29 Sept 2008

What is value?

As a trader you don't really care what a number is. All you care is whether that number will be higher or lower in the future and this will dictate your action.

How could banks have lent so much against dodgy mortgages? Simple. They thought it would be worth more in the future. And it will be. Given 10 years of inflation.

Oil got up to $150. Now it's back down at $100 again. What has changed fundamentally in the oil market? Nothing on the way up and nothing on the way down. It's the perception of how that number will change in the future that drives what that number will become.

Which makes it a little troublesome when the real economy starts to depend on these numbers. Things like house and oil prices tend to have real meaning again and with the whole world starting to focus on them we will start to see real 'value' emerge. What that means for us as dependant economies is a matter of some interest. It's going to get interesting.