The New/Old Capital Markets Paradigm (circa 2009)
Let us begin by allowing that most of the past decade's forms of the ‘New Paradigm’ devolved into little more than parlour tricks, are in total disrepute and ended in tears.
That is why The “New/Old” Capital Markets Paradigm is important right now. It is more so about getting back to first principles from misguided perceptions. As noted in the FT LEX blog posting (and John Authers' Financial Times article/analysis), after recurring recent modeling fixation and manias, capital markets are finally refocused on real skill:
Folks who actually know how to capitalize on trends.
Which is not meant as a blanket indictment of all modeling, as it has many effective uses. However, from the mid-1990s onward it more so supplanted analysis of the major trends of underlying assets rather than enhancing it. That was abetted by lax regulation, and sanguine central banks' ineffective management of financial and economic tendencies.
Plus ça change...
The “New/Old” consideration is that return to 'first principles' for the assessment of real assets' trends in the real world with rigorous risk management. In that regard, it would seem (and we should all hope) "everything old is new again."1
In fact, while disparaged at times by the "Masters of the Universe" ("...of the Moment" as it turns out), successful trend analysts and traders have provided their firms consistent free and clear profits.
1"Everything Old is New Again" (1974) Peter Allen & Carole Bayer Sager
...as reinforced by cogent trend analysis during the Spring 2010 Crisis.
Some folks found the markets more than a bit confusing, and even referred to them at times as 'crazy' into May 2010. Yet, cogent trend analysis which is incorporated into a 'macro' intermarket perspective was able to properly assess the situation.
That was true for individual markets and a very rational progression of the fundamental influences through asset classes across time. Access our
Spring 2010 Crisis Overview
for perspective on how the various psychologies and trends evolved out of March into the intense May crisis. It summarizes five key reports, with links to the original analyses.
Financial Times LEX: Your Comments blog posting by Alan Rohrbach
"Common sense illuminates the compensation controversy" October 9, 2009
Read John Authers' Financial Times Long View column analysis
"Triumph of common sense over benchmarks" October 3, 2009
Access the in-depth reports on behavioral aspects of enhancing portfolio management skill cited in John Authers' FT article in the Research Papers page at
INALYTICS Ltd home page Awards and Concise Philosophy worth a look.
While they have been kind enough to allow us to directly provide their Research Paper #2,
we encourage contact with them to access the other papers in this series for a full perspective.
Read John Authers' Financial Times Financial Services article
"Managers seek a more reliable approach" October 2, 2009
For background on central bank support of false 'New Paradigms' ending in their failure...
Read the Money Week article by Stephen Roach from the MS Global Economic Forum on former Fed Chairman Alan Greenspan as 'New Paradigm' pied piper of both the Dot.Com and Housing Bubbles
"Alan Greenspan’s Property Bubble U-Turn" May 26, 2006
Directly access the antecedent, highly prescient analysis by Morgan Stanley's Stephen Roach in the MS Global Economic Forum, where he cites the multiple misguided aspects of the false 'New Paradigm' that made it much more so...
"Original Sin" April 25, 2005
Opalesque Articles Trilogy on the recent changes to trend tendencies, and Major Reports page 1970's Redux: Son of Stagflation (March 2005) predicting the return to a 1970's style economic situation and market activity across the cycle.
Suggested Further Reading
A Colossal Failure of Common Sense
(2009) Lawrence G. McDonald
A personal story of the 'perfect storm' of phenomenal greed and incompetence that sank Lehman Brothers, crafted into a classic 'tale well told'. One of the best reads on near term historic instances and most recent excesses of modeling and manias.
The Ascent of Money: A Financial History of the World
(2008) Niall Ferguson
An excellent overview of principles and practice, expressed in a style accessible to intelligent laymen. Covers a broad range of financial history and instruments in a sensible progression of when they came to prominence. That includes much more extensive historic discussion of successes along with missteps and major manias.
The Alchemy of Finance
(1987) George Soros
It is rather amazing that a master analyst and portfolio manager laid out his practical and philosophically relevant "theory of reflexivity" for all active market participants to see over 20 years ago; and yet so many ostensibly sophisticated players still ran off into massive missteps with little effective attention to proper risk management.
The afterword on this is foreword as well. In a December 2009 CNBC Squawk Box Billionaire's Roundtable session, very successful investor and global economic observer Wilbur Ross made this assessment of New Age media and content, and where real value would develop; in the event it is also a fairly good perspective on quality analysis of capital markets price trends: (from appr. 06:05 in the segment) "...the value of information has gotten to be about zero, there is an overload, and I think what's going to be the end result is the value of expertise is going to go to infinity, because it is harder and harder for people to digest all these inputs...
...let alone translate them into investment decisions."
There was also extensive, interesting discussion of Dubai, more on news media in the New Age, government initiatives, commercial real estate and many other areas.