2024.
Based on these market trends and the government’s response, it appears that the government recognizes the importance of preventing a decline in share prices and a loss of market confidence for the moment in order to let a large amount of new investment capital flow into the market and keep providing hope and optimism to new private investors. Meanwhile many hedge funds speculate that they will sell US bonds quietly – this kind of movements align with the principles of a capitalist economy and seems like a natural step to take.
Therefore, the financial market would be stable and keep rising steadily until US presidential election, a major fall may then follow.
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