This isn’t about NBA extravaganza, but rather about the economy. More precisely, it’s about capital markets as these link to the economy, of which the NBA is a part. And it’s about wild applause that is sometimes only an indication of vacuousness, or volatility. Ultimately, this is about fluff and substance.
We begin with two market drivers: fundamental value and liquidity. On one hand there is a core asset that produces substance, while on the other hand there is money. In theory, the two hands should grip one another tightly, but in practice there are bubbles that grow and burst. The two hands move apart – perhaps distantly – and come together again with a clap. When this happens repeatedly, there is applause.
When the tech bubble burst ten years ago, this was due to a core asset that did not support the financial valuation assigned to it by money flows. The fundamentals and the liquidity had moved far apart, and then… clap. When the credit bubble burst eight years later, it was the same thing. These two were louder claps in a series of lesser ones, during a longer span that continues.
The proposed fix after the more recent pop was to inject liquidity into the system, to drive up financial values again. While this did not directly address economic fundamentals, the idea was that fundamentals would follow. In keeping with this article’s motif, the two hands would thus come together in a positive way, not as a bubble bursting, but as the economic hand would rise up to meet the other: narrowing the gap between real value and that which liquidity supply would set. Fluff, thus, would build substance.
But substance is such a stubborn thing, and fundamentals so hard to prop with air. Unemployment, deficits, excessive borrowing, are symptoms of a weak platform, and we now see that record capital infusions have hardly made a dent in those. Even if the stock market sometimes says otherwise, at most this divergence signals a possible pop ahead.
(An alternative approach would be to tackle the issue from the other direction… beginning with a firm foundation. Rather than merely throw money at an issue for a rapid, albeit dubious, fix, we might try to resolve it the old-fashioned way… with improved efficiency, new invention, education, learning, better quality of output, better service. It is certainly not too late for any of that, and competitive forces may naturally take us there.)
In the meantime, this all brings me back to the belly turning spectacle that was the Miami Heat free agency act. A product, perhaps, of the times, this was a case of three superstars and a manager who, unable in their prior circumstance to lead their respective organizations to a winning formula, determined to fix the problem with money.
In other words, rather than working harder, improving aspects of their game or game-plan, trying to make their team-mates or rosters better through leadership, they found common ground in a platform that would, through money alone, cover up (or expose?) each other’s weaknesses. The result was rolled out with flash and smoke and wild applause, before a single game has been played, before any victory registered. Michael would not, and did not, act in this fashion.
Like I said, this article is not about the NBA, but the economy and market of which the NBA is a part. While the short run is often dominated by surface, in the long run the core underneath is what matters most. Fundamentals will always determine long-term value, and the origin of applause should always be scrutinized.
