Mr. Keynes' Experiment.

Before I start, I like to clarify my comments that may have led SOMEPEOPLE to believe that I said that economics is not a worthy field of study. Put it this way, SOMEPEOPLE, economics, while a worthy field of study, does not arouse me intellectually. Put it this way, economic theory was to me nothing but a set of rules proposed by convincing writers (most of whom I assume were quite rich being able to afford education during those times) that have come to form the foundations on which modern economies are built on. Nothing more, nothing less - even taking into consideration of the newly founded field of behavioral economics.

Not that I know enough about the field to say this, but I find that the the foundations on which early theorists of economics (Smith apart) based their opinions on were in large motivated by the need of a structural change in the economies which concerned them - inevitably basing those theories on the models of extreme economic scenarios.

Ergo, brilliant reasoning and formulations aside, economic theories weren't independent of what was happening in society during their conception - A scenario ubiquitious acroos various fields of social science. Keynes' General Theory (which a few years ago I tried and failed to digest completely) came right after the Great Depression in the 1930s. As widely accepted as his suggestion of tightly implemented government facilitation the economy was, it was still after the painful experience of the collapse of a completely free economy that the world has learnt it's "lesson" (as i firmly hold on to me belief that the spread of Communism, even Nazi Germany is Great Depression related and are therefore contributions of the U.S.A. itself)

I am not a hater of Keynes' theoretical work. For although I am yet to be assured that Keynesian economics have contributed to mankind's management of their own greed (a.k.a. one's pursuit of self-interest), the world has seen drastic improvements since General Theory was published in 1936 - at least we won't have the collapse of a few companies bringing the whole world to an economic Ice Age ... Ooops !

In a guist, Keynes says that economics cannot survive on their own without an appropriate degree of federal intervention. His idea was mainly the reason why you see governments today issue bailouts. Simplified, his masterpiece is about his broader, more realistic views of Employment, Interest and Money.

1. The level of employment and it's components (wages to assess demand and prices to reflect it) not being a direct product (or indicator) of economic activity (Stickiness!!) *labour regulation required
   
2. Interest rates not neccesarily having the intended course of effect on capital returns. (Speculation, I think) *suggesting a more sophisticated process underlying interest rate decisions
   
3. Differentiating, from both macroeconomical and microeconomical perpectives, the economic characteristics of savings and investment * suggesting that goveernments need to dwelve deeper

While not necessarily the most updated of theories, Keynesian economics has always been assumed to have sown the seeds of a more regulated, and thereby "safe" global economic environment..... Thing is, a good seventy decades after it's conception we were loosely regulated going into the current potential collapse of the global economy as we were before the Great Depression except for the fact that the former involves a system of fucked up financial institutions whose disintegration would signify the end for the hopes and dreams of countless individuals of different ethnicity and religion in different geographic regions (it's no longer oil and railroads!!) . Unless, ofcourse, we assume that it's a mere flaw in the financial system and that the economic recession is periodical - a rather dangerous position considering the rate of government bailouts across the globe.

(Dinner!! I'll continue tomorrow)

Author and the Author's Experience

The conception of this blog represents the beginning of a new phase in my life. The time has come for the effort invested into learning what I have learnt and knowing what i know will rightly witness it's own consolidation. I offer  my views as a humble observer of worldly events. Before that, something about me:

19 years of age, male. College application, working for mom. By the way this blog might be used in my college application.

I uncovered an intense interest in learning the precise workings of the financial world within myself at the age of 15 after what was by far the most dreadful period of my life - the loss of my grandmother. I realized how little time I had left to make things better for my family (in particularly my siblings). Not that I was completely idle before I was 15, I read my first financial management book "Rich Dad, Poor Dad" (and subsequently the rest of the Kiyosaki series) at the age of 12 and was quite determined to succeed as an "investor" or whatever I thought the occupation was. Wow! Right? Truthfully, I understood close to nothing from the books and I knew nothing about stocks except for my once dogmatic interest in Google shares (believing that the company controls the whole bloody W.W.W.).

As naive as anybody would be, I picked up financial papers after school the day I turned 15, read them extensively and thought I had a clue about the going-ons in the financial world. As many of my friends and family would recall, I was not shy to share my "projections" of stocks (Genting, Public Bank, IOI you name it) and commodity prices (Oil and Gold in particular) . CNBC and Bloomberg were the only channels I watched (fine, Disney Channel as well but thats besides the point), huge affection for Becky Quick. Ohh, and I got hooked on to Google Finance !!!!! I read books; Biographies of investors like Warren B, Georgie Schwartz (spent three months reading nothing but the "Alchemy of Finance", gosh I am so proud of myself!) , legends of the Automotive ans Steel industries of America, contemporary leaders like the maverick Steve Jobs, Andy Grove. Whatever's on the shelf, I've touched it.   

The worse reading decision I thought I made was attempting Ben Graham's "The Intelligent Investor" ,  completely deprived of confidence after that first read - got lost in the middle. I had neither the time nor the capacity for another "Alchemy of Finace", I thought. I found Graham's views vague (Duhh? Buy low sell high? Fundamentals? Aiming for the Long term?Seriously, a Wikipedia article was all I needed to know about him) and wondered why were his essential reading for all investors. The euphoriic moment came weeks later, the fact that to this date financial decisions are rarely based on fundamentals (simply because standards of asset valuation are always in a state of inter-dependent flux) - recalling the hype surrounding my once beloved Google (hey I knew about Google before GOOG, okay?!!) - Benjamin Graham basing his philosophy on strictly fundamentals was not mainstream at all, value investing was HIS idea!, with Warren Buffett being the most established of his students. I couldn't sleep for at least two days after that. It was time, I couldn't wait anymore.

I used a simulator on investopedia.com to test out my ideas,observing commodity futures being the first step of my "plan". I tracked how stock prices of oil companies ( Exxon Mobil and Chevron I used) adapted to fluctuations in oil future prices (NYMEX crude I used). The fact that oil prices do not naturally go in parallel with the stock prices of oil companies was surprising to me (with so much adrenaline pumping into my system, anything was a good idea). Such is the nature of the free market today that financial markets are not solely subjected to fluctuations of real economic activity. The system that influences financial markets is a melting pot of projections that were nothing but extrapolstions of legislative policy, competition, geopolitical insolvency etc. and the impact they MIGHT have on real economic activities. In short, although they were on the same grounds (both agreeing that the main contributor of market fluctuations being speculation rather than fundamental value), it's Soros against Graham interms of investing methodology. Something I which would hopefully be able to explain in length later. 

Anyway, in aperiod of 7-8 months big caps earned me 30%(amount invested) while my small venture into mid-cap stocks lost me 20% (a.i.). I ended the period with 130k+ earned from 1 million  investopedia money.Then guess what? Investopedia.com renewed their servers and my account was deleted. I thought "screw it, I'm good enough lar, it's time for the real money" 

Thinking that i knew enough, I decided to convince my parents that I was able to handle their investments. Give me the whole company wing for all I care, I was on fire. I got 500 USD.

I already had my eye on where that 500USD was going - MSFT, trading at 23.30 USD per share, tremendous cash reserves, Mr.Gates would do me no wrong. I forgotten the guist but MSFT ended a 4-5 month period at around 30 USD. After consolidation, I should have had at least a 25 % increase in my basket - and so I thought, so I boasted around. The thing is, at that time, if you go through Bear Stearns (Citigroup arm, remember?) they charge you a 26USD transaction fee, the amount of stocks you purchase is "exactly the amount of stocks your account balance can afford", it turned out that I only bought 20 stocks with 10USD left uninvested, and didnt make as much as I thought (600 minus 26 gain = 574 + 10 = 584, a gross of 17% before tax). And if Bear Stearns ever rise from the dead, remind them to at least notify me about the cost. On second thought, they should just stay dead. I learned two things: 1) it's not just about the stock price 2) don't boast too much or else your parents will lose confidence in you and you'll never get another chance.

Somewhere down the line, succumbing to my insatiable reservoir of self-absorbance, I began to read enough about economics to decide that traditional economics - what they teach in schools and universities(with the exception of top ones) would never satisfy the answers I needed to progress. Questions I had that loomed around the definition of "rationality" in economics, the inapplicability of the laws of supply and demand to the real world, never seemed to reap the answers I demanded. So it isn't economics after all..... 

After the idle period of SPM preparations and the examination itself, I began an intense process of self-discovery, subsequently redeciding on my priorities so that I can make a decision on what kind of life I would want to be living 20, 30 years from then. It was between the glamour and glitz of A-levels and the express route to a degree offered by Foundations and other programs. I considered doing an I.B. program but that took too damn long. I knew that my odds for a degree from Imperial or the L.S.E.P. was palpable (I wasn't doing that bad in school considering how distracted I was by my "home projects), I knew most of my friends (even those who were going to the States) were in A-levels, and I even did a pre-visit to the ADP department to know enough about the percentage of incompetencies within. Yet... I just felt joining ADP was the instinctively right thing to do.