Even with all the technological advances of the last few decades, food, shelter, clothing, and government remain as the basic necessities for each of us, regardless of where we live. In part, these technological advances can be directly attributed to our efforts to improve our ability to satisfy our basic necessities.
Also, many of these technological advances have, in turn, become perceived as essential to the maintenance of the interrelated national and global commerce that has evolved from our efforts to satisfy the more basic needs. These perceived essentials include transportation, communication, and information processing.
Regardless of whether the economic driver is basic or perceived as essential, there are two additional economic drivers that make continued functioning in today's interrelated world possible. These are energy and industrial metals. Also, given the increase in apparent affluence and leisure time, entertainment has become a significant economic driver.
As an interim summary, there are ten global economic drivers that deserve our attention, as it relates to the industries, specific entities, and related spheres of influence we need to pay attention to in portfolio management and risk management activities:
7. Information Processing
9. Industrial Metals
Although not an economic driver, financial intermediaries (commercial banks, mortgage banks, thrifts, insurance companies, pension funds, and professional money managers) also need to be included in our portfolio management and risk management efforts because they are natural aggregators of the financial transactions, assets, and liabilities involved in intermediating commerce amongst the economic drivers.
A basic premise is that wealth will continue to be created and transferred as a result of the on-going boom/bust cycling of the secular movement toward greater globalization. We can also assume, within the secular movement, a continued wealth creation and transfer resulting from the boom/bust cycling of the individual economic drivers involved in creating and facilitating national and global commerce.
Financial Markets and Instruments
Several financial markets and instruments have evolved to facilitate the intermediation of the commerce and wealth transfer resulting from this boom/bust cycling.
Caveat - Regardless of how globalized and interrelated the world's markets become, each market and instrument needs to be traded strictly on its own merits and traits, and not based on some perceived relationship with another market or instrument.
Additionally, several dollar and non-dollar markets and instruments have evolved to facilitate the management of the risk inherent in the increasing secular and cyclical volatility. These markets and instruments include (cash, futures, options, and other derivatives, both listed and OTC) for:
* Fixed Income (government and corporate).
* Money Markets (government and corporate).
* Mortgage-Backed Securities (fixed and adjustable rate; agency and non-agency)
* Commodity (both traditional and non-traditional).
There are several summary points to consider regarding why I am focused on the major commercial entities involved in creating and intermediating commerce in the various global economic drivers:
- They all have substantial performance profiles at risk to interest rate, equity, currency, and/or commodity price volatility.
- There are liquid markets and instruments available for managing the performance profile volatility within each economic driver and for each financial intermediary.
- There is a growing level of management literacy regarding the need and opportunities to manage performance profile.
- I am focused on implementing a portfolio management and risk management process that can be applied to the major global economic drivers and related financial intermediaries, markets, and instruments.
- Furthermore, this process can be adapted to serve as a utility function for those organizations with a fully internalized performance profile management process. Likewise, it can be adapted to serve as a value added service to enable management groups with less developed internal capability to make and implement performance profile management decisions.