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Musings Report #32 8-9-14 Have We Forgotten What an Authentic Market Is?
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Have We Forgotten What an Authentic Market Is?
Identifying the erosion of authenticity is intrinsically difficult for two reasons:
1. The erosion happens slowly over years or even decades, so it's difficult to recall the authenticity of a previous time as anything other than easily dismissed nostalgia.
2. The Status Quo--the state, authorities and the mainstream media--naturally claim their narrative is authentic, lest it be rejected by the public as self-serving propaganda.
When I survey the present markets for stocks, bonds and other financial securities, I am reminded of a church in which all the members espouse their faith's noble-sounding values but none actually act on these fine values.
I don't mean a church congregation beset by petty jealousies and gossip--these are characteristics of all human groups and we can't expect any congregation to be entirely free of these oh-so-human failings. In a similar fashion, any market will have companies issuing fraudulent earnings and balance sheets, etc.
The point is that an authentic system doesn't have to be perfect--it has feedback mechanisms and transparency that enable participants to sort things out because the system itself has integrity, even if all the participants do not.
A system, market, congregation, etc. claiming integrity should actually act on its principles rather than just mouth the principles as a form of perception management and self-congratulation.
According to the government, central banks and financial media, the stock and bond markets are free-market engines of capitalist growth. Yet in contrast to this fine-sounding rhetoric, the state and central bank act as if their "Proper Role Is to Counteract Market Turbulence Before It Happens."
In other words, the gap between the fine-sounding free-market values and the actions of central states and banks is widening.
The more inauthentic, self-serving and manipulated the market becomes, the greater the necessity to maintain the illusion of authenticity: if the public truly understood how managed the markets really are, they would awaken to the consequences, which are all negative: once capital markets have been captured for purposes of perception management, they cease being able to discover the price of assets and risk, and allocate capital accordingly.
Simply put, capital markets that are managed to reflect positively on the current regime are intrinsically inauthentic, and incapable of performing their authentic functions of discovering price and allocating capital.
The "market turbulence" that so frightens central authorities is simply markets discounting unrealistic valuations, etc., by rediscovering the price of capital and risk. Markets in which turbulence has been unofficially banned as counter to the desired perception of the economy is a market in name only, a fake that has been stripped of the power to discover price and risk.
The systemic damage wrought by manipulation in service of "counteracting market turbulence before it happens" is two-fold: trust in the market's basic functions is eroded, and the market's self-correcting dynamic is crippled. The erosion of trust in the market's transparent functioning is reflected in the decline of trading volume generated by humans (as opposed to software trade-bots skimming pennies in millions of trades) and the abandonment of the stock market by retail investors--Mom and Pop investors.
There is no other plausible explanation for the remarkable decline in trading volumes other than an erosion of trust/participation.
Once markets have been distorted for self-serving perception-management and to enrich insiders, their ability to self-correct, i.e. re-establish equilibrium, when they break down has been lost. This how manipulation of markets leads to collapses as participants--knowing the market is rigged/gamed--flee when the facade of authenticity finally crumbles.
The irony of maintaining a veneer of authenticity over a fundamentally inauthentic market is rich: the more the authorities manipulate the market to maintain high valuations and suppress turbulence, the greater the odds of a collapse of trust as inauthentic markets cannot self-correct or discover the price of assets, capital and risk. Once risk has been effectively hidden by perception management, participants lack the essential information they need to make informed decisions.
And so their decisions will be catastrophically mis-informed. This is how declines morph into crashes.
Everyone who hopes to earn a return of some sort on their capital is forced to participate in the inauthentic markets of today. Everyone knows they're disconnected from the real world, but they feel they have no choice but to play along.
Everyone who feels forced to play along plans to exit before the whole rotten structure collapses, but that's not how collapses work. The phantom assets have to be re-set in price and risk, and the depth of that decline will be based on the level of inauthenticity the market has reached.
The good thing about the collapse of trust and participation in phony markets is that it will clear the way for a return to markets that actually reflect fundamentals and honesty rather than perception management and intervention to prop up appearances.
It is peculiar, isn't it, that we avoid inauthentic, phony people as dangerous to our well-being, but we are willing to place our capital in inauthentic markets, even though we are aware that they pose a great risk to our well-being.
Cultcha/Culture
Superheroes Made Even More Superb with Hello Kitty Makeovers -- You asked for it, and the creative class delivers...
Double Seventh Festival - an ancient Chinese myth is celebrated in Korea and Japan as well.
Liberating Intimacy: Enlightenment and Social Virtuosity in Ch'an Buddhism (book) by Peter D. Hershock (via Aryeh N.)
Urban Homesteading: Heirloom Skills for Sustainable Living (book) by Rachel Kaplan (via Aryeh N.)
Photos of People Living Off The Grid Who Abandoned Civilization for Life in the Wilderness -- most look like good old hard-scrabble hippies...
Summary of the Blog This Past Week
The Joys of Being Productive 8/9/14
A Brief Note on the Difference Between Trading and Investing 8/8/14
Is This Decline the Real Deal? 8/7/14
What Are the Options for Those Who Can't/Won't Get a Corporate/Government Job? 8/6/14
How Economies Collapse: Systemic Friction and Debt Are Self-Liquidating 8/5/14
The Slide to Collapse Is Greased with Self-Interest 8/4/14
Best Thing That Happened To Me This Week
I exited my short-term bets for a market decline and rise in volatility with a profit. Let's hope my current bet on a 5-day move back up is equally successful....
Market Musings: Looking Back at 2011
Here is a chart of the Dow Jones Industrial Average (DJIA) in 2011, the last time the stock market experienced a correction (i.e. a decline of 10% or more).
I think this offers a possible scenario for the next few months that is based on recent market activity: a "buy the dip" reversal and move back up to fill the gap in the S&P 500 (SPX) at 1970, and perhaps even a move to recent highs around 1991 or new highs (the round number of 2,000 is an attractor, and what's a lousy 10 points on the SPX between friends?)
After that pop back up, the "real" decline kicks in.
What appeals to me about this scenario is the difficulty for both Bulls and Bears to pick entry points. My sense is the market has entered a phase that will likely frustrate Bulls and Bears alike. I suspect that only those with absolute confidence in their technical analysis and trading acumen will navigate the volatility profitably.
From Left Field
20 Of The Most Ridiculous DIY Fixes You Will Ever See -- some are incomprehensible, others inventive, others are, well... scotch-tape-based....
A 21-PART BIKE YOU CAN DISMANTLE AND PACK INTO A BACKPACK
Why computer science graduates can’t talk themselves into jobs: Maths and science graduates are victims of a dirigiste British education policy that fails both labour market and individual.
Veteran dog walker finally finds corpse in woods (via Steve K.) -- a tasty bit of humor at the expense of the beloved conventional murder mystery...
IBM Scientists Show Blueprints for Brainlike Computing (via Lew G.) "Most modern computer systems are built on the Von Neumann architecture—with separate units for storing information and processing it sequentially—and they use programming languages designed specifically for that architecture. Instead, TrueNorth stores and processes information in a distributed, parallel way, like the neurons and synapses in a brain."
Local people preserve the environment better than governments (via Steve K.)
from 2D to 3D Object Manipulation Using a Free Software (4:50 min) (via Lew G.) -- neat...
Specific brain area may aid stock market success (via Steve K.) -- stay with the herd but slip away before it runs off the cliff...
Greatness, Creativity, and Trading Success -- succinct list of attributes...
RENEWAL - A Reborn Colorado River Once Again Finds Her Path to the Sea (9:54) (via John S.P.)
Worldwide Remittance Flows (via G. Wayne A.) -- excellent graphical presentation showing that remittances (from guest workers, illegals, ex-pats, etc.) exceed official aid programs, and unlike those easily corrupted programs, remittances flow directly to households...
What Makes People Buy Self-Published Books? -- of interest to me -- does this jibe with your own experience?
"Look and you will find it - what is unsought will go undetected." Sophocles
Thanks for reading--
charles |
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