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Global market has dropped again, "lack of personnel" remains the root cause of the problem in the US.

Hello everyone, I'm Dolphin Analyst!

If we had to sum up last week's global market in one sentence, the only way to describe it would be "deep correction", and the reason for the deep correction can ultimately be boiled down to one word: "lack of personnel."

Let's take a closer look: whether it's developed or emerging markets, different sectors or themes, the entire global market is almost uniformly losing ground, falling by anywhere from 1-4%.

Apart from the earnings season in A/HK which was hit the hardest, there seemed to be nothing particularly special from a global market perspective last week to explain this uniform decline.

However, in the view of the Dolphin Analyst, a set of data that the market doesn't seem to place much emphasis on but that the Dolphin Analyst finds very important, the US job vacancy rate that was released earlier last week (30th August) was a major blow that followed closely on the heels of the Fed's hawkish statement.

As the Dolphin Analyst pointed out in a previous article, "Corporate Downsizing Too Slow, U.S. Still Has to "Decline", the core focus of the current job market is not on the non-farm payroll data released last Friday, but on the marginal changes between the supply and demand of the labor market as reflected by actual job vacancy rates.

I. In the second half of the Fed rate hike, there was an unexpected increase in job vacancies in the U.S. in July!

Before the Fed's clear hawkish stance two weeks ago, the Fed had already provided a clear roadmap for rate hikes: under this plan, the U.S. will still be in a state of rate hikes until 2023, but the pace of rate hikes will be much slower, with the end-of-2023 rate being higher than the end-of-2022 rate.

However, the trading expectation in the U.S. market has been that "once the U.S. enters this state at the beginning of 2023, the Fed will quickly transition from a rate hike to a rate cut, so the end-of-2023 rate will be lower than the end-of-2022 rate."

But the essence of this problem lies in the game after the end of 2022, whether the U.S. will fall into stagnation-type recession (actual negative GDP growth, nominal GDP growth) or deflationary/normal recession (CPI within 2-2.5%), and behind this is the supply-demand game in the labor market under the conditions where commodity inflation has peaked (with rising commodity inventory and falling commodity prices), but service inflation, which is mainly driven by labor force, remains stubbornly high.

In terms of the labor market, new job creation in the U.S. is just one side of the coin, and besides looking at the supply, we also need to look at demand: new job creation is the progress of supply filling demand, but it is only by observing the remaining job vacancies in the entire market after employees have been hired that we can better understand the marginal changes in the supply and demand contradictions in the labor market. Just that, the US Department of Labor released on August 30th that the number of US non-farm job vacancies could be inferred: in July, the US crazily recruited 530,000 people, yet the net increase in job demand was still up to 730,000 people that month, once again showing a situation where the new hiring numbers could not meet the demand for that month, let alone digest the accumulated unmatched job vacancies.

It is worth noting that the statistics of non-farm job vacancies are quite rigorous in the US: "The number of vacancies for jobs for which employers are actively recruiting new hires within the thirty-day period ending on the last business day of the month".

In other words, these are active positions that hope to be quickly filled, not the positions where the companies have given up on recruiting after a long period of unfulfilled vacancies and simply have a position posted.

The result of this situation is that the job vacancies at the end of the month have piled up again and the labor shortage in the US has intensified once again: 1.96 job vacancies correspond to only one job seeker.

The market was originally optimistic that the reduction in positions offered by enterprises would gradually balance the supply and demand in the labor market. However, this was not the case in July, and the situation has only worsened.

And the corresponding result of this is that the average salary increase of private non-farm employment in the US remains stable, hovering in the range of 4.2%-5%.

If we compare the non-farm job vacancies in July of this year with the average job vacancies per month before the epidemic in 2019, we find that the job vacancies that have increased after the epidemic are mainly concentrated in industries such as healthcare/social assistance, accommodation/food services, and professional/business services. This wave of labor shortages likely corresponds to the profile of "service" + "blue-collar" workers.

In the urgently needed human-intensive industries, where labor demand is rigid, and the labor market is currently short on labor, in theory, layoffs in other industries should be used to supplement the newly emerged labor needs in the service industry.

However, the reality is that the demand for workers in each industry, whether it is manufacturing, construction, mining, or wholesale trade, is greater than that before the epidemic, and there is no industry that has truly experienced a contraction in labor demand. ** 那么这里对应一个致命的问题是,如果用人需求这样持续下去,:**

1)薪资增速从疫情前 2-3% 的同比常态,进入到疫情后 4-5% 的同比常态,市场用什么理由来说服自己后面通胀会比较快速的进入到 2-3% 的中性通胀状态?

2)如果通胀迟迟无法进入到 2-3% 的状态,美联储是否会在出师未成、经济滞涨态下,去转而降息,放任滞涨,去救实际 GDP 萎缩的经济?

If the demand for labor continues to be high, the Fed may need to maintain a super-neutral interest rate for a long time to suppress demand.

Therefore, in the view of Dolphin Analyst, behind the adjustment of the US stock market and even the global stock market, there are more funds readjusting their expectations for the timing of the Fed entering the interest rate cut channel.

Under the policy of the Fed's "soft landing", it is difficult for the employment market in the United States to correct the contradiction in the short term. In the future, we still need to continue to observe the marginal changes in the labor supply and demand contradiction corresponding to the increase in new jobs and new job demand in the United States.

** 二、Alpha Dolphin portfolio returns:**

In the case of a deep correction in the global market, the Alpha Dolphin of Dolphin experienced a greater decline, mainly because Dolphin was relatively tight on time last week, and the updates of the portfolio were not timely based on the latest views and judgments in the financial reports, to adjust the proportion of some holdings in new energy and Chinese concept stocks in the portfolio.

Especially last week, Dolphin has expressed in several financial reports that the release of new energy vehicle production capacity, the competition pattern of the production of complete vehicles has become worse, and overall, after considering the first half of the year, where will the prosperity of the complete vehicle market come from after the end of the subsidization of automobile consumption this year? After all, from a historical perspective, subsidies are unlikely to bring true incremental consumption, but rather to release the demand for car purchases in subsequent years in advance. Some equipment in the photovoltaic sector, such as SunPower, is purely priced unreasonably from previous pushes.

Note that starting this week, Dolphin will systematically adjust the portfolio pool after becoming available, to reflect our latest investment research judgments after this financial report season.

In the context of the overall market's failure, Alpha Dolphin's absolute returns fell sharply by 6.8%, clearly underperforming the 2% decline in the same period of the CSI 300 and the 3.3% decline in the same period of the S&P 500.

The core reason is that the heavy stock in the portfolio, SunPower, experienced a significant decline in the degree of decline, which seriously dragged down the performance of the portfolio this week.

From the beginning of the Alpha Dolphin portfolio's testing to the end of last week, the absolute return of the portfolio was 7.6%, and the relative return compared to the S&P 500 was 18%.

Six, Comprehensive Deep Callback, Only Pinduoduo Shines Alone

Last week, among all the ticket pools that Dolphin Analyst was focusing on (including the stocks put into the combination and the individual stock pools that were continuously monitored but not included in the holdings), Pinduoduo stood out as the unique dark horse in the second quarter financial report. This was due to the cooling down of e-commerce competition (the cooling down of community group buying and the downward sales costs of 618 e-commerce promotion) and Pinduoduo's ability to maintain its commercial bottom line through frequent consumption of agricultural products through community group buying. The basic promotion of e-commerce was relieved, and the performance of the relatively favorable Pinduoduo was better than expected.

Other overall performances were just "terrible" and "even worse".

Seven, Portfolio Asset Distribution and Rebalancing

From the internal test launch point on March 1, the overall return of the Longbridge Alpha Dolphin portfolio as of last Friday was close to 7.5% (including stock dividend income), and the stock asset income was close to 9%.

There was no rebalancing last week, and 32 stocks were allocated, including 10 standard stocks and 22 low-end stocks.

As of last weekend, the Dolphin portfolio asset allocation and equity asset holding weight are as follows:

Eight, Focus of the Week

The tail end of the financial report season this week: mainly NIO and B station. Among the ongoing battle between new and old forces, the brand advantage accumulated by NIO seems to be gradually becoming more prominent, while the pressure on Xiaopeng and Ideal is more significant. Since the sales volume in July and August has been released, the main focus will be on NIO's sales volume guidance and the implied sales prospects for September. Longbridge has already provided guidance and outlook on B station's Q2 performance, which was relatively poor overall. The focus should still be on the recovery progress in the second half of the year.

Please refer to the following articles related to Longbridge's portfolio weekly report:

"Fed becomes the top bear, global markets collapse"

"A bloodbath caused by a rumor: risks have not been cleared, finding sugar in broken glass"

"US leans left, China leans right, and the cost-effectiveness of US assets has returned"

"Layoffs are too slow and insufficient to pick up the pieces. The United States must continue to decline."

"US stock market: Recession is a good thing, the most aggressive rate hikes are bearish."

"Rate hikes enter halftime, and the ‘earnings thunder’ begins."

"The pandemic strikes back, the US is in decline, and the funds are changing their minds."

"Chinese assets now: 'No news is good news' for the US stock market."

"The Growth Carnival is in full swing, but is the United States really in decline?" 《Is America in recession or stagnation in 2023?》

《US oil inflation, China's new energy vehicles growing stronger?》

《Faster rate hikes by the Fed have brought opportunities to China's assets》

《US stock inflation explodes again. How far can the rebound go?》

《The most grounded Dolphin portfolio is launched》

Risk Disclosure and Statement of This Article: [Dolphin Analyst Disclaimer and General Disclosure](https://support.longbridge.global/topics/misc/dolphin-disclaimer" \t "_blank)

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