Nature calls can be postponed but cannot be eliminated. It is a fact that all of us learn by experience in our early years. A politician’s claim to enact something that would permanently eliminate the need for nature calls would be outright ludicrous. The same applies to regulation of free markets by legislation. However nine out of ten laws passed by legislators across the world aim to regulate things that are similar to nature calls and yet people keep electing them to legislate. Germany and USA are the latest examples of countries trying to regulate free markets. The governments and legislators in these countries are trying to invent ways to eliminate something as natural as nature calls, free market.
Germany has just realized that PIGS (Portugal, Italy, Greece, Spain) are farm animals, which should not have been let indoors. Germans woke up in a pigsty about a week ago and are finding it hard to believe that it is their new home and that they would have to reside there for at least a decade. PIGS are the profligate members of the European union now under the financial aegis of Germany. Legislators in the USA are busy making a new law to regulate something that has already happened. They fail to realize that legislation is always one step behind (financial) innovation. Soldiers on the front lines know by experience that their generals are always well prepared for a previous war.
BASF made an advertisement that had a catchy line, ‘ We don’t make a lot of things you see but we make a lot of things you see BETTER’. Anyone of us that ever watched nature in action (even on television) knows that fear does not make deer but it does make the deer run faster than its predator. Failure is the best regulator. A predator that fails to catch prey is doomed to die. The same applies to any financial entity however small or big. Dinosaurs are the best examples of too big to fail. They are the ones that perished first due to a change in the global environment several million years ago. Tiny warm-blooded animals that we now know as mammals survived that apocalypse. Small innovative business would be the ones emerging out of this financial apocalypse. It is serendipity that legislative obstacles cull out the weaklings in the new crop of small businesses.
The law of diminishing returns applies not just to mangoes but also to bailouts. As the number of bucks in the financial system is increasing, the bang for the buck is diminishing. Even an amount like a trillion dollars is so weak that it cannot bang the financial markets for even a week. More bailouts are coming but soon no one would even notice a trillion dollar bailout, as it would become as inconsequential as the Zimbabwean dollar. The grasshopper unions in Greece are creating ruckus on the streets for some bailout money. ‘Greek Grasshoppers – Gucci to Gulag’ could be the reference book for financial historians in the year 2020. A word of caution for the grasshoppers among us, ‘Bailouts are only for banks that can blackmail’.
Gold has also joined the bandwagon on the financial roller coaster. Huge swings in prices of gold would be the norm for many months ahead. Everyone agrees that it is the reserve currency of modern human civilization but only a few posses pure physical gold. The rest of us believe in someone to store it for us. This someone used to be a government that issued fiat currency and now it is some AMC (asset management company) selling units of a gold ETF (exchange traded fund). Adulteration of gold is possibly the oldest known financial fraud in human history and its probability is directly proportional to the price of gold. This is just to caution the naïve investor about some lurking dangers with the safest investment in the world.
The Indian investor can make hay while the sun shines and the financial world whines. Just as climbing uphill takes a lot of time but falling down takes seconds, global equity markets could give up all gains made in the bear market rally since March 2009 in just a few weeks. It could a good time to let the sand castle built by bailout money wash out in the tidal wave called free market, before entering the equity markets for round two of profit making. Adventurous traders among us are making profits shorting (betting on failure of) everything from companies to countries, much to the chagrin of PIGS and their keepers. Dinakarananda and the Arthayantra (AY) team request all of you to watch the sequel of the financial crisis at a television near you. Wish you happy investing and profits after the show.