Political intelligence that matters to markets

A business or an investment fund is simply a betting pool for people who have coin or credit. The bet represents all the information that the investor has acquired over some period and the dollar amount of her bet represents the minimum cost of the information acquired. This means that the actual cost of creating the investment fund, asset, or business means nothing to the investor.

All that matters is an outcome that recovers her cost for accumulating information that helps her determine whether her preferred outcome-a return of and on her capital-will be realized. Information on sunk costs mean nothing to her (much to the chagrin of the run-of-the-mill economist).

For information traders entering information markets what should matter is providing information that addresses existential threats to profits and revenues. The information trader must have awareness of the outcome the investor is interested in.

Investors watching political markets are interested in whether a decision poses an existential threat to a firm or a firm’s profits or revenues. Existential threats posed by government come in the form of a revocation of a license, denial of access to natural resources, or denial of access to financial capital. The investor wants to know the likelihood of the occurrence of these events.

In hind sight this is why the Trump Effect became vacuous. The expectations surrounding the Trump administration’s impact on investment never took into account government’s prime operational mandate which is to exploit the natural environment of a physical area. It does this by managing the extraction of resources from that physical area. In the case of American government, it has determined that extraction would best be carried out by a private sector driven by a profit motive.

Businesses provide efficient methods for extracting resources and converting the resources into “taxable events” i.e. goods and services for sale. Businesses convert human resources into taxable events by employing labor thus making humans available for taxation by government.

The subsequent uncertainty experienced by the financial markets post Mr Trump’s inauguration was the result of investors listening to the “emotional marketing” of the 2016 campaign. Rhetoric regarding bringing back manufacturing jobs into a political economy that favors information as its primary resource or building more bridges to nowhere via infrastructure knowing that the multiplier effect is limited by a project’s termination date was baseless but pulled on enough heartstrings of investors that they forgot or were forced to overlook even further government’s prime mission.

Also, the financial markets can’t risk forgetting that the U.S. is a federal system and states have to be considered when assessing the American economy. States have to be on board with any policies that address contraction or expansion of licensing or access to natural resources. For example, it is one thing for the federal government to increase access to radio frequencies by mobile telephone companies. But if the states do not put in place rights-of-way policies that allow mobile phone companies to deploy tower facilities, then having a license to transmit wireless signals is meaningless and the firm faces a scenario of less revenues.

When discerning what information matters, the focus should be on political information that threatens the continued existence of a firm or threats to its revenues and profits. Investors need to discern between the emotional or campaign marketing noise and substantive political intelligence that addresses a firm’s existence.

When Bitcoin becomes a transmitter of valuable information

Bitcoin is not for speculation. Bitcoin is about the transmission and exchange of valuable information attached to a digital currency that measures the value of the information. The volatility we are seeing in the market for Bitcoin is based on the fear of missing out on a pop in value.

I think in the near future what will eventually drive the value of Bitcoin is the underlying value of the information that the individual sovereign either possesses or can produce. It is likely that person A holding Bitcoin may look at person B who allegedly has some information, x, and determine that the person B’s information or ability to generate useful information has no value. Think of someone in London approached by someone from Somalia who wishes to trade in Somalian currency. The Londoner wouldn’t touch it.

You may argue that scenario already occurs in the real world, that trader A is not required to transact with trader B. In a centralized world, trader B would bring a discrimination grievance against trader A for refusing to trade. In a decentralized, voluntaryist cyber world, no matter how much cryptocurrency you hold, the value of your true currency, the information that you possess or can produce, will determine your digital currency’s value.

As for the speculators, the error they make is using valuation methods created in a centralized, coercive political economy to assess the value of a currency designed for a decentralized cyber society. A speculators are enjoying the upside of Bitcoin’s market appreciation, but as the currency becomes more expensive and reaches its 21 million digital currency cap, will these speculators be able to purchase any more of the currency? Or, will they be able to ride out the inflationary characteristic the coin takes on should it become a matter of two few Bitcoin chasing too many goods? Will lower income individuals who may have made their first purchases with their credit cards be able to recover the dollar value of the coin in order to pay off increasing interest rates?

Not to mention the competing currencies that will eventually knock off Bitcoin from its perch. As technology improves such that “information rich” individuals create their own cryptocurrency, individual sovereignty will be complete. Just like western nations trade with each other based primarily on similar values and culture, the information rich will do the same. As the value of their currency increases so to will the demand from vendors who will likely prefer hold in reserve the currency of the information rich versus the “information poor.”

I believe that the information poor or “information losers” who were lucky to get a few pieces of a coin in the early days will not be able to participate on either side of a cyber trade in the future. Their focus should be on building their information gathering tools versus pursuing a quick fix, get rich path.

Cyber space will remain decentralized by the silos created by the information rich will prove daunting for the information poor.

The Federal Reserve Bank of Atlanta’s outlook on #fintech in 2018

What will be the challenges for the fintech environment in 2018? Douglas King with he Federal Reserve Bank of Atlanta wrote a piece back on 4 December 2017 laying out potential questions that the Federal Reserve may address. They include:

  • Will it continue to be up to financial institutions¬† to do due diligence on fintech companies, much as they do for third-party service providers?
  • Will regulatory agencies offer financial institutions additional guidance or due diligence frameworks for fintechs over and above what they do for third-party service providers?
  • Will one of the regulatory agencies decide that the role of fintech companies in financial services companies is becoming so important that the companies should be subject to examinations like the financial companies get?

In addition, as we get closer to Jerome Powell taken the helm as the chairman of the Board of Governors of the Federal Reserve, what type of relationship should the fintech industry expect? Probably one of proactive collaboration, according to comments Mr Powell made back in September 2017. The Federal Reserve has as a policy goal a faster U.S. payments system that is also ubiquitous and safe, and a positive relationship with the private sector is key.