Money Matters: Where is the market?
Markets punish those who do not heed its power, says Bernard Otabil
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There is indeed a market for everything- even friendship! People often make reference to markets such as the mortgage, financial, commodity, foreign exchange markets and many more when referring to the activities of buying and selling, as well as making profit.
There is a very simple view of the market, as well as the more complex economists’ theories about it, all ensuring that the word “market” enters our common discourse.
So what indeed is a market, or the market? In other words, where is the market?
Well, the past few months discussions on various platforms-social media, radio, and television- on the performance of the Ghanaian financial system led me to put down a few notes on the “market” and its dynamics.
This was because on a number of occasions, l had become quite surprised about political accusations and counter accusations about why the various markets were not performing well—mortgage, financial, commodities, foreign exchange etc.
Therefore, this week (and the next) the idea is to attempt not just a definition for what a market is, but also for you to understand the dynamics of market operations (l hope) in order to appreciate how all of us, as economic actors, have an impact on the functioning of the market.
First off, remember that the common idea is that a market is where buyers and sellers meet and that interaction determining the price of a commodity or service. This means that the market is right only in the sense that at a particular moment, the price for a particular item is such and such.
Consumers may wish that prices were otherwise or ought to be otherwise but that is irrelevant. The price simply is! And that is the power of the market.
According to conventional economic theory, the market is efficient and is also considered to be random. The market is efficient because it is deemed that at any given point in time, prices reflect all available information about the future.
In such efficient markets, buyers and sellers efficiently absorb the information they need, make predictions on the basis of perhaps, past experience and buy and sell in a variety of ways.
However, it must also be stressed that the other economist view is that the more mature the market, the more efficient it is.
With this attempted definition, let us now look at some of the dynamics of the functioning of the market. Okay? To proceed further, we are going to make a very simple classification of “the market”. Shall we? Good.
And the classification is this: the physical (cash) market, and the futures market.
Now we are going to use this simple classification to demonstrate what l would term, the infallible nature of the market. Because it is created by us, we move the market by our actions and behaviour regardless of what the government may introduce as a policy directive.
It is because of the innate desires of some to manipulate the market for their own selfish gains that in the foreign exchange market sometimes, governments intervene to fix or control prices and for that matter exchange rate.
In fact, even in general commodity trading, governments have often intervened when they realise that the market dynamics are not going well.
True believers in market economics, especially, advocates of free market believe that the market is omniscient and omnipotent.
Indeed in the 1980s when the market’s praises were sung with a religious intensity, British Prime Minister, Margaret Thatcher commented that “The market is always right. You can’t buck the market”.
The Governor of the Bank of England in those years, Eddie George, also said, “I have a firm belief in markets. I don’t believe they are always perfect, but by and large, if they get it wrong, they put it right faster than administration or bureaucrats could”.
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It is that interaction of buyers and sellers, and sometimes speculation that drives the market, which means that markets are human-centred and can only function when humans are involved.
For this reason, a market is not an entity which would go on functioning after the last human being had left the planet.
In other words, your actions therefore move either the cash (physical) markets, or the futures market.
Look at the following also: When something unpredictable happens, buyers and sellers get frightened and all run in one direction, that action somehow producing regularity in the market in the end. What Eddie George sees as market correction in quick time!
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Then there is this other example of how actions in one “market” affects another “market”. When an electricity company for example warns of massive blackout or load shedding, there is a quick reaction in the candles market and also in the market of power generators.
In fact, in some cases, the price or prices of these commodities go up because of the increased demand due to the “unexpected” situation.
That means that a speculator who predicted this course of events could buy up all the available candles and later sell them at his own price and make a decent profit on this market movement.
Writer's email: botabil@gmail.com