By Armand Lapotre, Founder, AvantSight
For most, financial markets seem very obscure and many fail to see the intrinsic value of financial assets, as they just don’t tie in with the world they experience every day. For instance, why is the S&P 500 now 50% higher than its previous 2007 peak? Didn’t see any of that growth anywhere did you? Well that is because it doesn’t exist, S&P 500 earnings have only grown by an average of less than 3% per year since then, and real US GDP is only 10% higher than its 2007 peak. So have markets gone completely crazy and stopped making “real world” sense?
Certainly, information needs to be aggregated at a large scale and modelled by powerful technology to understand market trends; but these tools are useless without timely information reflecting the real world. The good news is that this insight lies with you as citizens and professionals. All it takes is for you to have some basic understanding about the markets, and your common sense will do the rest to close the information gap between your world and the financial world.
Now let’s look more into depth into how we came to such disconnections between financial markets and the real economy. Productivity gains arise thanks to cycles of innovation and technology, or industrial revolutions. The truth is that since the tech 2000 bubble burst, we have reached the end of a cycle and we are at that transitory time when we have run out of industrially applicable innovation.
Moreover, the remedy to the 2008 financial crisis has been the same as to the 2000 tech burst, but times 10, injecting unprecedented levels of liquidity into the markets. This has sent the Dow Jones and S&P 500 to record high while production, real wages, and productivity didn’t find the pace they once had. More importantly, the massive disconnection between financial markets and the economy pushed inequalities to an unprecedented level.
It is not all bad though, as innovation is finally coming: 3D printing, AI, blockchain, the sharing economy, robotisation, and VR are finding their industrial path. Those will eventually change the way we work, live, as well as our education system for better or worse.
With the current bubbles and social tensions, any event could trigger a financial burst. It could be a large currency move, a war, social unrest, anger from the inequalities fostered by new technologies. Or maybe the upcoming industrial revolution will bring the real economy up to speed, proving the markets right. One thing is for sure though: how the banking world and new technologies impact your life, how you feel about inequalities, how you view society; those are all real world insights that can close the information gap between financial markets and reality.
Armand is the founder of AvantSight, a platform that collects and analyzes industry insights to provide investors with better information regarding market trends. This database of insights is built thanks to the contributions of industry professionals who are rewarded for sharing their expertise. The beta platform was launched in January 2017 and applications are open for any professional who would like to contribute to this exciting project.