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Macroscope | Financial sector has a duty to investors and the economy to break the cult of equity
- Egged on by free-market ideologues, stock markets have funnelled too large a portion of savings into a too-narrow base of investments
- The financial sector must find new ways to deploy the funds it collects in great quantity but often wastes through a myopic focus on short-term gains
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Is it time to drain the stock market swamp or, more euphemistically, the great lake of stock market liquidity that has swollen in size on the back of unquestioning investor faith in what former US president Ronald Reagan referred to in 1981 as “the magic of the marketplace”?
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It could be, for the benefit of myriad savers who have been lulled into thinking that financial wizardry could turn gambling into science and base metals into gold. They might have been better off putting hard-earned savings into more pedestrian but less volatile forms of investment.
Stock market players still await the return of the great magician who can conjure up fresh exotica to replace fallen tech and other glamour stocks, even though the world seems to lurching closer to conflict and where the only growth sector will be the armaments industry.
This disconnect should alert us to the frequent inability of stock markets to distinguish fantasy from reality. It should also counsel withdrawal from investments that are more likely now to sink along with the economy into recession than to rise phoenix-like from the ashes of a bear market.
Put simply, it means stock market investors – which most people are nowadays, either voluntarily through buying shares or involuntarily by contributing to pension funds and mutual funds – might need to stop increasing their holdings or even divest until alternatives appear.
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This is not an overly savage indictment of stock markets, which do have their uses. It is simply to question the unthinking cult of equity which, egged on by free-market ideologues, has funnelled too large a portion of savings into a too-narrow base of investments.
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