The Difference Between the Economy and the Asset Market: Perspectives on the Real Economy and Capital Assets
1. Conceptual Distinction Between the Real Economy and the Asset Market
A. Real Economy (Main Street)
- The real economy refers to the tangible areas (production, consumption, employment, etc.) related to a nation's economic activity.
- The state of the economy (good or bad) is primarily judged by increases or decreases in scale (in terms of production and consumption).
B. Asset Market (Wall Street)
- A market where the value of assets such as stocks, real estate, and crude oil is bought and sold.
- Price fluctuations are determined by supply and demand.
Key Concept:
- The law of supply and demand is key! For example, if demand for crude oil increases, the price rises; if there is oversupply, the price falls.
2. Why Don't the Economy and the Asset Market Always Align?
A. The Function of Supply and Demand
- An Important Point to Understand: Asset prices can rise even when the economy is weak.
- The reason is that prices are determined by the movement of money (capital) in the asset market, not by a simple correspondence.
B. Recent Economic Trend Examples
- 2020-2021 Pandemic Period:
- Liquidity increased due to low interest rates in a weak economy.
- Asset prices, such as in the stock and real estate markets, rose.
- Early 2022-2023 Inflation Period:
- Interest rates were sharply increased to curb inflation.
- Asset markets (stock prices, real estate) declined.
3. Relationship Between the Economic Cycle and the Asset Market
A. Basic Structure of the Economic Cycle
- Expansion Phase:
- The scale of the economy and employment increase, and production becomes active.
- Recession Phase:
- Economic growth slows and declines, leading to an economic contraction.
- Depression Phase:
- Economic activity is stagnant in the long term.
B. Patterns of the Asset Market and the Economic Cycle
- The stock market often leads the economy.
- The real estate market tends to lag or coincide with the economy.
4. Important Points in Actual Decision-Making
A. Asset Market Analysis
- Taking stocks as an example, prices change based on supply and demand (i.e., the psychological movements of sellers/buyers).
- For example, even during an economic recession, the stock of a specific industry may have growth potential.
B. Strategies to Enhance Value
- Your own labor (capabilities) is also an asset.
- There is a need to develop skills and capabilities that are in high demand and low supply in the market.
5. Implications of the 2024 Economic Outlook
- Major global economic institutions mention "entrenched low growth."
- This means that a transformative approach is needed to resolve long-term stagnation rather than focusing on economic recovery.
6. Conclusion: Strategic Investment Based on Economic Analysis
- Stable decisions can be made by properly understanding and judging the flow of the economy, that is, the "economic cycle."
- The asset market and the real economy are different, but understanding the link between the two is crucial.
< Summary >
- The economy (real economy) and the asset market operate according to different rules.
- Economic judgment is focused on scale and production, while the asset market is centered on supply and demand.
- It is necessary to understand the economic cycle and comprehensively analyze the relationship between the economy and the asset market.
- The current situation is expected to be a period of entrenched low growth, requiring a strategy based on rational economic analysis.
[More…]
- "Understanding the Core Link Between the Economy and the Asset Market"
- "Analysis of the Interaction Between Interest Rates and the Asset Market"
*YouTube Source: [경제 읽어주는 남자(김광석TV)]
– 수요와 공급이 만든 ‘돈의 이동’은 어디를 향하나. 경기는 가라앉아도 기회는 있다 | 클로즈업 – 경제 기초 강의 2편
Leave a Reply