The Principle of Trading Economics by Zhenying Wang

Author:Zhenying Wang
Language: eng
Format: epub
ISBN: 9789811503795
Publisher: Springer Singapore

Fig. 12.2Changes in the sales of automobiles.

Source Wind economic database

Fig. 12.3Growth of commercial housing sales area.

Source Wind economic database

Fig. 12.4Growth of the trading volume in the stock market.

Source Wind economic database

In the automobile market, the Chinese government implemented a trade-in subsidy policy in 2009 to provide subsidies ranging from 3,000 to 6,000 yuan for trade-in of four types of automobiles, and the implementation period was from June 1st, 2009 to May 31st, 2010. Figure 12.2 clearly shows the effect of such a policy.

In 2009, in order to withstand the effects of the financial crisis, the government introduced policies to rescue the real estate market, including interest rate concessions, increased support of provident fund loans, preferential tax relief, and even granting registered residence to those who purchase houses in some regions. These policies promoted the recovery of real estate trading. With the increase in trading volumes, house prices also started to rise rapidly in 2009. The reversal of expectations on house prices greatly stimulated families’ purchase enthusiasm for house purchase, as shown in Fig. 12.3.

Compared with the commodity market, trading potential appears more frequently and more variable in the stock market, as shown in Fig. 12.4.

The above examples show that the trading potential is vulnerable to external factors, especially policy adjustments. There are various trading potentials in each period. Trading potential is like what Goethe called “spirit of the times” and he also created a word “zeigt-geist”, which is used to describe the “fashion of the times”, which is a hot spot people competing for in a period of time.

The trading potential is like a typhoon in the atmospheric circulation system. The formation of a typhoon has a great influence on the weather of a large area. The same is true for the existence of trading potential. The trading potential with sufficient intensity will have a huge impact on the operation of economy. The emergence of trading potential is often accompanied by the support of the trading loop. In the late 1980s, China’s demand for home appliances showed an explosive trend. Due to the tensions between supply and demand, home appliance prices went up, and some middlemen hoarded goods for huge profits. This further exacerbated the shortage of home appliances, and hence the price increased further. Such changes in the market, through people’s expectations and the interaction of social psychological dimensions, eventually manifested as the reduced trading time limits for families’ purchase of TV sets, and the demand for television is concentrated in a very short period of time, showing an explosive trend. For a commodity, the more tensions between supply and demand, the more significant the reduction of trading time limits on the demand side, and the greater the intensity of the concentrated release of demand. Behind the TVs’ trading potential, there is a mutually reinforcing feedback loop between price expectation and demand expansion.

The Wall Street Crash of 1929 is another typical case. October 24th, 1929, was called the “Black Thursday”. On the night before, the selling orders in brokerages across the U.

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