Market Commentary for the week of April 30, 2012

Trust.
Machines talking to machines.  That is how some describe the machinations of Wall Street currently.  Clearly, as volatility dissipates, the balance of orders becomes driven by execution “systems” and tonality that looks to outsiders as more artificial than negotiated between two parties.

Thus, a chain reaction a decade in the making has supplanted the human factor, opening up new avenues for greed and opportunity.  All the while, obstacles and inefficiencies are being manipulated out of financial trading.

Of course, this is not an American phenomenon, it is a global one.  The strengths, and weaknesses, of a local economy or currency are being exploited today more “efficiently” by technology over which even its designers can’t control.  Remember the 1000 point Dow decline aberration a few months back?

The markets need, no require, the human effect in order to succeed or fail.  We must reward ingenuity and bargaining acumen to make good, and bad, decisions.  Failure is, and should be, an option.  Otherwise, a sterility is introduced into the trading environment that robs capitalism of its primary component, risk.

Technology, or more clearly its overuse, has robbed the perception that the opportunity to make money is fair.  By holding a machine, or theory, responsible for maintaining good faith, we punish the subjective thinkers and rob them of an accountability which, for generations, lay with the brightest amongst us.

Globalization and systemization have expanded the reach of money, but not necessarily its virtue.  What is to distinguish one region from another if all regions become homogenized by 24 hour day-trading?

Credence.

There is a choice.  Vitality in capitalism is a human condition, not technological.  One cannot manufacture entrepreneurship and innovation.  While technology hastens the flow of money, it can also impede studied thought and deliberation.  Crises expand too rapidly today, as do sustained upside bubbles.

Science teaches us about equilibrium, what I call the Zed-line, a point above which, or below, your odds are exactly even.  Computer geeks call this “rebooting.”  But rebooting is not the same as equal odds.  If a machine is turned off at night, and on again each day, one does not enter the arena with the same probabilities as leaving the cycle to run over months and years.

Unchecked, rebooting implies that all cyclicality is also turned off and we simply “start again tomorrow.”  I believe this robs markets of vitality, dynamism, sustainability, and confidence.

Most of the time we can see value in innovation.  I am not an old fool.  I like computers and modern times.  I also like to have some risk in the game, risk which makes the discipline of analysis and sustainability more fun than just flipping a switch.