12 December 2011

Liquid Ecosystems

On my Twitter on Sunday a link popped up in my feed, which I checked out, a photo of a view in Southern California. It looked like earthly paradise (perhaps closer to paradise itself) a delicate and not so delicate interplay of the complexity of variation of a rich, living ecosystem, the sky, the sea, the flowers. Right now it is so cheap, the view that is.

I have been watching Southern Californian property values, as I have picked this as part of a set of possible bellweathers for the very source of the problems, the decay of housing valuations, which points directly to the stock market. That extraordinary recent investor interest in Las Vegas, added this to it, indeed I ask if one could see this as a possible pointer to a bounce situation.

The logic is this, that here we can strip away something as well as apply some differentiation. There is no questioning these parts of So Cal are desirable. Yet prices in the bellweathers don't rise, they don't even bounce, but here perhaps we have a less fine grained structure than usual in financial markets. So something else is needed (demand and a structure for it).

House orders stacking is perhaps a much coarser grained version of a financial market. This is not about liquidity. Less liquid markets evidence disordered movements. It is not about longevity, long lived markets can evidence great order. It is perhaps about the order of the connectivity of the components of the system.

Something is needed to connect each component, each bidded house into a liquid whole of demand. That is we simulate the connectivity that a liquid market has.

The bubble was partly contingent on the mass of house prices, those not inherently desirable, but wanted, being fused with the financial markets, where liquidity trades and finds a value for anything. It was an easy route to order. That was as well the source of the collapse as the equity market was then highly contingent on house prices.

The extent to which this was like a valuation contagion is interesting, that is the extent to which some stocks were fused back into housing markets, in term of that which was the focus of valuation efforts. This comes back to the layered way stocks responded to the crash, in sets of relative re-valuation.

The market is effective at trashing valuations to earth. As well, a market was made to make want, and getting, closer than usual. That is demand was enabled, then turned off.

So to get that hard momentum, to re-establish the set of those entities that were caught up in the housing bubble nearer the point at which they increase, perhaps we need to fuse again, but in a well founded way. But it may not be possible to approach this in a well founded way, that freewheeling way of life, may be crucial to that focus, that concentration, that stacking.

Reagan talked about common sense in his book "An American Life". It comes across to me as clarity, in the economic realm anyway. By economic realm I mean that which a president can effect change, for a desired goal.

For his job, he needed clarity to be effective. It may be now, a longer term view is needed to fix the economy. That is something crucial has decayed and it needs re-building. Whether this is the case, is a key question for now - that is, would a Reagan approach be effective now.

Reagan perhaps needed to cut through a lack of clarity and find what was still there. Now perhaps certain structures need to be created, that is a different kind of effort, but it is possible. Why they might have decayed is another question. What Reagan seemed to have unleashed was that freewheeling spirit, on Wall Street. At the same time a renaissance of US industry seemed to happen.

Whether he caused this or not is not the question here, more the freewheeling spirit, since that has come under criticism recently. It as well seems not to be possible to bring it back in such a way as it pushes the Dow up to its former heights, so far, even with very cheap money for a long time and other massive stimuli.

This raises the question to what extent is the freewheeling spirit responsible for long bull markets and to what extent the market exists apart from its participants.

However one could note that Reagan helped unleash that dynamo by doing the opposite to recent policy. There are reasons why this is but I am interested in the effect, not the cause of these policies. To me it looks like a valuation issue. And it does seem that there is plenty to value. That is an issue partly for the market, as a system to value.

That is does the market need repairing and is what Regan did, something that helped repair it ? Repairing a market is probably not possible or necessary, so perhaps what happens is more like it regenerates itself, but maybe with input required from those who can effect structural change on the market.

If the path is creating structure then one could note that economic systems seem amenable to this kind of effort, as the Celtic Tiger and other examples have indicated. With the right moves, an economy grows as if from nothing, but it is not nothing, it is enormous effort.

Again, does this happen without the effort. In the case of Reagan and the Irish government, we have tantalizing suggestions that it may not. Which is positive, because it shows that something can be done.

The Irish economy was in ruins in the 80s, now it appears to be leading the way in recovering from the mess in Europe, after its long bull run.

Back to the Californian view, it is not possible to create the structures of natural systems in a meaningful way, to restore them, when in ruins, yet.

But what do I mean by so cheap, that wonderful Californian view still costs a very great deal, if you want to enjoy it when you wake up in the morning. It's that ecosystem, that corner of beauty which is part of a greater whole. That is the concern, destroying the parts, will decay the whole, and no fortune on earth, or great President, can replace that.

It comes down to what it is that is valued. One can create value in housing by fusions with the equity market, or one has value that is partly hard wired in natural beauty. It seems an argument to protect that beauty, but that hard wiring may be systemically fragile. But if the market does not function to value it is hard to fuse anything with it.

So what is the systemic health of the market. It has recovered from destruction in the past, if one can see its state post '74 in this way, but this brings us back to Reagan and what happened from '82. What I am getting at: is the systemic health of the market, taken in a broad sense to include the housing market, such that it now needs and can be responsive to structuring input from governments (instead of enabling money flow).

Is this a medium-long term effort, or short term and to what extent has this already happened with the combination of the efforts of the previous and present administration.

© 2011 Guy Barry - All Rights Reserved.