Markets need liquidity in order to be popular. Buyers have to be able to buy. Sellers have to be able to sell.
Every enterprise needs a certain amount of popularity in order to make money.
Except Pensions. They don’t need to make money. They need to deliver on the Pension Promise of income security in a dignified retirement for evergreen populations of current and future retirees, directly, for the benefit of all of society, consequently.
To deliver on The Pension Promise, Pensions need to sustain their longevity, indefinitely. This requires that they realize sufficient cash flows from financing activities to keep their actuarial risk pool correctly full and prosperously flowing income security to an ever-changing roster of current retirees in a dignified retirement by deploying Fiduciary Money as financing for enterprise that does make money by being popular.
This fiduciary need for sufficiency of cash flows is not the same and the markets need for liquidity. This mismatch should be enough to tell us that Fiduciary Money does not belong in the Markets (Exchanges & Funds).
But it has not yet.
And so, we get short-termism, and a cascading cavalcade of social failings flowing from that one root cause of the mismatch between the needs of Fiduciary Money, for cash flow, and the needs of the Markets, for liquidity.
When Fiduciary Money enters the market, it never really has to sell. It always needs to be invested, so it can hold fovever.
That much money not trading in the markets would cause the markets to fail.
So the markets cannot allow Fiduciary Money to buy-and-hold. It has to trade. Othewise, the markets will freeze up! (This should tell us that Fiduciary Money does not belong in the markets in the first place. Why doesn’t it?)
If you’re not selling to take your money out of the markets, then the only reason to sell is to take a profit when it becomes available.
But then, you have to take those profits, and use them to buy something else.
Which means you are always “hunting” for opportunities to make a profit on a trade. And whenever a profit is available, you have to take it.
Or you might miss it.
An economy financed by markets (Exchanges & Funds) populated primarily with individuals speculating with our own money, for our own account, in pursuit of our own proper purposes, moves with the stately rhythm of buy-and-hold.
People aa market participants buy when we have some money set-aside, and sell when we need that money back, to spend on something else: a second home; college for the kids; a business opportunity; a dream vacation (or other “big ticket” dreams); living in retirement. Along the way there may be some selling and buying to rebalance our portfolios as the economy evolves with the times, but for the most part people buy shares and hold them, without paying too much attention to short term share price fluctuations.
As markets become financialized with the entry of Fiduciary Money, experts take over who are expert at timing the market to extract maximum profit from each trade: buy-and-hold becomes buy-low-to-sell-high, which is the boast of every market expert.
Buy low, to sell high
Short-term price fluctuations become profit-taking opportunities. As the pace of trading in the share price trading markets quickens with more money being moved more quickly by more experts whose expertise is in timing the markets, pressures mount on corporate executives to shorten the time horizons for their own business decision making, to answer the demand of market professionals for profit-taking trading opportunities in the short term.
As business decision-making shortens its horizons, the whole economy and all of society become increasingly short term.
Volatility is endemic to the logic of share price trading as a social structure for social decision making about where the money can, should and will be made to go to finance enterprise and shape the economy.
Financialization transforms volatility into short-termism, as experts take over the markets and buy-and-hold becomes buy-low-to-sell-high becomes buy-high-to-sell-higher.