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Posted in Personal Finance

Economics

Learn economics. Please.
Markets are rigged, and the less people understand economics, specifically global finance, the more they reflect political decisions rather than price.
On the spectrum between completely free markets, and completely unfree, we are very close to the unfree extreme.
You can tell this is the case because in general, market indexes move by much more relative value when a Fed chairman speaks or when economic numbers are released.
At the other end of the spectrum, stock prices can only reflect the true long term productive value of companies, and occasionally reflecting the effects of disasters, weather etc..
Contrary to popular belief, the free market end is not very desirable for speculators because the horizon to making profits without actually producing something, i.e. simply picking the right stocks, is much longer.
This is because without  fiat money flooding markets, stock prices can only move conservatively over a longer time. A bank president speech would be ignored except by this investors in the bank stock.
The best spot for a speculator is the zone in the middle, in which markets are in a of central bank induced euphoria with periods of conservative corrections that are easy to spot and predict. In this central zone, the profits lie in predicting or even simply detecting the irrational exuberance of investors over company earnings that should not exist, before they make their way into valuations by the effects of higher stock prices caused by speculators. In other words, pigs get slaughtered.
We are currently at the far end of the manipulation spectrum. Markets move mostly upon news from a Fed chairman speech, or very powerfully when earnings are announced by companies in their quarterly calls. A value investor would not expect a successful earnings call with 1% growth generated by “capital investments” representing borrowings of a significant portion of the company’s assets, to represent anything impressive enough to cause a price jump of 4%, unless it is confirmed by many other such reports.
But such is the reality of today’s environment, in which low interest rates fixing by central banks have forced long term investors to starve for yield to preserve capital against a rising tide of inflation, and speculators to hang their short term prospects on ever bigger gambles, carry trades and derivative bets, forever in jeopardy from tiny changes in interest rates, necessitating ever more clever ways to read the moods, intents and facial expressions of Fed chairmen and Central bank chiefs from their speeches, meeting minutes and economic indexes.

My point here is that unless this state of affairs changes, nothing good can come of it. The incessant wave of mergers and acquisitions has become a necessity for corporate executives in search of growth and higher stock valuations. Bigger companies can usually obtain better corporate loans than smaller ones, and smaller ones usually exhibit higher growth for their size. The endless stream of mergers reduces consumer choices and the ability of competition to sanction winners and losers. 
The only way it can change is either by societal collapse, Argentina style, or by people educating themselves out of economic fallacies. 

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