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Communism is dead, capitalism is failing. Now what?

Written By: admin on October 2, 2011 3 Comments

This is interesting. Communism proved its failure decades ago (that’s not the interesting part). Now capitalism is about to do the same thing. We are literarily looking down the barrel in all of the “developed economies”.

Fundamental to the concept of capitalism is trading. Trading of services, trading of goods and trading of ownership (or the equivalent concept ‘power’). At the bottom of this pyramid is trading of services. At the top, trading of power.
The concept of capitalism is free trading (as opposed to communism). And it sounds like a good plan. An entrepreneur is free to start a business. If the business is successful and grows, new owners (shareholders) want to take part of that business. Price of the shares grows to the point where there is a balance between the price of the shares and the expected earnings of the business. This is called the price to earnings ratio, P/E for short. If P/E is low you might make a good deal, if P/E is high you should probably look for other companies to invest in. P/E is one (among other) of the basic parameters you want to analyze before investing.
This procedure indicates a long-term perspective. Or maybe not?
If you know something others don’t, if you (or somebody else) expects something to happen, if you heard a rumour that would affect that particular business you invested in, depending on the rumour, you might want to sell your shares, or you might want to buy more.
As more and more investors learn about this rumour, they also want to sell (or buy). Depending on the speed of the rumour, panic amongst investors spread and share prices falls or plunges in a self amplifying manner.
Now the long-term perspective of the investment is effectively replaced by a (very) short-term horizon.

I have known for a long time that computers are being used to do share price trend analysis and also being used for automatic buy and sell orders. For the reasons I just explained, timing of buy and sell orders are very important. Or more precisely, the time from a piece of information is being made public, to the time the buy/sell order is made effective. If you get the information and are able to do the buy/sell before the others, you beat the market and make money. With computers doing the buying and selling, investors wants the servers to be a close as possible to the source of the information; i.e. the stock exchange servers. (This information travels literally with the speed of light….).
Time for the interesting part: Now, depending on the algorithms the computers use to buy and/or sell, what happens to that long-term perspective investment plan? Computers can analyse trends and buy/sell in matter of nano/milliseconds. If you were afraid of panic spreading among stock brokers before, replacing stock brokers of flesh and blood with computers would potentially magnify that panic over and over again.
Now, when I learned that as much as 75% of all buy/sell orders are placed by computers, that’s the point where I realized that the long-term perspective of capitalism is effectively dead:
High speed trading

Now in the story above, I am sure that there is an explanation for the timing of the buy and sell orders. That’s not the point I want to make. But it servers to illustrate what’s left of rational analysis and a long-term perspective of business investment.

Need more evidence? Listen to this trader:
Goldman Sachs rules the world

And this is a link to ‘Teknisk Ukeblad’ October 18th 2011: Ingeniørene har tatt over børsen

Communism is dead, capitalism is failing. Now what?

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3 Responses to “Communism is dead, capitalism is failing. Now what?”

  1. bjørg dokken says on: 5 November 2011 at 23:30

    ……Det var jo denne såkalte blandingsøkonomien vi trodde på her i oppe i nord, helt til økonomien ble globalisert, med hele globaliseringens vesen.. Og politisk rød som jeg alltid i større og mindre grad har vært, gleder jeg meg over Wall Street-demonstrantene, og over alle lignende bevegelser som popper opp i andre vestlige land. Jeg vil så gjerne se et ørlite håp for verden blant disse…..:-)

  2. Don Poehlein says on: 17 January 2012 at 13:51

    These days of austerity along with relative anxiousness about having debt, a lot of people balk against the idea of using a credit card to make acquisition of merchandise as well as pay for a holiday, preferring, instead just to rely on the actual tried and trusted approach to making payment – cash. However, if you have the cash there to make the purchase entirely, then, paradoxically, that’s the best time to use the credit card for several motives.

  3. typeTidwite says on: 23 January 2012 at 03:24

    Hello! Just want to say thank you for this interesting article! =) Peace, Joy.

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