Who is Buying?
The events on world stock markets (I follow the US and Australian markets in general) have been illuminating in some ways over the past month or two.
As I've indicated on previous posts - the amount of distortion occurring because of central bank interventions - means there is no true free market left on earth. There is no true price discovery mechanism and without this key element - markets become hazardous for anyone searching for a return on their investment.
So what is the point of this post - Who is buying?
It's a question that I think is important since the markets are certainly not being driven by the average person on the street. It's clear that it's big players such as sovereign wealth funds, investment banks, superannuation cos, hedge funds and so on who are the actors.
But are these entities being driven by actual humans? Is it really a question of who is buying - or is it a question of what is buying?
I am convinced that the market activity we have witnessed over the past 2 months - which is completely and utterly irrational to an average person like me - must be being analysed and acted upon in non human ways.
Consider that unemployment is soaring, supply chains are shattered, oil is in a glut, interest rates are close to zero or negative, companies are zombified - bankrupt - or facing negative growth and profit projections - and still the market is going up?
It's a situation that can only be explained by the fact that markets are being played virtually completely by computer algorithmic trading platforms.
These programs obviously have no emotion in the game and play the stock market based on price action and trawling of data scraped from news and other sources as well. Proprietary systems no doubt - with much secrecy.
I believe that what is happening is so novel for these programs that they are completely misjudging the true situation. While chess and other game playing programs have strict rules to base their decisions on, these stock market (HFT) machines are playing the stock market game based on assumptions I think that have become severely stretched for credibility.
At some point truth and reality must destroy the charade the stock markets have become and there will be I think plunges so wild that they will wipe out all the illusions being generated by the parametric trading that we are still witnessing now.
The current stock markets are akin to a ghost town in my very human view.
We are living through a time when machines are simply churning through the capital remaining (and extra stimulus money) allocating it much like a Pachinko machine according to their programs. Ever hungry for more money to be fed into their slots so to speak.
There won't be V or L shaped recoveries that the computer programs obviously assume. Not with the monetary and fiscal policy in place now. What we will see is that as the true purchasing power of the dollar shrinks - after all a computer never has to buy itself a meal or toilet paper - the numerical games these machines are playing will become more and more irrelevant in the real world. The numbers will no longer be measures of true money or true value.