I have just read the first chapter of A Conceptual Introduction to Chemistry by Bauer, Birk, and Marks. The question immediately arises as to what would a chemist who lived on Mars and knew nothing of our financial situation study or do to make a profit in markets when he came down?

He would certainly place much emphasis on the changes in state that the various companies went through and their effect on stock prices. Big mergers and acquisitions would be studied as to their impact. The moves above 100 and below 10 or 5 would be considered. Stocks would be grouped by their digits and volatility. The amount of trading in each range would be considered as a measure of density. And the luster of each stock, relative to publicity and ballyhoo, and its electronegativity would be considered.

Does a stock dissolve in water, and at what temperature? Yes, and of course the ability of a stock to move on its own or the external force would be high on the list. What are the basic elements, the companies from which all others are built? One would think that a whole set of quantitative studies, probably much more useful than the ones usually found in the literature might be sparked by such a consideration.

Allan Millhone replies:

When the chemist came down from Mars in this down market he would see that items containing oil would be a good bet for future products.

He would note a suppressed housing market and might look at roofing and construction materials. Roofing, felt paper, ice guard brand products, tar. Or is it best for him to buy XOM and the like? I note the Golden Boys predict $85 oil. They must have a swami at a crystal ball like the wicked witch had watching Dorothy and her friends to see the future.

T. K. Marks adds:

The chemist would benignly synthesize a powerful new opiate aimed at pain relief and call it "Price Averaging, This Time It Will Definitely Work."

I would experiment with such, thinking that only others could get hooked.

George Parkanyi writes:

He might also look at what properties of a market attract energy (money), or repel it. Can markets be combined into compounds? If markets do form into complex "molecules", what would make them stable or unstable? How would the combinations behave? What would be the tipping points? What would be the solid, liquid, and gaseous states of a market? How much energy does it require to move from state to state? Does change of state happen smoothly, or in quantum increments? Do markets have polarity? Which ones repel; which ones attract each other? If markets don't necessarily interact with other markets, can they still act as catalysts to facilitate interactions between other markets? Does one market orbit around another? Does the state or presence of one market crowd out or starve another? Is the main trend of markets toward entropy (increasing disorder), and how much energy is required to keep markets organized and behaving in their current states? Can markets serving purposes today, be used for other purposes?

And… which markets cause high blood pressure and heart-problems…

Alex Forshaw comments:

The chemist would identify a massive, exploding black hole which the human species alternatively call "the Fed", "the US government", "FDIC", "FHLB", "Fed", Congress", "Obama", "Bush", and many other names, consuming everything else … and he would watch in amazement as market liquidity, entropy, gravity, etc were warped beyond recognition every other week.

He would probably blast off of Mars to a galaxy far far away ASAP before Mars were imminently gobbled up by the same black hole.

Easan Katir adds:

Thank you for this new chapter drawing analogies with your introduction of chemistry, in the service of profitable trading.

Though more hydraulics than chemistry, here is a video demo filmed at Cambridge of how a plumber / economist approached similar questions back in 1949, with his "Phillips Machine ", or "Moniac."

[Ed: if I understood correctly it is a hydraulic simulation of the Keynesian Liquidity Preference model].





Speak your mind


Resources & Links