Monday, 20 July 2009

Goldman's last stand and the fading of an era of market timing

Financial innovation has become more or less synonymous with what might be called meta-market activities. That is where much of the day to day movements of markets and the activities of traders is based upon information derived directly from the market's internals and not from the "real" economy. To a large extent it could simply be called market timing. It is an activity which Goldman Sachs excels at.

In contrasting say the economies of the US and China, where the latter has far less developed capital markets and is building its economy the old fashioned way, it seems very unlikely that an economy which tries to prosper based upon a market timing investment philosophy is going to prevail in the coming years.

In some ways the success of Goldman in recent quarters may be the last hurrah for an era of financial wizardry.

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