There Are No Such Things as Financial Markets Anymore

Let us take a very simple concept.

Bill wants to raise money for his new company that he, personally, does not have enough money to launch.  Bill goes to the "financial markets" which is no different than the fruit market or "farmer's market" except instead of fruit or veggies, he is looking for capital.

Providers of capital (called "investors") meet and bid over Bill's business through a slightly complicated process of "going public" which is assisted by investment banks and brokerages.  Still, this market operates no different than any other.  There is a demander for capital, there are suppliers for capital, and they haggle and negotiate on a price.

Now in the farmer's market or even the grade-school-play-ground-baseball card market the only things to affect the prices, supply, and demand would be items that are relevant and pertinent to those markets and the wares traded therein.  And so too should it be the same with the financial markets.  But just because something "should" be doesn't mean it is, and thus welcome to our modern day "financial markets."

The truth is the financial markets no longer represent the news and information that is relevant to stocks, bonds, and other forms of financing new or to-be-acquired businesses.  And the reasons for this are multi-fold.

First, the majority of money being supplied into the market no longer comes from interested investors, keen on launching new companies. It comes from retirement planners who are socking away their monies in the idealistic and outlandishly naive hopes of retiring by 65 (33 if you're a government worker or teacher).  Matter of fact, these sheeple aren't even investing their money in new business ventures.  They're buying stock on the secondary market, looooong after investment banks and hedge funds have gotten the majority of equity and capital gains out of those stocks.

Second, you have speculators who have no real legitimate business being in the financial markets in the first place.  Oh yes yes, I know, they do make markets more efficient, except when they don't.  Their mere existence moots and destroys the concept of a financial market in the first place.  Now, instead of just investors looking to supply budding entrepreneurs with capital, you have some idiot in California using an ECN to make .0005 cents per share profits on a butterfly, triple lindee, hybrid spread (if you don't know what that is, that's alright, you're not hip like all those people on CNBC). 

Third, machines.  Yes, machines.  Specifically machines that execute trades based on algorithms perhaps maybe even programmed by humans.

Are these machines there to provide business opportunities with capital?
Are these machines there to fund entrepreneurial ventures with much needed funds?

No, they're, once again, there to speculate, even manipulate prices, driving them up and then driving them down.

Now we can go on, but I didn't really realize how fully divorced today's "financial markets" were from its literal namesake until I was driving down I4 near Orlando listening to "A Finance Podcast."

The host of the show had followed me on Twitter and said, while he does like what I say, he cannot tolerate the cursing or swearing.  Fair enough, but I, always with a road trip in front of me and hours of time to fill, downloaded and listened to all of his podcasts.  It wasn't until I was just outside Orlando did I realize something about his podcast.

The majority of his commentary and interviewees did NOT discuss the actual financial markets as much as they were:

Government moves
Government legislation and
Central banking

And it is this that is the proof that the financial markets are anything but, and should be named something else.

If you look at the media currently dedicated towards covering the "financial markets," you have to ask yourself the question:

"How much time do they spend addressing/responding to moves by the governments and central banks, versus the factors that actually should affect the companies and the industries therein????"

And at least in this little trial balloon, I realized that the majority or at least the plurality of time was spend addressing governments and central banking.

This proves just how far from free markets we've moved.  When the "financial" markets move, nay, hinge on every word and move from the central bank and monetary policy, and dismiss all that annoying "background noise" of what's actually going on with the individual company, you need to ask precisely what does this "market" represent. 

Does it represent the investors looking to fund the entrepreneurs like it was intended to?

Or has it morphed into this multi-trillion dollar, amorphous, cross-breed Frankenstain monster between government, the retirement planning industry, central banking, crony capitalists, and politicians?

Because one can be reasonably measured, studied and pursued as a discipline by students of finance and economics.

The second is one where even the greatest financial and economics minds are merely observers whose guesses are purely that - guesses.  Because by that time, they all might as well become political scientists and everybody knows that is not a real nor legitimate field of study.