Monday 19 January 2015

What odds do you offer Mr Blankfien

Once more the markets are in disarray with the fall in the oil price and now, the fall in copper.
In times past it would have been thought a good thing to see the price of oil falling. Oil is a constituent in the price of so many things and to see it fall is now apparently a foreboding of bad news.
Of course for the producers and the men and women who work in the industry, these are troubling times but one would have thought for the world of commerce at large and particularly for the consumers of products that are falling in price, this is very good news particularly when wages have been held low for a number of years and disposable income is squeezed.
But no the economists, at least the ones employed by the Banks are wringing their hands portraying an implied crisis of deflation and stagnation where the economy doesn't grow no matter what stimulus you apply, including, printing billions of pounds, artificially propping up the your own Bond market (IOUs placed against the assets you hold in the country ) by buying your own paper with the money you just printed.
There was a time when growth was not worshiped on the high alter of finance.
Growth was a constituent of industry and based of increasing the volume of people you could sell your goods to which, in turn made you more profitable, improving your image (if you were a public company) on the Stock Market for investors to buy shares to share in the success of your company. It was the basis of Capitalism.
Today we have an 'industry' which is separate from the normal industries which produce widgets.
An industry which produces nothing, and rely on making a profit by increasing the volume in the units of exchange (Money) and the volatility of the transaction of this commodity which we measure our wealth, "money".
It's called Investment Banking.
Some of the best brains, fresh out of university work and contrive to build schemes to ever increase the multiples which flow from a transaction, extending the opportunities to which gambling, will distort and move the currency (or it's hedged position) so that a bet on the position this way or that will provide a profit and a corresponding loss for those engaged.
Using money as the main source of "economic activity" leads, as anyone will agree who has extensively gambled, to an unstable life style with unpredictable highs and lows such as we now experience in the financial market.
The bet has replaced the old rational based decision regarding stocks and shares, a transparent balance sheet, allowed you to buy, long term in support of a company producing actual things to trade and sell.
Will the fly walk higher or will it turn lower, what odds will you offer Mr Blankfein ? 



Oh, by the way, his compensation (I suppose compensation for him having to leave home each morning) in 2007 was $53,965,418, so you might have to wait in line for the profit to be adjudicated.

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