The Global Casino

Learning from experience, my late partner Mark Braier use to tell me, was the definition of intelligence. If you bang your head against the wall experience should teach you that banging your head against the wall is never a good idea and you do not bang your head against the wall again. Most people have sufficient intelligence to learn from experience in most walks of life but when it comes to investment and buying and selling shares and stocks and commodities they show a naive faith in systems.

Systems have become all the rage. It seems that if you are an excellent statistician and a brilliant mathematician you can devise a system to provide sure fire returns on investment. Thus we have seen investment decisions being increasingly driven by computers programmed to buy or sell automatically at certain levels and by high frequency trading in which many purchases and sales occur over a few seconds.

Over $750 trillion notional derivatives exist today. That translates to more than $100,000 dollars worth of derivatives for every person alive on this planet. Are we mad? We have artificially created a market which has no underlying rationale. Qualitative investment has morphed into quantative trading. This reduces the distinction between investments suitable for widows and orphans and investments suitable for speculation. When you examine the structure of so called safe investments you find that they are as risky and so called risky investments.

A few years ago investments in bank shares would be regarded as one of the safest investments. Banks were conservative in their lending, took suitable security in most cases and held stocks of cash which might depreciate a little but would never become obsolete. In recent years we have seen that not only are banks great speculators investing in assets that are extremely risky and incapable of being understood, but also their very stock in trade – cash – runs the risk of becoming obsolete, especially if they hold Euros as stock. It has done so in order to attempt to compete with the US dollar as a world currency, which the USA cannot welcome.

Those holding dollars in cash are making interest free loans to the US government – a marvellous position to be in for the Federal Reserve. When the systems go wrong theUSAcould act to fix the problem quickly.Europecannot act so quickly. It is particularly sad thatEuropehas embraced the concept of derivative trading and leveraged unwise lending. When things go wrongEuropemoves far too slowly. That is the nature of the beast. IfEuropehad not embraced high leveraged lending and esoteric derivatives the Euro would be a safe haven, built on real businesses not flights of fancy of the computer programmes and derivative instruments.

Added to this is the trend of making decisions by computerised programming; “computer says no” or “computer says yes” applies now not just to the call centre clerk giving an quote for car insurance but to the savings held by pension funds, insurance policies, investment trusts and the portfolio investments of individuals.

We trust these programmes and algorithms in the same way that gamblers trust a system to beat the bank. Many have gone into a casino to play roulette with a “system” that was guaranteed to beat the house but never did. When you save today you are in effect entrusting your hard earned savings to a computer programme, a system.

Ultimately every market depends on how people feel when they wake up in the morning. A global market depends on how nearly seven billion people feel when they wake up in the morning. No algorithm can be constructed to predict that.

If someone were to approach you with a failsafe system for winning at roulette and wanted you to invest your saving in it your intelligence would probably direct you to show them the door rather rapidly.  If a bank or investment house offers to look after your savings in most cases they are offering you a system to beat the market. It never will.

One Response

  1. Hi Robert it’s been a while

    Here is a report which some readers might find interesting- to know what has been happening in the world we envisage as bankrupt and one of the reasons why it is so.

    A corporate world which uses QE’s like rice at a wedding as a last resort until the measures now in place have searved their purpous.

    A freind of mine was trained by the King himself and says that his job title used to look forward to what has happened on much smaller scales in thw past and is approaching us again so they can as he put it to me, make some real money.

    And recently Mervyn has just announced that he is willing to fire up the printing presses yet again to kick the can a little further down the casion carpet.

    H, says it will create hyperinflation at best, in this game they play with our whole and are just about to hand out the cardto a forseen sure fire result and winning hand.

    http://m.good.is/post/automation-insurance-robots-are-replacing-middle-class-jobs/

    It looks very much likely that Greece will default very soon as Ireland starts to sell off her publically owned infastructure as we speak before they follow suit, a quick search of the internet will confirm what I’m saying here, something that the MSM fail to tell the common base and popular.

    We have according to a retired international banker in our gardening group, got about twelve months at best left to sort things out, and the clock is ticking.

    DDS.

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