Nature of Competition: What the Asset is

 

In the asset market, the investor sits on the demand side. Seated on the supply are the two kinds: the liquidator, or “dis-investor” as we herein call, and the “constructor” of a fresh unit asset (to “I” in macroeconomics); the former is in the secondary channel while the latter the primary channel.

            In various regards, the matter of “liquid” is elusive to catch always and everywhere, while the term “liquidity” is illusive in macroeconomics. First of all, “liquidity preference” is an oxymoron at best; in addition “liquidation” is a misleading name for a channel of “supply of funds” second to the primary of “saving” (“S” in macroeconomics)

“Liquidity” in and out of Cambridge. Have you ever grasped the water, the most ubiquitous and most unanimous liquidity of all? At any rate, we prefer the liquidity of water only second to the general air (as opposed to the particular “thin air” around the banking system).

             Wayside, the providential time and the sovereign money are beyond our demand, preference or control. All that we can do in a sheer preference for either of the two is “imagining” in vernacular or “in naming only” in macroeconomics. When exogenous to Cambridge, in the first place, nothing preferable comes for free anywhere except for in a “Nice and Beautiful” dream.

 

Now off the dream. We hereby get down to our business of trading the title to an asset. The dream of being wealthy, or owning so many assets, never comes true until we are equipped with the wherewithal, or “tender” as sometimes called.

             Abstractly saying, we shall before admission to the market "hard-earn" on the solid ground in the cold reality a sum of legal tender. The sum shall be proportional to the monthly income (Y) and the number (n) of sweating months, as in M= n∙Y, where M for the dreamed-of liquidity. Getting some of us “feeling like a clown,” however, “n” is called a constant coefficient (in the veil of “k”) at the “Cambridge Quantity equation” (J.R. Hicks, 1937). By now to others, “it’s a heartache; nothing but a heartache” (Bonnie Tyler).    

Two motives of reality. We have as far as affordable to prepare for a stable life in the declining cycle eventually to come of life. In addition, we dream of a better future for some reasons. The only means to either end is to invest in the asset with earned incomes. 

             According to J.S. Mill (1861) among other classical thinkers, the best policy to Order (“stability” if you will) is Progress (“growth”); while “Order without Progress” in the incessantly-changing environment means Decay (“retrogress”). In a slightly twisted way, it is the Dream of Progress which sustains us in Order until we cross the River to RIP. In the meantime, thou shalt not look for “equilibrium in particular or in general.” 

Two ways of investment. We invest for the future largely in two banal ways, quantitative and qualitative. Qualitative investment is for the purpose of enhancing the brain power of the human asset or the soil power of the rentable space. On the flipside, enhancement of the creative power of the machine is a matter of brain power. At any rate, the qualitative investment is usually extra-market affair even if the end and the modus of competition therefor are not much different. Quality is never amicable to measurement to a science.

             Hereinafter, we focus on the quantitative nature of the asset market. Again, we assume a standardized unit of the asset under consideration at the moment of investment or disinvestment. 

 

Return on investment. The asset endures for so many years in the future while expected to beget a monetary return periodically in as many years to come. The rate of return on investment is usually quoted in terms of the expected average annual monetary return vis-à-vis the asset price (A) as quoted at investment. We might keep in mind three key aspects in this respect:  

             First, the rate of return is equivalent to the percentage change per annum (% PA) in the defined asset price, or (Δlog A)/ Δt= (ΔA/Δt)/ A. Wait, the averaging of rates must be measured through compounding, “the eighth wonder of the world” (Albert Einstein).  

             Second, by definition, as the asset price rises the return rate shall decline and vice versa. The two are inversely related, if not exactly “inversely proportional.” Of course, we assume the expected returns in the future remain the same as before; this is what the cliché ceteris paribus is all about.

             Third, the rate is no less personal than expectation is personal. There may not be much merit of stating a market-wise rate of return, much less the rate of equilibrium or “the natural rate.” Moreover, the rate of return, as an ABC of investment, is not accounted for the individual asset but collectively for a "portfolio" of assets (back to this later on). Ergo, of Nonsense and Insensibility is proposing the economy-wide rate of return. We in reality would see it no more frequently than we see the ghost, or the invisible hand for that matter.

             In sum, there on Earth is no such thing as “the rate of return” until we name a particular investor in association with an individual asset. We on the sidewalk never mind what in Cambridge.

Stephen Foster - Beautiful Dreamer