As isolation and social difference goes viral, it’s time to come together.
As the state cavalry charges over the hill to save us all from the viral hordes could March 2020 go down as the month that speculation died? I, for one, hope not. After all, speculation makes the world go round. From starting that batshit crazy business idea through to asking for the number of an out-of-your-league hottie behind the counter.
I’m an investor. Some of you may prefer to call me a speculator or perhaps even a rent-seeking bastard. Whatever the label I wear I do know capitalism is great when it works and that finance is essential to keep it flowing. But if the financial tributary is corrupted then capitalism goes toxic. It’s become fashionable is some circles to disdainfully label this toxicity as “neoliberalism”.
It’s clear that high finance has been underwritten by the state because it’s too big to fail – socialism for the rich. What’s missing in finance is personally wearing the risk you take. Our current bloated edifice of fast-moving flows and trades would not exist if all participants faced the risk of personal ruin.
“Whatever the label I wear I do know capitalism is great when it works and that finance is essential to keep it flowing.”
Allowing financial institutions and people to fail ruinnessly without pulling down the system is the keystone to any durable healthy free-ish entrepreneurial future. The spectre of ruin brings judgement and scaling to any durable activity and the stupid or overally avericious go under quickly. So less regulation is needed rather than more. Regulation, beyond simple consumer protections, is not the answer and just another conceit that we are cleverer than the future. All those traders and financiers that we demonise, and then yet bail out when the faeces enter the ventilaltion system, should be exposed to the risk of personal ruin.
Most of the short-term trading stuff and other high-finance activities are unnecessary for the successful functioning of finance and the economy and we’d be better without them. Like parasites these areas of the financial market feed off of implicit state and regulatory support. Perversely, we think our increasingly-complex regulatory interventions fix things. Doh!
The irony of the fix-it-through-regulation approach, after 2008, is that it merely succeeded in suppressing general economic growth for real people, while the fleet-footed financial crowd danced around the barriers to make out like pigs once again. We suppressed the financial speculation machine without realising it was also how we funded our growth. I’m not saying it’s the only way to fund growth, rather that it was how we did it and when we suppressed it we didn’t realise the self-harm we would inflict on people over the past decade.
Being an active investor places me in the centre of the current storm in terms of newsflow, opinions, perceptions and politics. A maelstrom that plays on fast forward through my days at the moment. It’s intense and bewildering. It’s also interesting, but not in a good or comfortable way as I’m losing lots of money. I’m not crying about it and I’m acutely aware that I’m lucky relative to the waiter who lost his job overnight or the nurse battling the viral Armageddon.
I invest in companies I think are durable and undervalued, and have invested through the bear markets of 2000-3 and 2007-9 and many other volatile periods. I’m a contrarian sort liking things that are unpopular and avoiding things the crowd loves. I often lag behind the up-markets, particularly when they get euphoric but then do better during the hard times. I made money in both previous bear markets this century. They were clearly signposted and I saw them coming.
“I’m losing lots of money. I’m not crying about it and I’m acutely aware that I’m lucky relative to the waiter who lost his job overnight or the nurse battling the viral Armageddon.”
The action in markets during the year to date has been more dramatic and discombobulating than my prior experience by a distance, and probably more than any other time in Western markets including the Great Depression. It’s probable that the only parallels are in societies that have had catastrophic failure moments.
Three risks have rolled into each other at once. Hugely excessive valuation and optimism around the US equity market (like 2000-3 but with the median company even more overvalued), severe dysfunction in the global financial plumbing (like 2007-9 but on steriods) and Covid-19.
For the record, I’d have done quite alright with just the first two risks. I was ready for them as they were 100% telegraphed if you weren’t part of the backslappingly euphoric crowd. Nevertheless, it’s a brutal business and as I got the Covid-19 risk wrong my losses will be just as bad as the dolts that missed the other two risks too. As for leveraged investors? The market is shooting them dead and that is contributing to the bewildering volatility.
In isolation, any one of the above risks would be enough to cause a bear market in excess of 50%. So does that mean together this risk layer cake will cause a financial apocalypse more like 1929 and so, given our overly financialised economies, an economic end times too?
Hold on to your hat but the perverse fact is that Covid-19 will be our saviour. The acute human misery and angst that Covid-19 brings is awful. However, from a socio-economic and political perspective it will prove to be a godsend. The immediate existential threat it presents liberates all forms of previously unimaginable response. No need to hold onto any of our dodgy economic shibboleths. And when the virus threat recedes the door will remain open to the once unimaginable. We’ve stepped through a looking glass permanently.
I’m non-ideological, believe in the market and entrepreneurialism, but view myself to be left leaning in a political sense. The central societal conundrum to solve is how to make the majority who don’t win the economics game happy with their lot.
There can be many ways to solve this conundrum. I’m happy to live in a society that seeks to solve it alongside high levels of personal liberty. Others, like the Chinese, seek a very different solution.
I associate a free-ish market and entrepreneurialism with liberty. Markets and entrepreneurialism can be a bit mad and frenetic, even wasteful at times, but in the end they probably deliver the best results. For example, there isn’t an example of a single significant Command Economy that hasn’t wrought dreadful environmental damage. That doesn’t exonerate every “free” society but it’s among these societies where best practice can be found.
The decade since the great recession has been a weird dreamtime state. We all knew things weren’t right but most of us non-ideological sorts didn’t believe that anyone had the right alternative plan that we’d risk what we had in hand to jump to their alternative future. We just muddled on increasingly dissatisfied.
“Now a massive event has arrived, beyond mere recession or financial market implosion. I don’t think we’ll squander it”
Now a massive event has arrived, beyond mere recession or financial market implosion. I don’t think we’ll squander it. Social justice and reduced inequality are now in play. Don’t expect it to resolve overnight. We’ll have to keep pushing for it, but in collaboration even with those from a different political tradition. Stop blaming the shadowy neoliberals and just get on with winning the peace. The ball’s in your court for now. Don’t foul out.