The spectre of Dow 13,000 haunted the market last week. In fact, the run-up to such milestones is all-consuming and, in reality, a little befuddling. In the midst of a political debate, a moral dilemma, and a global debt conflagration, nothing could be less significant than a numerical integer whose relevance is highly overrated.
As
numbers crunchers go, there are integers and there are integers. More to the point is the location of the integer and
the trend within which it is contained. For example,
if Dow 13,000 represents the end of a cycle, a destination, then its
significance is diminished as opposed to a breakout on the way to somewhere
else. Conversely, we’ve already hit Dow
13,000 at least twice, once on the way past it and again on the way down
through it, as we crashed and burned during the last recession.
My
point is not to diminish the significance of our rebuilding efforts, but simply
not to get too excited about it without context. We need to undergo a significant change in confidence
to reset the financial condition around which these numbers are evaluated.
Perspective.
Of
course, no system remains static especially after undergoing the kind of
rupture our financial system did. The
near-collapse of our banks, housing, and credit market was not a mirage. We evolved into that demise by our own
choices. And, like it or not, those
choices were driven by greed, excess, and leverage. We thought, wrongfully, that the good times
could not end. We spent ourselves silly,
sweeping not only our generation but the next into near-bankruptcy.
Our
track record of self containment is not good.
We need regulators to protect the unprotected; we need government to
address the unfortunate; we need business to develop a conscience. Consider that the human condition is global,
not American nor Chinese nor Latin American.
It turns out that the congruence of greed took down all markets. Dow 13,000 is simply a signpost containing no
statistical relevance unless it is placed in a timeline or continuum.
Sometimes,
politics is important to the solution and sometimes it is not. When business can’t control its moral
compass, risk-taking skews towards the privileged. While entrepreneurship is to be lauded, the
capital markets are not a casino. Casinos
are unfair. Business and economics, on
the other hand, have rules.
The
global investment bourses reward profitability.
Technology and innovation are the hallmark of equitable risk/reward
dynamics. When leaders miscalculate,
they should be held accountable. When
they don’t care, they should be incarcerated.
Road map.
Today
we sit with historically low levels of interest rates. Eventually borrowing will expand. Until then, financial institutions are
hoarding cash, grudgingly turning on the spigot of cash flow. In most cases, we need fiscal intervention to
get cash into the system. Without it,
profitability and investment remain the domain of those who have the money,
and, as yet, they are not playing all-in.
What went wrong is not an indictment of those who
played fairly, but about a dynamic that is inherently prone to missteps and
greed. The balance is between dynamic engineering
and appropriate stabilizing mechanisms.
Our crisis became structural, then moral, then psychic. In the same order it needs to be remediated.
I do
care about benchmarks and thresholds.
They are useful guideposts, but I care more about the direction and
logic of the trend in which we evaluate them.
Unfortunately, we attained a new/old milepost without changing the
trendline.
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