Wednesday, March 7, 2012

Infrastructure of Capital Markets: Development Model For Mongolia: Essay I

There must be a reason why financiers paid that much. Well, there is. Although many of their pays are baseless.

The fundamental reasoning is that Financial Markets act as irreplaceable systematic mechanism for "distribution of Wealth/Resource/Knowledge".

The idea of existence of a pure, perfect government has always been falling apart for millenia. It is very similar to an idea of living-forever, pure, perfect, never-mistake-producing CEO of a corporate. In ancient times philosophers took a step beyond the imaginations (unnamed philosophers that are the greatest) and laid foundations for a complete system (not for a single body) that promotes an environment for a just/true/pure society.

I applaud to these greatest philosophers of all times.

A never detachable part of that complete system is Financial Markets. As a system on its own it intends to be pure and perfect and as I just mentioned helps to create and distribute wealth/resource.

As it can be few hundred pages, today I will only emphasize the role of Capital Markets, and specifically the role of Investment Funds.

Well today, many government regulators and market practitioners do seem to think that public needs to be educated by some supreme authority (day dream) and invest in stocks for themselves. Investing in stocks is a part of a National Saving procedure. Conventional Macro economic consensus holds that a country with more national saving tend to have more robust economy and more stability during volatile times.

Investing in stocks is very similar to Saving in Bank deposits from fundamental micro economics sense. But from macro economics perspective it is rather different in a way that investing in stocks is a better leverage for creation/distribution of wealth/resources. So one could just think it is a bit of a more leverage.


Leverage is (gearing - british say) a major economic invention (I would rather say a phenomenon - I assume early philosophers themselves haven't imagined) that is like a double edged sword.

If the economy is dipping more leverage is bad. Because you are more hurt. So in such case, from micro economics perspective, a family/individual shall certainly favor Bank Deposits.

If the economy is garnering upwards momentum like in the case of current Mongolia, the government hopes that families are more leveraged e.g. have more money in stocks rather than savings.

Let us hold on for a while before starting to check the risks of stock investing.

If I were given 3 days, I can produce you a very close number (in few hundred to few billion dollars) that how much foreign investors made on "Mongolia Momentum".

Mongolia Momentum is good. Foreign investment is desired. But if all money is made for experienced foreign investors and not for Mongolian families - then Mongolian Government is deemed "inefficient".

Well, if we ever condemn foreign investors for our stupidity, it will sound exactly the same as senior international agency economist calling Derivative a dangerous tool for Mongolia and using derivative could be seen as gambling.

The question from such economist, who is putting the name of his organization (the greatest organization-invention of mankind) to swamps, is "How many people a knife has killed since its invention during the last few thousand years?"

True knowledge stems from True intention. I am never against people who studied at very good schools. I myself dreamed to study in Harvard. But I always try to express that I have seen enough people who put the names of their schools, organizations, even their country to swamps. It is not the race, school or organization that makes you smart. It is your true intention and belief in your true knowledge that makes you better.

Okay, let us get back to the topic.

So now we know that we should promote public to invest in stocks because it offers more leverage from Mongolia Momentum. And let me not forget to mention you about all the companies that will list on the MSE and let investors lose money. Yes, there will be plenty of such companies.

I started this essay about the wrong folded intention of main street to educate all public on stock investing. This is obviously obsolete. I know this from my 8 years of experience educating professionals on financial markets topics.

But there is very smart and natural infrastructure of capital markets - it is the Investment Fund. I expressed my idea to distribute TT stocks through Mongolian Investment Funds, so that population will have a representation in the company and inefficient privatization of 90's will not repeat itself.

Why inefficient privatization? Am I against few families getting all wealth?
Well I could have been, but no. I am more concerned about our competitiveness. Even if few families got most of the wealth, we could have global companies like Samsung, Hyundai if the privatization were rightly done.

Did Harvard economist who were advising CIS governments knew hot to privatize? No...

This is called new paradigm shift in macro economics. We must stop basing our macro economics decisions on models that are based on Biblical centered, western markets.

Investment funds can play a significant role in educating population, helping them to smartly leverage, help capital markets to create/distribute wealth.

Hey we are in a globalized markets and global capital markets does not wait someone who is lagging. Its inherent systematic design is to wipe out inefficient players and dump them in the back yards of the markets. Mongolia, we, do not want to be the trash.

But we can even use this systematic infrastructure for our sake and become one of the premier nations and set the global policy.

Shall a young, new Mongolian depend on an inefficient Government handing out 100$ a month?

No, we have a better destiny to make each of our citizens millionaires, make them scientists not miners, doctors not herders!!!

No comments: