The Destruction of Capitalistic Markets and Pricing-out the Competition
I have been an avid follower of markets for a while now and am concerned about the direction the world's economies are taking; not through any fault of their own! The bottom line is some of the biggest funds (some have access to trillions of dollars) have rigged and inflated markets (commodities) with little or no regulation and oversight. The net effect has been a pricing-out scenario that is causing a lot of unrest in many parts of the world. Another problem is the guarantee the Federal Reserve in the US has given to corporations that no matter what happens, more liquidity will be provided. This is a real problem and more on this point soon (fourth last to last paragraph). These two issues might be reinforcing one another.
The trend this year has been for stock exchanges to merge, which may seem a little harmless, but if you create an environment which allows massive and influential 'cloud' (no real border) trading to go on, then you'll allow collusion and rigging to be a part of the model! Not a conspiracy. This is a real danger to all governments!! These enormous trading firms are so influential that they can (and have!) propped-up commodity markets and quite a lot of these commodities (copper, silver, coffee, cotton etc etc) are now trading at record highs (higher than when we all went through a near decade boom period), while the world is still grasping with the idea of huge debt, little growth and high unemployment. Strange.
How is this possible with the global financial crisis just behind us and many nations struggling with their own economies and debts? The ones that control the supply of (any) commodities along are stockpiling commodities (eg. Ivory Coast with coffee) and artificially creating an inflationary story when, in fact, they are just stockpiling and controlling the supply (less of it) to the world. The less supply the more it costs. But it is still there somewhere - stored in warehouses, most likely in the same country of origin. Well it's not being used like it was three years ago. China would be the only exception, but it's a renowned stockpiler too (esp with copper); it recently cut supply of rare earth metals of which it controls and supplies 90% of it. The price went up and this might entice Japan (that needs it for its electronics, cameras etc) to ship its factories in to China. Maybe.
Most economies/countries (esp the developing ones) are now going through a process of being priced-out of not just competing with other developed nations, but priced-out of supplying basic soft commodities to their own people (food on the table!); look at what's happening in the middle east and around the world.
The people in Egypt and other neighboring countries, are blaming their own governments for something that is created and reinforced from abroad - the inflation story, and this time round it is just that, a story. Iran might be drumming-up support from its neighbors, and sympathizing with their plight, reinforcing their own propaganda/agenda, and this might be why they are sending ships through the Suez Canal. It feels a little ominous. The hatred of the western model (and this shouldn't happen) may be a consequence of the troubles that those middle eastern countries are going through, and maybe Iran is starting to take advantage of this.
The illusion that all countries on Earth can simultaneously go through a boom period like we did from around 2002-3 to 2007 is just that. The saying 'all ships rise with a rising tide' holds true in some circumstances, but not the so called near decade, world-wide boom most countries on Earth went through. A true (and cruel) capitalistic market is one where one company competes with others which implies an uneven distribution of profits and wealth overall. This could be extended to country vs country too and this is exactly what happened; some countries were actually doing much better than others, although the consensus was they were all doing fine!! Many saw the near decade long global boom as real until it all came to fruition.
The capitalistic model has been broken and this is largely due to what the Fed in the United States has done; it has provided cheap money and it has basically guaranteed that it will always be there to bail-out (risky) corporations whenever the need arises. This has created (or is creating) an even bigger problem than what we had before. But it will take years to see a downturn like (or even worse) than what we went through. You need the consumer to borrow lots and lots, and this has not taken effect yet in the US. Big business has been doing this for a while. After all it has the backing of the Federal Reserve. So why not. But the current boom in the stock market in the US has very little fundamentals linked to it. It's not a true growth story. It's purely about providing as much cheap money as you can with the guarantee of supplying even more if the %@$#$^ hits the fan once again! This is another disaster waiting to happen down the track. And because investors know it wont for a long time (because you need the consumer in the US to come roaring back - and they will but not for a while), investors (large funds etc) are going in early and piling-on as much as they can right now because this is, for the time being, a sure thing! It's guaranteed!
An indicator called the Vix is a good guide for risk and volatility. It has been subdued at below historical levels for a long time now. The reason for this is because of this guarantee from the Federal Reserve that they will always be there to pump as much liquidity into the market as needed; no real risk! The Vix is like a pressure gauge that has historically has shown volatility and pressures within markets. But it is pretty much non functional which means the pressures that are now building are not being revealed. The previous Fed was a lot more conservative and cautious and did not pump the volumes of liquidity that is now available. And yet many want to criticize him for creating a cheap money environment (around 2002) that got the US in the position it's in now! The difference between then and now is around 5 fold (deficit etc)!
The Vix is in another planet at the moment. These (unregulated) cloud exchanges, and the funds that will be driving them, (that will trade complex derivatives that even courts don't understand!) will be so powerful - a lot more powerful than most governments on Earth - that they may as well be called cloud, faceless governments themselves! Ones with little if no accountability and oversight, that can artificially inflate markets and cause a great deal of distress around the globe. Hey, I forgot to mention they are making bucket-loads of cash too!
Your net gain will always be greater when you can make your competitors poorer!
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