Fu Peng: “Major Asset Framework Manual” -- What is a major asset class?

Current issue summary

The most basic principles of the broad asset class framework

Why should we differentiate between major assets and niche assets?

What is included in the broad asset class framework

What's in this issue

First, let me tell you what major types of assets are.

I am often asked, Mr. Fu, what do you think of pork? I said I couldn't watch it. Another friend asked me, what do you think of the launch of jujube futures on April 30? I said I couldn't watch it. Or someone asked you, um, what do you think of a certain company's stock price? I said I couldn't watch it.

I really can't answer these questions because our so-called broad asset framework has one of the most basic principles — not all assets are put together. In other words, not all asset prices are just prices. If you are bullish or bearish, you can look at everything; can you use the same method if you go to a Macau casino to see big and small? Of course not.

The characterization of assets is critical here. For large types of assets, we can follow the logical framework of this macro strategy, but for niche assets, you probably don't need to study today's macro or tomorrow's global situation at all, because it's not important; what you need to pay more attention to is actually this kind of variable that is being generated by the microelements of niche assets themselves.

Why should we differentiate between major assets and niche assets? Because their focus is different. Therefore, what we will share later is more of a broad asset framework, which is not applicable to niche assets.

Even when it comes to commodities, copper and crude oil are sufficient if they can be put into a frame and can actually be used. Other niche ones, such as coffee futures, jujube futures, and apple futures, have anything to do with the macro system? No, what you might want to look at is more about its delivery, its warehouses, its grades, its participants, its trading system, and you might look at it very microscopically. So it's not that futures are called a class of assets; this is wrong.

Many people will say that stocks are a major type of asset; this is incomplete from another dimension. A few years ago, I was often asked, what did Mr. Fu think of the New Zealand stock market? I'm saying it's simple; it's not part of the broad asset class framework; you can observe it, but it's impossible to put it in. He said why? I said, first, that it doesn't have enough liquidity and depth; second, its trading system is not T+0, not even like China; it's not even T+1; it takes 5 days before and after.

So you'll find that its nature determines that it's a niche asset, but it can be affected at the macro level. There are many stocks, such as Hong Kong's small-cap stocks and fairy stocks. How do they relate to the quality of the economy? It doesn't matter. Therefore, stocks cannot be placed in our general framework.

What does the broad asset class framework include? FICC is basically just a few things, bonds, equity, plus some products. In fact, sometimes what is included in the framework depends on your trading strategy, as well as your characteristics. As I often tell you, I say that your metallicity determines your behavior, and your behavior determines the differences in your options.

Someone asked if real estate counts? For example, if you make a private equity or public fund, you can be bullish or bearish on real estate, but I can't allocate it as an asset allocation. But later, when we talk about the global FICC framework, you'll find that real estate also exists as a very important market. Actually, it's very simple. From my point of view, real estate can be considered a major type of asset. It's nothing more than that some people can do it, some can't, some assets can be metallurgically matched, and some assets cannot be metallurgically matched; that's all. However, in principle, everyone should understand these methods, because they still have a huge impact on the entire system.

In terms of bonds, the main interest rate bonds are bonds from the US, European countries, Japan, China, and Australia. As a tool, we choose ETFs and derivatives.

In terms of equity, you'll find that I rarely choose individual stocks, and I rarely discuss stocks. I've told many people that I go from the primary market to the secondary market. My principle is to only use listed companies that I am very familiar with. Familiarity requires quotes; I need to be familiar to the point where I am very familiar. Otherwise, like the US securities market, instead of actively choosing like this, it's better to make passive investments and choose ETFs, or choose specific products as my configuration. I wouldn't be particularly involved in a specific company; this is actually very small.

Equity workers actually have a kind of confusion. Sometimes they don't need to worry about what's actually happening in the macroeconomy; they need to pay more attention to the business situation of this listed company. This is actually relatively microscopic. In principle, this is not something that they are good at in general asset frameworks. What should I do? Cooperation is fine, so just look at the benefits of a few specific leading categories. The markets involved are mainly the US, Europe, Japan, Hong Kong, and China; these are actually all part of the globalization process.

Second, we'll pay more attention to the Australian market, but only to a few of these industry leaders, which we'll talk about later, related to the integration of the global economy. Emerging markets fall into the category of concern. For example, we often discuss how the Turkish market is and how is the Brazilian market, but what I want to tell you is that they all fall into the category of concern; only a few hedge funds are involved in this type of asset.

Most of the time, we are more likely to look for an alternative relationship. That is, when the logical relationship is clear, I may make some substitutions for the target asset, and I won't directly get involved in this category. Therefore, whether it's Turkey, Russia, or Brazil, there are actually few people who can actually participate in these emerging markets. Wall Street investment institutions are OK. For example, the percentage of investors in our domestic or Chinese circles that can actually participate is still very small. It is part of the attention sequence; it is not something we can participate right away in the real sense of the word.

In the exchange rate section, everyone is participating, mainly the G7 exchange rate, but for research and attention, I have listed the Korean won, Taiwan dollar, South African rand, Mexican peso, Brazilian real, etc. This is actually the same as the configuration of the emerging markets we just talked about. Its transaction costs, transaction channels, and optional types of transactions are actually quite limited, and liquidity is also affected, so in principle, it is not recommended to actually trade; you should pay attention to it and find alternatives throughout the feedback process.

The most important commodity is crude oil, but I've shared it with you before. In principle, we look at crude oil more as a variable that affects interest rates. Although it has commercial properties, it is highly related to interest rates. Other basic metals mainly depend on copper. Of course, for the rest, such as some cross-type transactions as a hedging method, you can choose aluminum, zinc, etc.

Among precious metals, gold is actually a bond. I've told you before. Although it is placed in a commodity, it is more considered according to the logic of a bond. Silver must be considered according to the product. This will cause a deviation, which will also lead to some of the cases we will talk about later. In 2011 and 2012, Chinese investors made huge mistakes with silver. In fact, essentially, they mistakenly treated silver like gold, completely ignoring its basic commodity properties, so in the end, they were caught by Wall Street.

Products such as platinum and palladium are not within the scope of trade, but we will study them. Why? It has many characteristics of a niche product. People have discovered the gameplay and routines of niche basic metals such as cobalt, lithium, germanium, and zinc, which have been popular in recent years. In fact, these things all appeared on the Wall Street market back then.

Niche assets are something that people will remember. For example, everyone should have been exposed to the silver Hunter Brothers case when they first started their business; for example, many people didn't know about the palladium case back then; that is, through my diary, everyone learned about the palladium price manipulation case from around 1997-2000, and in the end, downstream car companies like Ford paid money to pay the bill, etc. In fact, the more niche the product, the more similar the routine. It's nothing more than that sometimes its supply and demand are not as many people understand; the smaller it is, the easier it is to change.

Everyone sees that the US commodity market is huge, but when have you heard of a pure trader trading orange juice, live cows, and live pigs? Many of the Chinese traders I've met are actually quite strange; they don't really understand this basic principle.

I often see discussions in our group. Oops, pork in the US has skyrocketed again, stir-fried! I think in their eyes, the price of everything is the same. Bitcoin, Dogecoin, and all kinds of coins are no different. No matter what name it is, they're just looking at the price. I think this is a big taboo in principle. If you just look at the price, it may test your ability to trade on the market even more, but if the amount of capital is slightly large, you won't be able to play this game.

Therefore, when discussing major asset classes, we must pay attention to the in-depth dimension.

Agricultural products belong to the research sequence. Its trading thinking is not the same as the logical framework for major asset classes, so agricultural products are a framework that favors pure commodities. Whether it is macro or the general asset framework we mentioned, the relationship is not particularly big; it is an observation sequence.

Iron ore, coal, and dairy products are also part of the observation and research sequence. Of course, you can either just let pure traders trade; you can also understand that we place the heavy financial attributes in the framework of major asset classes. The heavier the attributes themselves, the more they are biased towards research on themselves. This principle is actually true in principle.

This is, in principle, the path for most major asset classes.

That is the content of this course, thank you all.

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