Thursday, December 08, 2011

Which way should Investment go in future?

The markets need to calm down for their own sake.

Mr Money Man, cool down, relax, and have a little think.

The world economy is a single, if highly complex, system. That means that every part of the global economy is interrelated to every other part of the global economy, to a greater or lesser degree.

Every part. That includes you, MMM.

The markets have to realise that they are an integral part of this economy. If the world economy crashes, they crash. Suicides went up during the Great Depression of the 1930s, but it was the stockbroker class who had the highest suicide rates. If countries go down the pan, the it will not be long before share indices go swirling down after them. It is true that money can move to other countries, but if the interwovenness of the situation means that other countries in turn are reduced to inactivity, the total amount of activity in the world will become less as the money available to becomes more. That way lies global inflation.

Do you want to watch your millions dwindle in front of your very eyes year after year, MMM?

The markets depend on flourishing national economies that can provide happy industrious workers and a stable environment, free from civil disorder, arson and bombings and allied unpleasantnesses.

Many would say that markets depend on flourishing national economies as wolves depend on flourishing herds of caribou, or viruses depend on a living host cell. But wolves do not kill the whole herd, and only dumb viruses kill their host.

However we choose to view it, the fact is that it is not in the markets interest for the world economy to collapse.

Of course, it is possible for an investor to pursue this strategy or that strategy to survive a big downturn, rather as a surfer might fantasise about surfing his way out of a tsunami. Some few traders might even succeed. But the fact remains that by definition, in a Depression, the total market value falls.

Mr Money Man - it is not in your interest to bring the palace in which you dine so splendidly crashing around your ears.

I know that you can talk forever about why it you are nervous of buying wobbly bonds. I know you have an infinite number of words to say, and I know you are very clever and confident in your own abilities, but the fact remains - if the world economy crashes, remember that you, Mr Money Man, you are on the passenger list too.

The market needs confidence. It needs something it can believe in.

Warren Buffet has found something. He has invested in $2,000,000,000 ( $two billion) in solar power.
As the link says, WB is not infallible. But he is not an idiot. He has understood that all the energy ever used by humankind (apart from an vanishingly small contribution from geothermal and  nuclear power) comes from the sun - as wood, coal, food, wind, wave, hydro, and tide. All from the sun, with a bit of help from the moon in the case of tidal energy.

WB has made his move. The Money Men should top and think. Not only are they part of the economic system, they are also part of an ecological system too. Renewables are part of the green economy. What else forms part of the green economy?

Green means sustainable in the fullest possible way. Sustainability has become a bit of a two-dimensional buzz-word. Think of it as existence in your childrens' time.

Markets need confidence. They need to know which way things will go. At the same time, they influence the way things go.

Markets are strange, shadowy things, an aggregate of individual beliefs and actions. At present, the chief belief is that things could easily go very badly, and that helps to ensure that things go very badly. On the other hand, if they realise that there is a future for the world economy based on solar derived power systems, they may help to bring that about. If they have confidence in the capability for solar technologies and all the other activities offered by the green economy, they can help bring it about.

I'm not stupid by the way. I'm not saying this is going to happen tomorrow. I'm just saying that strong ideas are powerful, and the market is a place where ideas can spread virally.  Traders are not all stupid. There are traders, just as in every other trade, who have understood the First Great Green Truth - that it is unwise to shit in your bed.

Lack of confidence causes anxiety, impulsiveness, and even misplaced anger, all of which can adversely affect decision making.

On the other hand, having a sense of purpose, a sense of direction, of being part of a great construction, this gives confidence.

So have a think, Mr Money Man. Think Sustainability.

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