Archive for November, 2017

Bit Player

November 19, 2017

“When people who have nothing to do with finance ask that sort of question [about an asset class], normally that market will get into trouble within a few months.  According to knowledge from my experience, it is a very important signal.”

Katsunori Sago, speaking about Bitcoin


Over the course of his career, Sago-san has developed the ability to discern this particular type of signal among the deafening white noise of mass-market disinformation because the tumescent bitcoin bubble is deja vu all over again.  Here’s why: the usual suspects have very few actual arrows in their quiver of capital accumulation techniques, so the most efficient method of accelerating the cash conversion cycle is one that gets used over and over and over again.  It’s called pump-and-dump (or ‘asset inflation’ if you’re talking with the white-shoe set), and since there’s a sucker born every minute or so, the key to success is applying this well-honed technique to a financial asset that hasn’t previously existed in the sucker’s (brief) lifetime.  Tulip bulb futures.  South Sea commerce.  Railway construction bonds. Mineral exploration equities.  Internet services.  Collateralized debt obligations.  Blockchain cryptocurrencies.

All of these assets actually exist (or did at one time), but were –or are– incorrectly valued in the market.  Erroneous valuation is based on erroneous, low-quality information.  Therefore, fraudulent (or overly-enthusiastic) ‘information’ about current and future asset value is the core technology of asset inflation operations, just as it is of political discourse.  Reduced to the simplest terms, market bubbles are thus primarily a function of information quality, and the lesson we should have learned long ago is that the global information-production industry has significant quality-control problems.

This should not be surprising.  The Herman-Chomsky propaganda model of (advertiser-supported) journalism asserts that the structure and business plans of information-production enterprises rely on arousing and maintaining the interest of a sizeable audience which will be provided with commercial advertising in addition to the information about social developments that they hope to learn from their news provider.  In this environment, novelty and immediacy become the dominant dimensions of information ‘quality’ while other dimensions such as accuracy, precision, lack of bias, and objectivity are correspondingly de-emphasized.  As you have surely learned in the past twelve months.

So if you don’t want to heed Sago-san’s warning, perhaps you’d prefer to hear the sad truth from Herr Beckert.  He has a refreshing perspective on the role of fictional narratives in shaping ‘rational’ market behavior.