"speculation" over "entrepreneurism" ?

Discussion in 'Economy' started by Widdekind, Apr 29, 2012.

  1. Widdekind
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    Widdekind Member

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    Naively, surges in investments, into Money-Market Accounts (in banks), and into Money-Market Mutual-Funds (in shadow-banks), seem to coincide with "speculative bubbles", e.g. Dot-Com (1995-2000), housing & sub-prime mortgages (2006-2008). Why ? Perhaps people, having Money to invest, and seeking high rates-of-return, simultaneously co-invest funds, into numerous (allegedly) high ROI assets (so that MMAs & MMFs proxy for real-estate et al) ?
    MMFs
    MMAs

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    In naive analogy, "speculation" resembles eying more the "price tag" than the "car", i.e. investing more into "fads" than "gadgets", betting on the psychological choices of others ("how many will buy in after me, to boost Prices?") instead of on the merits of "widgets". If so, then "speculations" on Prices might be substituting, for investments into true "entrepreneurial innovation". The latter is Capitalism, the former would be gambling. ("Speculation" is not a "failure of Capitalism", it's not even Capitalism, instead it is gambling.)
     
  2. Mr. H.
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    Mr. H. Diamond Member

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    "Eying the car" isn't without its risks you kow.
     
  3. Widdekind
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    Widdekind Member

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    i don't understand, in my analogy, "eying the car" would mean "appraising corporations" (or the other tangible bases, underpinning the securities, so often speculated upon).

    i'm trying to say, that Capitalism breaks down, when Prices no longer accurately reflect economic realities, i.e. when Prices are "random & meaningless". And, speculation, seemingly a form of "gambling" motivating the commonly employed term "Wall St. 'casino'", inflates Prices above and beyond what's warranted, by any sensible economics. Ergo, speculation breaks Capitalism, making Prices reflect "mindless fads", brought about by "fashion frenzy", not by "homo economicus".

    CNN market-watch analysts should warn viewers when Prices start surging, as if a speculative bubble was forming. Naively, when Prices rise, in concert with Trading-Volume, then a speculation may have started; if Prices have been rising "gradually" amongst "modest" Trading-Volumes, then the Prices might be legit.
     
  4. ThinkCritically
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    ThinkCritically Open to opinion

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    I think what you are referring to is "irrational exuberance"
     
  5. Widdekind
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    After NAFTA, US business became more profitable, but not as much as stock prices, over-valued by "supra-rational over-exuberance", reflected, during the late 1990s "Dot-Com bubble":
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    Robert Shiller Irrational Exuberance (2nd ed.)
    Scottish journalist Charles Mackay lamented "bubbles", from the 18th century, in his 19th century book, Extra-ordinary Popular Delusions and the Madness of Crowds
     
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