Now, the question might be asked when growth processes begin, is it better to stimulate as early as possible. If one examines how these processes work in markets, it seems that the best time is before the total collapse of values, in this case assets values of companies.
The problem is that these assets were valued on the basis of unsound mortgage related valuations. Does that matter - well, yes because it means there is no basis on which to rebound, for starters. That is an essential condition of a market turn, that values find incorrect valuations. But the problem is that the crisis made assets find possibly correct valuations.
That means there is no basis for that initial rebound, which helps growth processes, assuming there is no asset revaluation from company growth. But QE is taking on this role, it is essentially forcing the market to rebound, but repricing assets with the vast availability of money, pure money flow. The way the market rebounded looks a lot like a too low re-pricing rebound in a trading day.
But is the growth actually occurring going to help this process, because that growth is entirely unconnected with these asset re-pricing, except in as much as money flows into these companies as well. Perhaps, because in each new market rise, the winners are not known at the beginning.
That is the difference between equities and forex, one is seeing only money flow, however much it may be structured by optimization or growth. But in equities one is seeing equity growth. Except now in equities one is seeing in general money flow in equities.
Money flow bids assets up and down without regard for intrinsic value, it is like the way a big bank can force a currency up or down. Yet that tends to result in resistance by the market, and it seems huge reversals, the more it is applied.
Thus it is a dangerous game, if one is concerned with a) currency stability and b) equity valuations rising. Because the desired directionality of equities is up, then pumping assets values is not a good long term strategy.
The implicit hope, from the standpoint of the market is that this interacts with a directionality in the market, what I might term a growth process (in certain circumstances this can be linear), or an optimization given linear directionality.
That said I do not believe that linearity is necessarily that important, traders implicitly structure market processes to give them a temporary linearity within the market, that is what they do. However this temporary linearization may distort directionality within the market.
The same in equities, over longer terms, that is yes, parallel company revolutions, are important, as they provide a basis for investors to linearize this market, in terms of the market itself.
This may act counter to attempts to linearize the forex market, or perhaps to make these attempts more coherent over time, a source perhaps of the removal of those apparent regularities systems and traders try and trade on.
That perhaps structures those internal processes, using forex for this, as they probably are not linear processes. This is perhaps why one cannot force companies to grow, one has to find them before they become money flow targets, and hence devoid of directionality, and one has to do this looking for a functional key in their financial statements.
Evolved processes in complex systems tend not to be linear. This is possibly a consequence of the tendency of systems to adapt, that is over time the adaptation re-writes any linear causality. The optimization may possibly be a consequences of external inputs attempts to linearize.
The point is the acausality of the market may be precisely from attempts to linearize it. But that suggests the mechanism by which one can boost growth with money flow, but the parallel nature of growth suggests it is only a matter of timing.
The problem with stimulus is the effects flow over time, after the initial boost. However that initial boost may be what is important, not the later movements. One could say that traders are in fact chasing this effect, and losing money on the effect.
That is the initial effect is adirectional, but the extent to which the trend can be made directional, is nothing to do with the trend itself. This suggests reasons for the random looking results for pattern trading. It is like reading stories into cloud formations.
Clouds have direction, because they have a wind behind them, forex does not. The fact equities does, in the sense of directionality from precision pricing from forex and company growth may make day trading it, in certain circumstances, more directionally stable.
But that precision pricing in forex, may make trading it more profitable. The problem is the lack of sustained directionality, which makes for losses. This is why a structure based on both forex and equities seems attractive.
The point is the way the market may function, seems to be ways which unmake depressions and recessions, as well as make them, in the sense that they value assets to realistic or true values. That is the recession or depression is probably already there, by the time the markets react.
But they seem to play a role in the creation of the new rise. That is why one should watch markets for signs of a new surge. It may be as well, why it seems possible and desirable to control markets in such a way as to create the appearance of an economic revival. But that results in huge corrections of assets values.
I would suggest that one looks for the signs of company growth, but as well, the capacity of the markets to compute this. These are arguments as well for letting markets function to grow and value.
© 2011 Guy Barry - All Rights Reserved.
