Monday, 23 March 2020

What purpose does keeping financial markets open serve today?

In normal times, markets are a keep lifeblood of a capitalist economy. They send the singal to participants and the Government about the state of the economy and are a general barometer of health for a market economy.

But in times of crisis they are scary places. The markets are run these days by both human traders and their pet algo's. This means they experience both euphoria in the good times and fear in the bad times. Sometimes the algo's are designed to exploit the fear even further.

At this unprecedented time of crisis, I don't see the point of the markets remaining open for stocks and shares. We know the crisis is only going to get worseover the next few weeks. Then hopefully better. As such the markets are just going to keep dropping on every bit of bad news.

Meanwhile, Government's like the UK have stepped in to effectively nationalise the workforce. A completely unprecedetned move. Plus loans and tax holidays for businesses. These may work or may not work.

So to me the unknowns are so large that the markets will have no real option but to fall much further. This only unbalances the economy further for any recovery - hurting savers and allowing well-heeled Private Equity a chance to buy up lots of companies on the cheap at a future date. The answer surely must be to halt trading for 6 weeks.

Forex can continue for trade as can commodities as these are life essentials for a function global economy. But stock markets are a one way bet and the lack of price information is not going to change how our Governments make decisions in the next few weeks.

I am amazed at the lack of discussion of this in the media - this can only be because the responsible types at the Financial Times worry that this discussion will cause a stampede to cash by retail and other investors and thus another steep fall.

However, we need to be rational, a collapsed market will not be the basis for a quick bounce back and reset in a few months time if we are lucky enough to get to that point.

Debate needed..

18 comments:

Nick Drew said...

Debate needed..

or maybe swift, unannounced action

dearieme said...

Bah! The case for closing the markets has to be conclusively strong. It isn't so keep 'em open.

Otherwise you are stopping someone who really does need liquidity from selling his shares. The decision should be his not yours.

Anonymous said...

Yeah, if they announce it in advance then I don't want to know what will happen. Maybe over a weekend. And every market would need to close at once else the ones that didn't would get decimated.

OTOH, I would expect to be able to cash out my investments now even at a loss, and while I have no plans to for 30 years otherwise I shouldn't have invested, others might be in a desperate situation where they want to cash out at any price.

Raedwald said...

I'd keep them open - there has to be a bottom, and when we reach it, it's time for the British public to start buying - through the government's multi bn investment programme

Denationalisation makes sense when share prices are high; nationalisation works best when shares are at rock bottom.

Of course, the govt need to pick and choose what to buy and what to leave alone - whatever's in the best national collectivist interest.

Thud said...

Bloody hell Raedwald you go pol pot over at your site and here I'm not sure who you are...nationalisation oh do fuck off.

Raedwald said...

Well, we've just nationalised the railways today, and our flag air carrier is set to become substantially more state owned ... along with many other enterprises. In effect it's nationalisation. No?

dearieme said...

Why is BA our "flag air carrier"? I was under the impression that it's owned by a Spanish firm. Wot I found:

International Consolidated Airlines Group, S.A., often shortened to IAG, is an Anglo-Spanish multinational airline holding company with its registered office in Madrid, Spain ...

Owner: Qatar Airways (25.1%)

Bugger it: let Qatar and Spain do the "rescue".

Thud said...

Temporary state stewardship may not need to be full nationalisation, caretaking if you will.

Anonymous said...

A little off topic, and I don't know if it's been raised already, but thank God for Ian Duncan Smith and Universal Credit, crap though it and the morons implementing it (HMRC outsourced it to I forget whom) may be.

Because UC begat RTI, or to be exact RTI was a necessary precursor to UC. Without a real-time stream of pay data to for every officially employed person in the UK (save a VERY small number of exceptions), it would not be possible for Rishi to nationalise labour at 80p on the pound.

Now all they need to do is get the payments right, and my fear is they'll ask the UC cretins to do it. I wonder who's doing their Management Information. I'm available at very reasonable rates - in fact I'd like to be employed on a flat fee plus bonuses for spotting production errors, which are inevitable in such a short roll-out time.

James Higham said...

20:02: Let’s wait for 20:30 and what Boris actually announces.

Bill Quango MP said...

Lockdown

Old Git said...

Surely Chinese are going to pick up anything worth having at lowest prices and also nick trade secrets from their purchases.

CityUnslicker said...

Old git, that is what I think and should also be a decision driver

Matt said...

Next up, the government saves the day by socialising all financial risk (having caused the crisis themselves) and then decides that in order to recover the economy (and lead the world) we need to go all in on green technology.

Having saved your savings and pensions from catastrophe, the technocrats will feel empowered to take them from us to spunk on whatever the ventriloquist puppet Greta tells them to.

Short oil and go long on yurts and yogurt knitting equipment.

Anonymous said...

The purpose of keeping markets open is so that someone who foolishly missed the last inflated market can get in low for the next one?

That rather assumes of course that some kind of normality returns within two years...

E-K said...
This comment has been removed by the author.
E-K said...

If we carry on much longer like this we do what the Communists tell us to do.

E-K said...

https://www.thesun.co.uk/news/11221596/any-fool-can-start-a-war-on-coronavirus-but-it-will-take-skill-to-end-it/

Thank God for Jeremy Clarkson.