Market is human after all, for it won’t be market then. We might have devised quantitative and qualitative techniques to gauge, measure and predict it. But it still beats us, and it dupes us because it follows the two ever-insidious human traits: greed and fear.
Consider the market as a hill. On one side, we all are standing, looking up the ascent and wondering about its top. We all are looking at opportunities to scale the tortuous and steep path. But it takes an unfortunate incident, like 9/11, to create those opportunities by forcing the governments to act. In order to boost the sagging market in the aftermath of the incident, the government dishes out low interest rate, easy capital, higher leverage etc on everything. Every one of us joins the bandwagon. Financial institutions start doling out risky loans even to subprime candidates. To gain further, they amass liquidity by securitizing their assets. They start indulging in principal trading, putting their own money on risk. Investors on their part partake everything offered to them. New houses are bought; new stocks and bonds are secured; new investments in the fastest profit-yielding sectors are made. Prices rise, but who cares? Everyone is making money; everyone is ascending the hill to rise as high as he can. The prehensile tail of everyone has grown. Somehow one person, out of fatigue or boredom or may be anything, decides to rest, and looks back at the level field at the bottom. He starts wondering, “Is it worth it?” Some others join him, while the rest continue on their ascent. But the seed of fear is sown. Some start descending. The overproduced goods have now started producing lack of demand. Spending reduces. People start pulling out money from the market, and securing it instead for future bleak period. There is excess in every sector, but refusal to buy from the same-gracious customers. To keep themselves even, the companies start controlling their payroll, laying off people and plugging their dispensable expenses. Unemployment ensues; incomes drop; bank defaults happen. Bad debts are created in those very ambitious financial firms, and ultimately grow so big to force the firms to go bust. Every sector is affected, even if not directly or indirectly, then by the psychosis of fear. Everyone starts running down the same hill, he had once hankered to top. There is chaos; and we call this economic crisis.
Lovely story! And it has been repeated every now and then over the last century. But as said above, we all, including the market, are humans. As soon as we descend down the hill, we will be looking out for another hill and another set of opportunities. Again the same journey will take place, and there will be another writer retelling the same story.
Consider the market as a hill. On one side, we all are standing, looking up the ascent and wondering about its top. We all are looking at opportunities to scale the tortuous and steep path. But it takes an unfortunate incident, like 9/11, to create those opportunities by forcing the governments to act. In order to boost the sagging market in the aftermath of the incident, the government dishes out low interest rate, easy capital, higher leverage etc on everything. Every one of us joins the bandwagon. Financial institutions start doling out risky loans even to subprime candidates. To gain further, they amass liquidity by securitizing their assets. They start indulging in principal trading, putting their own money on risk. Investors on their part partake everything offered to them. New houses are bought; new stocks and bonds are secured; new investments in the fastest profit-yielding sectors are made. Prices rise, but who cares? Everyone is making money; everyone is ascending the hill to rise as high as he can. The prehensile tail of everyone has grown. Somehow one person, out of fatigue or boredom or may be anything, decides to rest, and looks back at the level field at the bottom. He starts wondering, “Is it worth it?” Some others join him, while the rest continue on their ascent. But the seed of fear is sown. Some start descending. The overproduced goods have now started producing lack of demand. Spending reduces. People start pulling out money from the market, and securing it instead for future bleak period. There is excess in every sector, but refusal to buy from the same-gracious customers. To keep themselves even, the companies start controlling their payroll, laying off people and plugging their dispensable expenses. Unemployment ensues; incomes drop; bank defaults happen. Bad debts are created in those very ambitious financial firms, and ultimately grow so big to force the firms to go bust. Every sector is affected, even if not directly or indirectly, then by the psychosis of fear. Everyone starts running down the same hill, he had once hankered to top. There is chaos; and we call this economic crisis.
Lovely story! And it has been repeated every now and then over the last century. But as said above, we all, including the market, are humans. As soon as we descend down the hill, we will be looking out for another hill and another set of opportunities. Again the same journey will take place, and there will be another writer retelling the same story.
