Expectations: Mis-sold

We are picking up on a theme we have been experiencing and confirmed by this HBR article  published in 2012:

Job and Career seeker’s unfulfilled EXPECTATIONS

 

The word expectation has several meanings, amongst them words like hope, belief, prospect and even probability.  It is interesting that if you were to consider these four other words it is almost a continuum, stretching from the vague hope frontier and uncertainty right through to probability which is calculus driven and at least more certain statistically then mere hope…

However, the real focus of our analysis today is the mis-sold or rather mis-aligned expectations gap.

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Factors driving the Expectation Gap in our opinion include:

We will begin to unpick each one of these factors or drivers (reasons why) in a multi-part series of articles to see how, why and if we can help ‘plug the Expectations Gap’.

Today we will begin to briefly cover the top item on our list:

Economic principle of creative destruction - joseph schumpeter

Disruptive Technologies versus Organisational Structure and Strategies

Agile and Adaptive seem to be the new buzzwords in the corporate planning landscape and lexicon.  But how do we change entrenched processes and ways of working to align to an agile and adaptive mindset?

Let us turn to certain inhibitors first.  Processes like preferred supplier lists, supply chain or other framework procurement agreements, Service Level Agreements and other longer-term contractual arrangement all help create the illusion of certainty and stability; yet are they?  Sometimes this flies in the face of agile and adaptive planning and operational processes.

Maybe the gap exists between a process reality and a mindset aspiration.  Flexible organisational structures, including resource pools like labour still have a long way to “move” in order to create the conditions in which agile planning and aligned to adaptive process realities.

How are our own personal aspirations and understanding of the current market aligned to the Shamrock Organisation mindset?

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theMarketSoul ©2015

Moral Hazard PLUS – Part 2

Part 2 – Revelations
 Moral Hazard symbol utilized by theMarketSoul
In part 1 of this article we focused on the economic cycles and the underlying drivers for future Moral Hazard risks.
In today’s edition we will dwell a little on the revelations 2014 brought about in a series of disclosures and financial regulatory deals concluded.  As Tony Robinson put is so eloquently in a recent Twitter feed:  “In 2014 £1.4bn in financial penalties were paid by UK financial institutions. whenever has a legitimate industry acted so lawlessly?

 

Image used to convey the idea of currency conv...
Image credit: Wikipedia

 

What we notice is that only the financial institutions (and consequently their customers) bore the fines, no individual has yet been brought to justice and account for the near fatal financial collapse he 2008/9 Financial Crunch brought about.  Yes, individual traders who acted recklessly and outside of the bounds of their remits within financial organisations have been brought to account, however, the scale and ferocity of the collusion by Forex traders, the Libor scandal, PPI mis-selling, etc., etc., has yet to yield individuals sanctioned and barred for ever acting as officers and employees of these large financial institutions.  Do the regulators and law enforcers and criminal justice system believe that the market will be protected by not taking appropriate action?  The longer we leave punishment and sanctions off the agenda, the more urgent the growing threat for Moral Hazard PLUS will be.
Therefore, we have now had and will no doubt continue to have revelations drip fed to the consumer masses, but more importantly will we take the necessary steps to mitigate individual Moral Hazard risk, as a lot has already been done to tighten and improve regulation at the institutional level?
This is the biggest and most burning question we believe drives Moral Hazard PLUS today and not the near term future.
In the concluding part of this article we will wrap things up by concentrating on large scale corruption and unpunished collusion that fester and provide fertile soil for Moral Hazard PLUS to continue to grow and exist.
© theMarketSoul 2015

Thoughts on 2014 – Moral Hazard PLUS – Part 1

Reflections on 2014

As a behaviourally focused economics publication we have been very quiet and inactive during 2014. A year of reflection and introspection, however, we are ready to resume service, with vigour. And what better way to start than with a reflective piece and thoughts on the biggest risk we believe are developing under the surface without warning. Our concluding theme of 2014 is that of moral hazard.

As Margaret Thatcher once said: “There is no society”; we state today that there is ‘No Moral Hazard’; in fact there is only Moral Hazard PLUS.

We believe that there is a strong correlation between QE (Quantitative Easing) and economic moral hazard developing a new strain, mutating like an unseen virus.

QE might have saved the financial system of the developed world, but it it only provided a shot in the arm and acted as a stimulus for sustaining moral hazard.

Economics follow a flow and cyclical pattern, as discussed in our article entitled ‘Information Age Irony‘. These patterns and flows weave themselves into the fabric of our lives and affect individual economies in different ways.

It is important to understand where and how economic cycles develop and flow and how much influence they have on our general economic activities on a day to day basis, but we should not become overly obsessed by them, as they can be short-circuited from time to time by policy and policy-maker’s actions, wherever individually or collectively.

In part 2 of this article we will focus on the revelations of QE and the underlying threat of moral hazard returning on a grander and more catastrophic scale, if it goes unchecked and misunderstood.

© theMarketSoul 2014

If only we could…

…[take] the human being out of the market entirely, then we should have a proper, effective and efficient market…?
So might go the refrain of Neo-liberal economics, or at least a slightly different take on the Neo-liberal ideal of ‘every interaction should be a market transaction‘.

inspiration

That Neo-liberal economic refrain is part of the inspiration behind the creation of the ‘Soul of the Market’ or rather theMarketSoul and this site.
With this last post of 2013, we thought a bit of reflection and a reminder of our inspiration and founding philosophy might be in order.
In order for a market to be effective, there has to be a few ripples in the ebbs and flows of the transactions and interactions making up the market processes.  Therefore, we have to be able to tolerate human frailties and flaws, or else the market becomes too mechanistic and dare we say it preordained.  This can naturally not be an effective outcome for any market.  Human failings and market failure are two sides of the same coin.  However, we should work together in order to limit the inevitable damage and negative consequences of both human and market failure.  This does not necessarily translate into more regulation, might we add at this juncture.
Let us never forget this and celebrate process frailty, failure, learn to develop and embrace tolerance, persistence and perseverance; basic elements of human nature
We should never forget our inspiration, put it to aspiration and strive to achieve our own unique and specific dreams.
Human Nature / Logo
Human Nature / Logo (Photo credit: Ars Electronica)
Go, Inspire, Aspire and Achieve…
theMarketSoul ©2013
Our final word of 2013 is:

CONSOLIDATION

US Treasury Yield Curve – The Shutdown Analysis (Part 1)

Seal of the United States Department of the Tr...
Seal of the United States Department of the Treasury (Photo credit: Wikipedia)

Today we very briefly focus on the dynamics we have observed in the US Treasury Yield Curve between two critical dates:

1. The Yield Curve at 30 September 2013 – The day before the US government shutdown officially began

2. Friday 11 October 2013, exactly 11 days into the White House, Congress and Senate stand-off

YC shutdown AnalysisWhat can clearly be observed from the Yield Curve for Treasury Bills (T-Bills) dated 30 days is that the spread between 30 September 2013 (at 0.10%) to the rate at 11 October 2013 (0.26%) has significantly increased and that the Yield Curve has become inverted.  Normally the sign of a recession or other financial calamity to come.

Our question:

Will Thursday 17 October 2013 be D-Day (for Disaster or Domino-day) when the whole lot starts tumbling down again?

The Market Burden

Illustrates the intersection of supply and dem...
Illustrates the intersection of supply and demand curves as the free market equilibrium (Photo credit: Wikipedia)

Today’s post is actually only a short sound bite for further conversations to be developed in the future:

The real burden of the open and free market is the fact that it does not always behave and act in the way the market participants anticipated. [In other words, the market might be open and free but not perceived as fair – a real challenge when the clearance mechanism experiences the odd bottleneck moment, because in the long run, the market should and will always clear and achieve equilibrium].
The burden the market then bears is in the form of interference and regulation…
Counter argument always very welcome.
theMarketSoul  ©2013

The Kuznets swing and the market for labour and skills

You must have seen the headlines recently? British wages falling sharply in real terms versus our EU brethren…

We wrote about a particular economic phenomenon referred to in this post about economic cycles and particularly the Kuznets swing; which we find the most interesting and thought provoking cycle. The reason for this is that it is a generational cycle, only lasting or more accurately stated lasting anywhere between 15 – 25 years.

Image representing oDesk as depicted in CrunchBase
Image via CrunchBase

So where are we on this cycle and what does it mean for me, should be the two most obvious questions to answer?

Lets address both separately below.

Firstly we believe we are now around seven years into a downward phase of the Kuznets cycle, therefore to some analysts it would mean that we are either almost half way or to others around a third of the way through this cycle.

Secondly, and more importantly, the impact it has on market participants like all of us:

We believe that the downward phase of a Kuznets swing is the ‘exuberance‘ correcting phase; when markets and other factors of productions contributing to mostly normal market clearing activity ‘got slightly out of kilter’. The Kuznets swing is always there to bring these factors of production into alignment. It is a consolidation phase of the cycle and interestingly for this particular phase, it coincides with disruptive technological advances around Cloud Computing, dis-aggregation of intermediaries, especially in labour markets with labour or skills exchanges appearing everywhere.  Examples include, Elance, oDesk, PeoplePerHour, etc..

English: Cloud Computing
English: Cloud Computing (Photo credit: Wikipedia)

Furthermore, and this is the most import action point for our readers to understand and appreciate, this consolidation and technological advance has a severe impact of wages levels and the distribution of where actual ‘work’ is being performed.

Hence headlines like the one we spotted this morning regarding real wages in Britain declining relative to other (very unproductive EU cousins) are not helpful without the pundit exploring and engaging n deeper analysis of the underlying drivers for the pressure.

The Income and Substitution effects of a wage ...
The Income and Substitution effects of a wage increase (Photo credit: Wikipedia)

Our recommendation:

Understand that the world of work is changing much faster than we had ever become used to in previous generations. As active able and willing participants in this market for labour and skills we have clear choices: Up-skill, be competitive appreciate and plan for volatility in the labour supply market, by ensuring flexibility in location, skills and prices. It is especially painful to suffer real wage declines, but remember this is the market’s subtle way of signalling a problem or challenge in that particular market and a way of adjusting in order to restore the natural balance and clearing prices.

We believe every interfering politician and educating commentator should always bear this in mind.

theMarketSoul ©2013

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