Thursday, 13 January 2011

Macro-Level Trends – The Global Stock Market – Re-Invigorating Western Capitalism

The ensuing ramifications of the 2008 financial crisis now known as 'The Great Recession' has perhaps had greatest impact on those old-order industrial sectors which are intrinsically entwined with national, regional and international economies. Unsurprisingly, non more so than the auto-industry.

Investors' perspectives are typically as broad as the myriad of investor-types, attitudes and mentalities that exist. Yet in a 'post-apocalyptic' western world, capital markets have been seen to act (on the surface) as highly reactionary and at times irrationally. However those speedy and massive capital movements across borders and in and out of sectors simply reflect the broad reality that strategists & traders are acting in what they see as a rational basis – even if herd-like in appearance - given the fact that recent years have been largely characterised by macro-event-driven fear and opportunity.

Since the CDO banking fiasco and economic collapse, capital has sprinted between initially safe-haven government and municipal bonds, back into over-sold western equities markets, driven commodities, supported record gold, recently backed out of European sovereign debt, and into EM regions. Now teetering about the credibility of US Muni-bond spreads.

The front pages of the financial press must of course report market realities, those essentially reflecting the market's insecurity about the dynamic of Mohammed El-Erian's 'new norm'. (Though Bill Gross no-doubt sees the Muni-issue as presently 'over-highlighted' given PIMCO's necessary preference for bond-sector stability).

Hence today, the dynamic of event-driven, 'front-page', sensationalist trading appears to have dislocated those old-order investment attitudes. Some observers stating that the chaotic state of macro-conditions and the innate nature of large-scale IT-driven institutional trading essentially makes a mockery of old fashioned stock-picking: whether value-based or growth based.

The argument is that today's innately inter-connected market, across far more regions, far more sectors and far more financial instruments, makes for far greater complexity and trading interaction. Thus algorithmic processing far more capable than the analytical capabilities of individuals given the smaller known analytical universe the machine recognises versus the person-specific analytical methodology an individual uses, from say deep due-diligence to say a momentarily identified sector arbitrage.

[NB This 'Machines vs Men' debate could feasibly set-out an argument for a greater fragmentation and separation of markets, trading platforms, share-issue types etc, arguably setting the human trading market as a supposedly intelligent 'back-stop' to the possibility of extreme swings arguably created by machine-traded market. Such debate is best left to the fringes of regulators and policy-makers, posing such hypothetical structural reform scenarios to academia. They themselves are obviously presently focused on far more basic liquidity and solvency structural issues].

Yet the Man vs Machine reality exists, and as the public of the western world set themselves the task of re-saving to 'initially survive, then latterly prosper', so more people – having lost faith in state institutions, managed pensions, a housing collapse and facing extended working lives - may wish to create their own investment portfolios or at the very least take far more personal interest in shaping their own financial futures.

In this manner, Europe and the more lassez-faire portions of Asia & South America could be set to replay the stake-holder society of 1950s America with the US itself also seeing a Tea-Party led resurgence of 'individualistically-led capitalism'.

Thus, the hypothesis set forward is of an obviously IT-enables yet far more human-centric global stock-market, one that sees a greater education of participants and so stock-prices greater influences by at the very least pseudo-rationality of pertinent valuation models. Whilst of course there is regional income disparity for individuals, this is slowly reducing, so could be presented as an ideal way to eventually re-stabalise global capitalism and see 'Capitalism 2.0 evolve'.

When people at last recognise the diminished role of the state, and so themselves become technically, philosophically and attitudinally 'connected' to a reformed capitalism.

At that point they will be better able to observe the world around them, understand the goods and service industries that generate and convey value. People themselves will start to leverage their own understanding about their personal economic inter-connection with the world at large; as both a participant in value-creation and a direct beneficiary of it. Exacting knowledge of various stock and bond valuation methods might be distant, but the knowledge now available on-line should in time empower them.

The irony is that here and now, the very existence of an IT enabled world highlights the gaping attitudinal chasm that exists between East & West.

Today the ambitious Indian or Pakistani ten year old 'slumdogs', pushed on by family to escape the endemic poverty-cycle uses access to an intermittent, dial-up connection to view the Mumbai stock exchange, so copying the behavoir of the coffee-shop addicted, laptop wielding middle-classes. He or she does not have the money to buy stocks, but nonetheless wishes to understand and master the process upon which Mumbai and India is being developed, and has boosted fortunes for the likes of the TATAs and Hindujas, aswell as sections of middle class. Without access to a sound, formal education and the associative opportunities, he must find them himself.

Yet, all the while in Europe and the US, a trend for 'social infantilism' sees many adults retreat ever more into IT created virtual fantasy worlds. The environment is intendedly one of fantasy where the player feels a sense of empowerment unparalleled in the real world, with a pretence of power and fortune some on-line 'communities' do offer through on-line currencies and 'virtual-gold'; with a distant promise of game-points or virtual currency converted to physical cash if you play the game well enough.

The innate irony is that those western adults have, instead of learning the methods, patterns and trends of the real-world to better themselves, simply absolved themselves in 'this world' for a sense of achievement in an alternative universe, often with its own simplistic mini-economy, reflecting a modern-day Monopoly board, hence the pretence of real-world capitalism.

But those auto-motivated, auto-didactic, aspirant 'slumdog millionaires' of tomorrow don't need converting to capitalism, or indeed escape from it to a virtual simplified state. Those children live it every single day, and are not fooled by the illusionary numbers or false promises of virtual escapism. Instead recognise that they must invest in themselves, even if it be in a necessarily informal, ad-hoc and very sporadic manner given their circumstances.

Thus today, in this new period of rebalancing global economies reflected by a 'World Inc' philosophy, individuals in the west must ask itself “which side of that trade” they must position themselves? The real world, or the expansing virtual world. Yes the two are merging economically, and have merged perceptionally for many, but the size of value creation mechanisms that can benefit the individual through 'on-line game play' vs 'physical tangible work' still remain massively disproportionate.

Since many of the poor of the east cannot afford to metaphorically 'play games' with their lives, it seems almost shameful - and an indictment on our society - that many western adults fritter away their valuable time and learning doing that very same thing.