We are currently probably experiencing the biggest crisis in the last 500 years.
01Why did Buffett sell stocks?
I think everyone here should be able to catch some clues, such as the news two days ago that Buffett holds the most cash in his life.
Let's take a look at Berkshire's second quarter financial report. Its cash reserves have reached a record high of US$276.9 billion in cash on hand.
You have to know that in the first quarter of this year, it only had 189 billion US dollars, which means that it kept selling its stocks in the second quarter!
Not only in the second quarter, if we just search the news, we can see the latest news in recent days, that is, Buffett has been continuously selling stocks in the third quarter.
The cash he now has in his hands is the most cash he has ever had in his investment career.
The question is, why would an investor who has been fighting all his life do this? Do you also sense a sense of crisis from this?
Why is this happening? Are we going to experience a terrible upheaval? Let's find out today.
Today we will discuss this from the perspective of cycles. Today we will objectively analyze the era we are in from the perspective of cycles.
What kind of stormy times are we experiencing?
This issue's content is partly from our three-hour in-depth member video content.
Our nearly three-hour member content is an in-depth sharing by Gary Yang, the boss of Xinghan Capital~
Yang Ge studied for both his undergraduate and master's degrees in physics at Tsinghua University and is a science genius.
At the same time, he has also started his own fund business for more than ten years and has accumulated a wealth of practical investment experience and economic analysis framework.
02Four major contradictions in the world
Before we start analyzing the cycle, let’s first take stock of the main contradictions we are currently facing:
At present, the most direct and intense conflicts are actually on two major battlefields: the Russia-Ukraine conflict and the Israel-Palestine conflict.
The two major forces behind the Russia-Ukraine conflict actually expose what we are currently facing. The most fundamental conflict is the conflict between the East and the West.
The Israeli-Palestinian conflict has been a problem in the Middle East for many years. It is all related to oil, including the two major battlefields since 2000, Afghanistan and Iraq, which can all be summarized as energy-related conflicts of interest.
The third major social issue we face is the conflict between humans and AI, because as we have seen recently, AI has gradually begun to be used.
It can gradually start to replace some human work and become a useful tool for humans. In this case, some problems are bound to be exposed:
What if AI replaces human jobs?
What if AI lies to us and brainwashes us through content?
AI requires more energy, what should we do if the power consumption is too high?
The fourth contradiction: In addition to the contradiction between decentralization and centralization, the contradiction between our industry and centralization has been intensifying.
The current US political election has created certain conditions for the development of the crypto industry. As the crypto industry develops, it will sooner or later challenge the monetary control of these centralized governments.
What should we do if the conflict escalates?
We seem to be living in a peaceful era, but our peaceful life is full of contradictions.
If the conflict is handled well, it is called a soft landing. If it is not handled well, it is called a hard landing? A war is imminent!
Why does this problem arise? What kind of era are we experiencing?
The reason is that we are experiencing an unprecedented cycle of iteration. Let's simply divide the four contradictions I just mentioned.
The first two are conflicts over competition for resources, and the core is volume.
Competition in the existing market is caused by insufficient resources at the end of the previous generation cycle.
The last two contradictions are the competition between the new and the old, and are issues of order building.
This is the beginning of a new generation cycle, caused by uncertainty. From this level, we can feel the energy game brought about by the alternation of cycles.
So what kind of cycle are we facing now? Why is it unprecedented?
This is because when we divide the cycle into four dimensions, from small to large, they are:
Merrill Lynch clock, Kondratieff cycle, 100-120 year war cycle, 300 year productivity revolution.
We will find that we are at the moment where four cycles overlap.
First, let’s start from the small to the big, starting with the Merrill Lynch clock.
03Merrill Lynch Clock
The time frame of the Merrill Lynch clock is about ten years. It was proposed by Merrill Lynch as a way of thinking about analyzing economic cycles.
It divides the economic cycle into four stages: recovery, overheating, stagflation, and recession.
Let's summarize the Merrill Lynch data of the past 50 years. Let's use the Merrill Lynch clock to analyze the economic situation of the past 50 years:
First, let’s talk about the 1970s, which was classified as a period of stagflation.
Because economic growth was slow and inflation was high. The core reason was the two consecutive oil crises in 1973 and 1979.
Then in the 1980s, the economy began to decline, and the reason for the decline was the oil crisis that occurred in the previous stage.
So the United States resolved the crisis by printing money, and once it did, inflation arose.
So in the 1980s, the Federal Reserve raised interest rates significantly to address the inflation problem, which ultimately led to an economic recession in the 1980s.
How long did it take for this recession to end?
The core reason is that President Reagan proposed the free market in 1983, so after 1983, we entered the next stage of recovery. During the recovery period, the entire economy began to grow, and inflation and interest rates were falling. President Reagan's free market speech also promoted globalized trade, and the recovery lasted throughout the 1980s.
But by the 1990s it had entered an overheating phase. Why?
The reason is that I think some of our friends in front of the screen remember that many of them were born in the 1990s. The 1990s was definitely a golden age.
Trade was growing, the stock market was strong, and Internet technology was born at this time. New technology met a relatively good economic environment, and the Internet bubble came into being.
When did this overheating phase end? When the Internet bubble burst in 2000, this cycle also ended.
After the overheating, there was a recession. This recession did not last long, it started in 2000 and ended in 2001.
The market has entered the recovery stage again. What is the reason? Is it the real estate that has driven it up?
In addition to real estate, there is also globalization supporting it, and coupled with the low interest rate environment, the stock market also soared, so it quickly went from recovery to the overheating stage.
The market is overheated and is about to decline.
The sign of recession was the financial crisis in 2008.
This recession did not last long, starting in 2008 and ending in 2009. It began to recover in 2010. In addition to stocks, this recovery also included technology companies, including the explosion of mobile Internet.
The recovery happened quickly, but it soon turned into overheating again.
The outbreak of COVID-19 in 2019 was a global disaster, and the Federal Reserve unexpectedly released a large amount of money again, hoping to slow down the economic decline by releasing money.
The monetary easing led to market overheating and soaring inflation, and in 2022 it entered the next stage.
What stage? Stagflation is coming again!
In order to solve the problem of inflation, the Federal Reserve implemented interest rate hikes. During the interest rate hike cycle, liquidity decreased, but the growth rate of the real economy has not yet recovered, resulting in stagflation.
During the stagflation period, we also saw the collapse of Silicon Valley Bank and Signature Bank.
We are now entering a brief recession, which is also in line with the Merrill Lynch clock.
Our recession may last for a year, like previous ones, before a new recovery begins.
So from the perspective of the beautiful clock, we are now in the transition period between two cycles. The old cycle is about to decline and the new cycle is about to start; the uncertainty of the market is increasing, and the black swan may occur at any time!
This is also why Buffett sold Apple’s stock. Apple was one of the biggest beneficiaries of the last round of the Merrill Lynch clock, and also the biggest beneficiary of the trend of mobile Internet and globalized trade!
The next round of new beautiful clocks may be driven by new technologies such as AI and new energy.
So when Mr. Buffett couldn't see the situation clearly, he chose to keep the cash and wait and see.
04 Kondratieff Cycle
Now that we have talked about the Merrill Lynch clock, let’s look at the next larger cycle, which is the 60-year wave-resistant cycle that occurs every 50 to 60 years.
The Kondratiev cycle is a theory used to describe long-term economic fluctuations in the capitalist economy.
According to this theory, each complete cycle lasts about 40 to 60 years and is usually divided into four main stages: prosperity, recession, depression and recovery.
While there is some controversy over the prevalence and accuracy of the Kondratieff cycle, it remains a tool for analyzing long-term economic trends.
The following is a general description of the Kondratieff cycle, but the specific time points may vary depending on the researcher's point of view: We have mainly seen two Kondratieff cycles before, namely 1920-1970 and 1970 to 2020.
From the beginning to the end, it started in 1910 and 1920 and ended in 1970. This cycle revolved around the internal combustion engine, machinery industry and petroleum industry.
We need to mention the iconic historical events of the starting point: First, the founding of Ford in 1908 represented the revival of a large number of companies related to the demand for internal combustion engines, such as Chevron and Shell.
These companies began their 60-year golden age. In addition, the Federal Reserve was established in 1913, and the global economy began to develop in an orderly manner. In 1920, the famous American Roaring Twenties began, and the automobile and consumer industries soared, which was also the prosperous period of this Kondratieff cycle.
But this Kondratieff cycle was accompanied by wars: World War I from 1914 to 1918 and World War II from 1939 to 1945.
Why did this situation occur during the entire cycle when the economy was being developed and wars were being fought at the same time?
Because he overlapped another war cycle.
We will talk about the war cycle later.
Why did this round of Kondratieff cycle end?
Because the oil crisis of 1973 came to an end.
This round of Kondratieff cycle revolved around the demand for internal combustion engines, which were developed in large quantities. Of course, it also declined due to the outbreak of the oil crisis in 1973.
The second round: started in 1960 and 1970 and ended now.
This 60-year Kondratieff cycle revolves around three major issues: the Internet, oil, and globalization.
At the beginning of this cycle, which is the prosperity period, the world begins new development.
A lot of things happened in the early days of this era, including the establishment of the OPEC oil company alliance in 1960, the birth of Internet technology and AI technology, the iconic establishment of the New York Stock Exchange in 1972, and the scale of stock trading. It also included China's reform and opening up in 1978, and the start of a new cycle.
After fifty or sixty years of development, these new things prospered infinitely. Today, in the 2020s, they have entered a situation of internal circulation.
Whether it is the monopoly of the Internet or the monopoly of oil, all industries and sectors have reflected that business has become increasingly difficult and competition has become increasingly fierce.
This round of Kondratieff cycle has gradually entered recession and depression.
Back to now, from 2020 to 2025. We are facing the end of the last Kondratieff cycle and the beginning of the next Kondratieff cycle. What will cause the next cycle to start booming?
What we can see now is technology-driven development, which may be the implementation and application of blockchain technology and generative AI. This cycle will continue to prosper for 50 to 60 years until 2070.
Based on this Kondratieff cycle, and based on the end of this Kondratieff cycle, that is why Buffett reduced his holdings in Procter & Gamble and sold all of Intel last year.
Because both companies are products of the last Kondratieff cycle. Companies that benefit from Internet technology and large companies that grew out of the consumer sector driven by the United States' promotion of globalization will undergo tremendous changes with the end of this round of Kondratieff cycle.
05War Cycle
Looking at it from a larger perspective, the next war cycle is 100 to 120 years. Why is it 100 to 2120 years?
Because it often takes three generations to forget the pain of war. A new war cycle is about to begin. The sign of the beginning is that the Russian-Ukrainian war is a geopolitical conflict. This cycle may be a cycle in which the US hegemony continues to be challenged by the rise of other countries, just like the British Empire was challenged by Germany and France two hundred years ago.
The last geopolitical conflict can be traced back to a cycle 100 years ago, which was during World War I and World War II.
World War I was from 1914 to 1918, and World War II was from 1939 to 1945. The interval between the two wars was very short, and can be regarded as the same war cycle. The Korean War and the Vietnam War in Asia during this period are also part of this war cycle.
The protagonist of this cycle is the United States. A large number of wars are related to it and supported by it, so this cycle can be called the cycle of the rise of the United States.
The previous round was the internal war in Europe from 1800 to 1820, after all, the United States was still a little baby at that time. The beginning of the constant friction between European countries was the Napoleonic Wars from 1803 to 1815.
During this cycle, countries such as France and Prussia rose one after another, but in essence it was still a cycle of challenging the hegemony of the British Empire.
The previous round was in 1700, which was also a European war. The essence of this was the rise of the British Empire, which defeated the mainstream powers on the European continent along the way and established its hegemony.
Now that we are 100 years away from World War I, it seems that it is time to build a new social order.
Geopolitical conflicts are becoming increasingly intense, and we can also call this moment an era of war.
06Productivity Upgrade Cycle
Looking at it from a larger perspective, this cycle is called the productivity upgrade cycle.
Why has humanity undergone such tremendous changes over the past 300 years?
The global population has grown from less than 200 million to 3 to 4 billion in 1970, and has grown to 8 billion in 2020.
This exponential growth is all due to the industrial revolution, which has greatly improved the tools humans use for production.
300 years ago, people still relied on inefficient production methods such as agriculture, animal husbandry, and handicrafts. After the Industrial Revolution, people were able to operate machines to produce, which promoted the improvement of the production efficiency of the entire human race and led to the vigorous development of various fields for 300 years.
From this perspective, we can determine that the landmark event of the 300-year cycle was the invention of the steam engine in 1698, 300 years ago. Then, 60 years later, Watt's improved steam engine in 1670 turned a technology into a tool, and the entire steam engine application industry began to explode.
Today, 300 years later, we have a new production tool that has become a practical application: AI. AI and Internet technology both appeared in 1960, but it was not until 60 years later that chatGPT, a tool that can truly create value for humans and improve production efficiency, was developed.
This is exactly the same as steam engine technology. It took Watt 60 years after the correct technology appeared to improve it into a technology that everyone can use.
Since the emergence of ChatGPT, AI has gradually become a tool that can create output for everyone, thus promoting a new productivity revolution.
This productivity revolution cycle may be shorter.
It is possible that an explosion, prosperity, recession and roll-off may occur in a much shorter time than the 300 years of the Industrial Revolution.
But no matter how many years it lasts, the current transformation has occurred in the last three years.
After summarizing the above four cycles, you will find that we are facing the decline of the old cycle in four different time dimensions. We are also facing the decline of the old cycle in four different time dimensions.
A new cycle is coming!
Finally, I would like to give this panoramic time map to everyone. I hope that everyone can find their own position and determine their own career development direction through this map.
Of course, there are more in-depth contents, but we cannot discuss them in depth today due to time constraints. We will put more in-depth contents in our membership courses.
I hope that today’s simplified summary can give you some inspiration, help you make your own choices, and provide some help in making choices.
After all, the more times change, the more choices matter more than efforts!
We live in the worst of times.
We live in the best of times.
Our human life is limited, and we can grasp only a few cycles.
I hope everyone here has a bright future and lives up to their youth!
