Aurosoorya Blog

We now need to turn our attention to existing theories and tools that drive trading activity today. Once we understand these in relation to which phase the stock market is in it will become easier to factor in corrections into the redesign of the stock market.

Analyses suggests that stock market is in the vital phase. The vital phase is characterized by the principle guideline “reality as determined by assertiveness and the myriad play of energies”. The emphasis is on the assertion of energy. Organizations in the vital phase are absorbed in dynamic activity. In this dynamism there is interaction of energies. Some energies overpower others. Some express themselves in harmony with others. All seek to grow in whatever way they can. It is hence, assertiveness and energy that dominates. This is Darwin’s interpretation of evolution, and the basis of much of today’s interpretation of competitiveness. The energy of each seeks to assert itself, often at any cost. All seek to gather more energy by any means and to establish its rule over other forms. There is experimentation in this phase, but it is not driven by order and thought. It is driven by the primal impulse to assert oneself and grow at any cost. Greed is the law. Fear ensures that greed can continue to live, if not today, then tomorrow. Hence there is a devouring to devour and a conquering to conquer, and it is the strongest and longest-lasting energy that appears to triumph in the end.

There is no rationality in this phase. This is the phase of irrational gains and losses. This is the phase of irrational bubbles followed by irrational bursts. This is the phase of stock market rise and fall. This is the phase in which recessions are caused overnight, where governments lose control of their economies, where brainwashed people are sent to their death to secure resources that never belonged to them in the first place, where innocent people suffer starvation because of irrational speculation, where accelerated destruction of everything we value and accelerated destruction of the body of the earth are the norm.

The transition to the vital phase was solidified in the early 1970’s with the shift from the gold to the oil standard. Creation of market funds, index funds, and mortgage-backed bonds, and the easy availability of credit formed bricks and arches around this foundation stone. But at a deeper level, at the level of the root of the fractal the driver of all this loosening and shifting was greed itself, and the expectation that the quick-buck could be made by trading on the stock market. It was the force of greed-driven speculation that unleashed all the consequent changes. And this force has come to be, in large measure, because of the existing theories and tools in place that have led from one wrong choice to the next.

At the vital-level what we really need is a set of tools that show clearly how greed is the prime driver of trading. No trader cares for the value proposition behind what is being traded. Reality is that all they care about is appropriating or at the very least skimming margin on a deal. Theories and tools must deal with this reality: greed-fear interaction, herd mentality, fractal effects, monopolization effects, resulting stochastic variance. This is what needs to be in the portfolio of decision-makers. This is in stark contrast to what is actually driving decision-making: variations of efficient market hypotheses, portfolio theory, index modeling, algorithmic trading. These latter tools belong to the mental-phase of the stock market, and we are simply not there yet. These latter tools have also tended to drive decision-making in the physical-phase. But this was the wrong choice and has strongly contributed to the global financial crises playing out today. For the physical-phase is driven by the guideline – “reality is determined by what the eye can see”. This really did require another set of tools. We will come to this later.

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