What a week the financial markets are having. I have a little bit of money and I just don’t know what I should invest it in. The analysis out there gives me all the angles, all the views, but it does not help me make a decision. The US dollar has been strong against most currencies, gold could go through the roof or crash to the floor, oil is holding but with all the pain in Europe and America has a risk to the downside. The stock market is like a rollercoaster again, so investing into equities feels a little like betting on the roulette table. Will gold and silver fly or crash? What about real estate? You know the old saying, as safe as houses…as long as it is not in the U.S., UK, Australia, Japan, Europe or anywhere else excess credit has landed in the last 10 years. What should I bet against? I know…the SYSTEM.
Our financial and economic system, as far as I can tell, is adversarial. Certainly, the ideology behind cash settled derivatives is that for every winner there is a loser. It is a zero sum game. It is exactly like a casino. On a more philosophical level, our market and to a large extent our political system can be described in terms of synthesis. That is to say we try and test the extremes of the spectrum, with thesis, then anti-thesis, to arrive at synthesis. Communism could be thesis; capitalism could be anti-thesis, while today’s markets could be synthesis…except they are not. Competition between the two extremes is supposed to lead us to a balance, a kind of peace. For 70 years we had this uneasy balance between communism and capitalism, between the west and the east, helped along with the idea of nuclear weapons and MAD (mutually assured destruction). Today, we have China, which is communist but driving the global so-called capitalist markets, while the former communists, the Russians, have a burgeoning billionaire class who take pride in outspending each other at every level, while the doyens of capitalism, the United States, is drowning in a sea of debt created by their system. Irony comes to mind.
It seems our economic system is a system of complete imbalance. A nation cannot prosper unless another suffers. It is that zero sum game analogy. We have the World Bank and the IMF (International Monetary Fund) out there to make sure there are winners and losers, offering the handcuffs of debt to nations who least need it. Usually developing nations who are resource rich, where the goal of the game is to bring them into the “system” by lending them enough money so that they can never repay it all and in exchange take their natural resources from them at well below market price. Economic slavery I think it is called.
The imbalance in our system is palpable. Look at the world’s demographics. In the United States, Australia, the UK, and certainly here in the United Arab Emirates, the incidents of obesity are astounding. The game of accumulating as much as you can has taken on a physical form. Yet, in the Horn of Africa, a continent rich in every kind of resource possible, the last frontier, there is famine. I personally had the most surreal experience today. As I waited to pay a bill in a government office, I was served by the supervisor, who was charming, and quite possibly the largest man I have ever come in contact with, and I mean wide, not tall. On the wall behind him, was a poster of a starving African child. The poster was for a charity, asking for monetary donations. For the record, I too could be accused of being a little too cuddly, but what kind of economic system are we living in? It is one without value or more likely one where the value is in imbalance.
So in betting against the system, I am betting against imbalance. The solution, or the great trade for the future, is to bet on balance; an economic system which rewards balance and efficiency, rather than rewarding imbalance. Of course there will have to be some small tweaks to the current system to allow me to invest, or lay my bet. In fact, the tweak is as simple as turning the current economic model upside down.
Instead of betting against each other, we pool our resources and reward the most efficient use of them. Competition will remain key to the new system, with rewards going to the best technological innovators. This will drive resource efficiency on a global scale. Of course resources will have to be properly priced on transparent market platforms with 21st century innovation (that’s for the next column).
I am betting against the current system by avoiding it, and at least getting some inner balance. I am going to eat a little less, too.
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Sam's Exchange: Falling pillars - Moving to an open market system
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Sam's Exchange: Derivatives - How do we regulate them?
Sam's Exchange: IMF, or the Incredible Monetary Fudge
Sam’s Exchange: Money Metrics - How do we price the USD?
Sam’s Exchange: Donald’s Diplomacy - OPEC and the Oil price
Sam's Exchange: The Switzerland of Arabia
Sam's Exchange: Bye Bye Banks!
Sam's Exchange: Trading uranium
Sam's Exchange: Saudi’s Paradigm
Sam's Exchange: Tear down that wall
Sam’s Exchange: Vladimir Putin - exit stage left?
Sam’s Exchange: When will the mail stop?
Sam’s Exchange: The Carpet Revolutions…
Sam’s Exchange: Hotel California
Sam’s Exchange: BP-Rosneft - a game of political chess
Sam's Exchange: Iran - a reality check!
Sam's Exchange: Will China sneeze in 2011?
Sam’s Exchange: That’s a Wrap. 2010 Market Wrap that is!
Sam’s Exchange: Setec Astronomy
Sam’s Exchange: PPP – Putin’s Pricing Power
Sam’s Exchange: V-8s are not all the same
Sam’s Exchange: Gold is Trading as a Currency: A Fiat Currency
Sam’s Exchange: QE 2 – A Ship That Will Never Sail Again
Sam’s Exchange: The Religion of Money
Sam’s Exchange: The Great Gold Crash
Sam’s Exchange: Who are “They?”
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Current markets are anything but global or integrated. What if we had a paradigm shift in the way we think and transact when doing business with each other? Balanced global trade can only occur if we have transparent, accessible and efficient markets. We are on the cusp of achieving this, although most people cannot see it. Sam’s Exchange aims to give its readers a clearer view and a platform for discussion. Markets, trade and economics are in fact nothing more than the result of our thoughts and actions expressed in numbers, not the reverse.
Sam Barden is founding Partner of SBI Markets DMCC, a Dubai-registered commodities trading and advisory company. Barden has worked in the global financial markets for more than 17 years in Europe, Russia and the Middle East. He has advised and executed strategic transactions for both the government and private sector, in particular in energy and commodity markets, advising various energy producing nations on their strategic market developments and interaction. He holds a degree in economics and finance from Victoria University, Melbourne, Australia.
