04 December 2011

Wall Street into the 100% Future

This post heralds a slight change in direction. The conceptual views (that is, all the blog posts prior to this one) generated a certain approach to forex trading which I am working through myself. As I develop it I am placing updates to the other webpages on this site.

But let's keep the blog going taking paths already mapped in the previous posts and when necessary I may restart the conceptual views. Here I am looking at foundations of wealth generation, which can be seen as similar to what happens in a market. What makes the good life for many...it's a hard problem.

In a near pure symmetrical market like forex, the flow of money may not necessarily start a stable growth structure (like a well formed Elliott Wave) and I have argued that the cause of these may lie in other markets. It seems that the equity market has experienced such a problem since the crisis and it did not seem to before.

This is the question which has become a huge political issue of whether Wall Street is a problem. Because that flow of wealth since the crisis has not restarted stable growth structures and people complain about that focus of money. However that complaint has widened into a general complaint about monetary inequality. But the focus of course is Wall Street.

But note that this post-crisis market takes as much as it gives, a bull market gives and gives, and to so many. It may hide inequality, for which there may be other causes, but it does hide it.

But the problem is that it does not continue and by continuing it, problems may occur with valuations, which then get retraced. Then you get to see what the ebbing tide has left behind. And what was there has sparked a revolution.

I do not believe Wall Street is the problem, there is nothing wrong with a market enabled by vast aggregations of wealth, it is efficient at wealth creation. But we need a bull market for this to be possible, without it the business of Wall Street all that can be seen, on that shore. But that business is how wealth gets generated in a bull market.

I see Wall Street as something built around a system which can amplify wealth and that historically it is a solution and an accelerator and to be protected. That is most gets retained through the valuation retracements.

This system exerts a gravitational pull on money which has been aggregated, but it is the people's money, pensions funds and so on as much as the 1%. Especially in forex there is a kind of level playing field already.

The system rewards those in the system, but outside as well, but we need a bull market. Forex indicates just how hard it is to trade a symmetrical market, in such a way as wealth is compounded in any way.

But money flow is not sufficient, there are clear limits to what money flow can do. Just as money flow generates the kind of wealth that some may disapprove of, it takes it away.

In essence it makes an equity market like a forex market, which does this to capital (it retraces valuations in ways which may at least approach randomness) though I note there are approaches now to change this effect. I may hazard that this ebb and flow is what has been happening since the crisis.

I am skipping over what restarts a bull market, I discussed this in the previous posts. The issue is now about what a bull market does.

So for the future we need support to try and smooth over retracements. I suggested in my ideas lab that perhaps that growth up till the crisis, that support that evidenced large scale equity valuations, upwards, was partly simulated and controlled, at least towards the end, but may not have been from the beginning to middle.

It is perhaps a novelty that this could be done and indeed such engineering may have saved the day after the crisis, that is a great justification for developing it before. The past is the past, it is what is to be done now that counts. That is I do not see such engineering as usefully the cause at all of the situation now.

It seems the market is valuing partly now on no future for credit, and I regard that future valuation as that which enables growth to be expressed as an increase in valuation. But for that to happen there needs to be something for it to be believed that it can.

This is where simulation and company growth are similar. The issue is the extent and randomness of the retracements. So let's assume that the retracements from a market flourishing on company growth are more stable, less hazardous to capital.

I certainly can see that flourishing small business is an antidote to market malaise, as President Reagan believed and made happen. The issue is sustaining it, which is what 1982-2007 can be seen as. But it did sustain itself, it is just the crisis chocked off credit. But here what was exposed was not a stony shore, it was a economy blessed with companies, to my eyes anyway.

But company growth such that it supports sustained equity rises needs credit and a certain kind of credit. And the source of that credit is in practice Wall Street and partly the valuations usually given to bank stocks.

But non well founded and perhaps simulated structures to generate it, may be partially causal on massive retracements, which is exactly what a well founded credit system cannot handle.

Hence the crisis. So we need more stable growth exactly to restore that credit system. Small business is a focus for it, what may feed back into the system itself.

But is that systemic property of the Dow, that which amplifies wealth and creates a pleasant life for so many, is it such that can be more stable, no matter what its source.

Well, let's see, with the assumption that many flourishing businesses are a good thing (which is one way of looking at healthy small business) and therefore a focus of political encouragement. It worked for Reagan and for everyone.

Another way is to use the market itself in more efficient and clever ways, which comes down to those who participate in Wall Street and that can be nearly everyone. That is taking the revolution of tech itself into Wall Street, every which way. That is kind of a quote, not from Pokemon (actually Donna Summer, re. Mr Cain), but Clint Eastwood, of course.

I will almost end with this, that forex to me is something which always takes place on that shore. Everything is exposed and it generates that complaining as a way of life. But nonetheless, it goes on, gets more popular, and businesses respond to make it a better playing field. That is what I see, other may not.

What I mean by all this is that wealth concentration in all its forms is part of wealth distribution, in a bull market, (but it may erode equity over time). In a bear market it may not be part of this in such a direct way.

But there may be lessons from a bear market in how to find novel ways to distribute that wealth more fairly, over time. That is the market, which is neutral to distribution, may show the way to make its bounty more widely available, and indeed there may be much in the way of business generation in that.

© 2011 Guy Barry - All Rights Reserved.