The Markets Got It Wrong - by Jerry Jasinowski
The financial markets were surging early last week and the pound was gaining value because the bright-eyed wizards of Wall Street and the international financial markets were confident the British would vote to stay in the European Union. Not since the experts predicted Thomas Dewey would beat Harry Truman have so many presumably smart people had so much egg on their faces.
The financial markets got it wrong because they no longer reflect an accurate picture of reality -- partly because of globalization, partly because of new technology, and partly because the experts who manage the markets sometimes manipulate them, and end up being manipulated by their own creation which seems increasingly out of control.
The financial markets have been losing contact with real people even as they have asserted a dominant role in world affairs. According to the Boston Consulting Group, total global assets under professional management today are about $75 trillion. Money is power. All of that wealth pinging around the globe looking for viable returns is driving everything before it --including commodities, corporations and even governments.
Today as in days of yore, investors try to make sensible investments in the stock market based on their opinion of a given company's prospects in the real world. But their investments are often managed by 20-somethings sitting in front of computers responding to algorithms. The 20-somethings know virtually nothing about the companies whose stocks they are buying and selling nor do they have any sense of obligation to the people whose money they manage; they are simply youngsters playing with algorithms. They have power without responsibility.
There is a growing sentiment among the public -- American as well as British -- that the markets are rigged for the benefit of insiders, and that belief has some merit. But just as that rigging serves to enrich the top tier, it also severs insiders from the real world. The wizards were confident rank and file British voters would vote to stay in the European Union but the wizards are based mostly in London and talk mainly to each other. They hadn't a clue what ordinary people out in the British hinterland were thinking.
The British vote was to a large extent a vote against the establishment -- a protest against a system increasingly estranged from the real world needs of ordinary people. The experts -- economists, stock brokers, financial strategists -- were assuring voters that staying in the EU was in their best interest. But the experts have lost the confidence of the people.
It was also a vote against globalization -- from the intense foreign competition that abducts millions of good manufacturing jobs to the immigrants who come with different values and culture. It was at its core a protest against that amorphous superpower -- the global financial octopus - that robs nations of their independence. The same anger is driving politics in this country. People are fed up with an establishment -- business, government, and financial experts -- that no longer reflects their values and concerns. The financial wizards have the money but the people have the votes. A great upheaval is in the works.
Jerry Jasinowski, an economist and author, served as President of the National Association of Manufacturers for 14 years and later The Manufacturing Institute. You can quote from this with attribution. Let me know if you would like to speak with Jerry. June 2016