Note: Part 2 of 'Malevolent Money' will be posted when the timing is right. Keep visiting =)
Brace yourself for the most turbulent market period of your life! During the next 10 years you'll see strange things happening in the markets. Currencies, equities, bonds and commodity markets; will exhibit behaviors that have never been seen before. The oncoming events will not just be strange--they'll be stranger than you can ever think/imagine! There will be a massive re-alignment of markets.
Note: To explain the driving force behind the change, I'll briefly introduce Moore's Law and use it explain how the technological landscape will change rapidly to the point of shaking financial Markets:
Brace yourself for the most turbulent market period of your life! During the next 10 years you'll see strange things happening in the markets. Currencies, equities, bonds and commodity markets; will exhibit behaviors that have never been seen before. The oncoming events will not just be strange--they'll be stranger than you can ever think/imagine! There will be a massive re-alignment of markets.
Note: To explain the driving force behind the change, I'll briefly introduce Moore's Law and use it explain how the technological landscape will change rapidly to the point of shaking financial Markets:
...The number of transistors that can be inexpensively placed on an integrated circuit exponentially doubles every two years...
In 1965, Intel co-founder Gordon Moore observed that the number of transistors that can be inexpensively placed on an integrated circuit exponentially doubles every two years. This observation is what is known in the field of computing as Moore's Law.
Inventor Ray Kurzweil's abstraction of Moore's Law shows us 2 things:
Inventor Ray Kurzweil's abstraction of Moore's Law shows us 2 things:
- 'Moore's Law like progress in technology' applied uninterruptedly for the last 100 years i.e. during the whole 20th century--even during recessions and 2 world wars.
- The trend that Moore observed--doubling of transistor density every 24 months--has been maintained in recent times and is showing exponential growth i.e the exponential trend is growing exponentially (read again if it makes no sense).
...More technological breakthroughs in the next 20 years, than in the entire 20th century...
In his abstraction of Moore's Law, Ray Kurzweil also predicts that there will be more technological breakthroughs in the next 20 years, than in the entire 20th century. This means that there will be advances in computational capabilities that will alter everything we can think of.
Empirical evidence shows that the assumption of perfect/complete information is unrealistic: Implying that the current prevailing prices in financial markets are somewhat 'flawed', as they are determined by the activities of market players that have imperfect and incomplete information.
...Moving on
The amount of information available to market players increases as hardware and software technology improves. Otherwise stated: the amount of information available to market-players is (highly) positively correlated to the rate of technological progress.
The rate of informational efficiency of financial markets has a direct relationship to the rate of technological progress.
The rate of advancement will be (assuming the Moore's Law trend extends into the first half of the 21st century) so great, that the resulting technological progress will shake financial markets. Here's why:
The investment decisions of most asset managers are based on financial/economic models which assume either perfect/complete information.Empirical evidence shows that the assumption of perfect/complete information is unrealistic: Implying that the current prevailing prices in financial markets are somewhat 'flawed', as they are determined by the activities of market players that have imperfect and incomplete information.
...Moving on
The amount of information available to market players increases as hardware and software technology improves. Otherwise stated: the amount of information available to market-players is (highly) positively correlated to the rate of technological progress.
The rate of informational efficiency of financial markets has a direct relationship to the rate of technological progress.
Mathematically the preceding statement can be expressed simply as;
IEffm = k.tp
Where:
IEffm; The rate of informational efficiency of the financial markets
k; is a constant
tp; is the rate of technological progress
Given an exponentially increasing rate of technological progress (according to Ray Kurzweil 's abstraction of Moore's Law): it is safe to argue that the rate of informational efficiency of the financial markets is also increasing exponentially. Which means that the assumption of perfect/complete information in financial markets is increasingly beginning to hold.
IEffm; The rate of informational efficiency of the financial markets
k; is a constant
tp; is the rate of technological progress
...In an environment where there is an increasing rate of technological progress, there will also be observed an increasing rate of informational efficiency in financial markets...
Given an exponentially increasing rate of technological progress (according to Ray Kurzweil 's abstraction of Moore's Law): it is safe to argue that the rate of informational efficiency of the financial markets is also increasing exponentially. Which means that the assumption of perfect/complete information in financial markets is increasingly beginning to hold.
...Our journey towards absolute informational efficiency (of financial markets) will be rapid, as we are approaching a period of rapid technological progress...
An exponentially increasing rate of informational efficiency of financial markets implies that there will be a never-ending-exponentially-growing flood of information.
As market players get more (and better) information, they adjust their portfolio positions accordingly... But given that they are going to face a never-ending-exponentially-growing flood of information; how frequently will they change their positions?
Answer: Very often!
The caveat is: they won't be able to change their positions fast enough, to match the rate at which the never-ending-exponentially-growing flood of information approaches them. This will be the source of great market turbulence!
Brace yourself--for the strangest behavior you'll ever see in financial markets; super-booms, super busts, irrational prices, market panic, extreme volatility and things we can't imagine with our current knowledge--you'll see it all. You have been warned!!!
As market players get more (and better) information, they adjust their portfolio positions accordingly... But given that they are going to face a never-ending-exponentially-growing flood of information; how frequently will they change their positions?
Answer: Very often!
The caveat is: they won't be able to change their positions fast enough, to match the rate at which the never-ending-exponentially-growing flood of information approaches them. This will be the source of great market turbulence!
Brace yourself--for the strangest behavior you'll ever see in financial markets; super-booms, super busts, irrational prices, market panic, extreme volatility and things we can't imagine with our current knowledge--you'll see it all. You have been warned!!!
