StockWave Financial Glossary G

Glossary G

The financial world is full of jargon - i.e. strange words no-one understands. Here we try to explain some of the many technical terms.

A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z

G

Gamma

A measure of risk.

Genetic Algorithm

A highly versatile general purpose search technique based on analogy with evolution.

To apply such a technique to stock market trading one could set up a population of agents making trades on the market based on various strategies (- initially these don't have to be very good), then let them compete against each other. Based upon their performance you can cull them or allow them to breed new traders; gradually the characteristics of the good traders will become concentrated - after a while what you will have are a set of highly-adapted virtual traders who you can then interrogate for advice about what to do. A notable feature of this approach is the lack of any need for a priori assumptions about how one should trade stocks; we are not handicapped by received 'wisdom'.

StockWave will incorporate genetic traders in a later version.

Gilt

A government bond.

Gold, Money and the Gold Standard

(- plus a little recent history)

The gold standard was the arrangement that paper money was to be as 'good as gold', i.e. your paper note could be exchanged for a given weight of physical gold. This has an obvious attraction, after all, paper money is just paper after all - what happens if those sneaky central bankers just start printing it willy-nilly? The worth of paper money is simply the confidence of the world in its issuer, and if there is no confidence, there is no value. Paper money is also eroded in its value by inflation, a subtle form of theft. Historically, most paper money, unbacked by any commodity, has ended up as worthless.

If you don't trust banks, bankers or politicians (- and who does?! Not even their own mothers!), gold has a lot going for it; ironically the gold standard was *the* economic orthodoxy of the 19th century, as far as the bankers were concerned, money must be backed by gold. Only gold is 'real money'.

Gold/commodity money/the gold standard seems like a good idea when viewed in-the-small (- it protects the individuals wealth!), but overall, in the large, seems to create some very unfortunate negative systemic aspects; it encourages deflation, acts as a brake on a nations economic activity and can lead to appalling and intolerable social costs for the majority of society (- which might even lead to revolution! And no one wants their property looted or 'expropriated' in the name of social justice.) It seems only rich nations at their strongest can afford a gold standard.

Historically one may look at the adoption/loss of the gold standard as a turning point; 1914 was the height of the British Empire, but a ruinous war against Germany followed, along with economic failure and the depression - Britain was finally forced off the gold standard by the Invergordon Mutiny (- sailors wouldn't accept huge wage cuts; and remember Britains wealth was founded on its navy). After that, it was finished, on a long downward spiral all the way to the Suez Crisis. [NB - Britain did not decline because it went off the gold standard, its inability to maintain the gold standard was a symptom of its decline; don't put the cart before the horse.]

After WW2 it was America of all the Allies who were the real winners (- the Soviets had a smashed nation and 22 million dead - they got ... Poland, plus a few other tourist-spots) - America got it *all*, most of the world's gold, Western Europe (- the pretty bit with all the art and culture), the Bomb, Britain's Old Empire (- at the time these idiotic Colonel Blimps thought they would be getting it back!!), Japan (- which had successfully resisted Western influence for 250 years), and the top Nazi scientists (esp. Wernher von Braun, designer of the V2 and the Saturn 5 moon rocket) with their rocket technology (- they already had all the top non-Nazi scientists who had fled Europe when Hitler began to work his crazy plans). The USA played a superb game in all of this - their continental separation allowed them to stay out of the Big Fight until all the main players were exhausted and it was clear who was going to win; turn up late, on the winning side and walk off with all the booty. Very sweet. America went from being an energetic, up and coming, but immature nation of limited global importance to world power. It was, as they themselves would say, a Slam Dunk. Naturally the dollar was on the gold standard, and the gold which backed this standard famously stashed at Fort Knox.

The cold war proved very profitable, but real wars are always horrendously more expensive than phony ones; the US came off the gold standard at the tail end of the Vietnam War because it had to; but, very cleverly, Nixon arranged with the Saudis that oil would be priced in dollars - effectively moving off the gold standard, which could not be sustained, and onto an 'oil standard'. Oil being the worlds most important commodity, cemented the dollars pre-eminance as the de-facto reserve currency for every country on the planet - this gives the US unparalleled economic power and also makes it (- so far) immune from typical economic constraints, e.g. it seems able to sustain HUGE deficits without imploding.

If you reject gold as money or as backing for your paper, then you cannot allow it as a competitor or even to be seen as a good investment; people have, it would seem, an intrinsic preference for gold (or silver) money over paper, so if you want people to use your paper money, and hence enjoy the power which this confers, you better make sure there are no alternatives. An extreme example of this was the seizure of private gold holdings by Roosevelt. Less extreme is the current 'management', i.e. suppression, of the gold price by the central banks; this is seen as a 'controversial' 'conspiracy theory' by some, I would argue it is simply 'totally bloody obvious'; if you had the choice of physical gold, paper money 100% backed by gold or paper money backed by nothing but the good reputation of the national bank - which would you choose?! A no-brainer, as they say ...

Proponents of gold - gold as money/the gold standard/or gold as investment are collectively referred to as GoldBugs. GoldBugs have a bit of an image problem and are seen as being something of a lunatic fringe within the conventional investment community, ... who are themselves seen as a bit of a lunatic fringe within general society; gold is something of fetish for these guys. (BTW - The most famous financial quotation about gold is due to JM Keynes who called it a 'barbarous relic' - tell this to the next GoldBug you meet should you wish to see a human being explode with the pressure of pure rage.)

Any sense of value is human constructed, even for gold. In the future it is likely all money will be electronic, no more coins or notes - not even for buying newspapers or chewing gum. The gold standard is unlikely to return, but discussing the issues it raises allows consideration of many interesting aspects. The practical usefulness of gold really extends only to jewellery, even as 'emergency money' in times of crisis or catastrophe its use is limited - if something *really* bad happens then tinned food and clean water will be the only true 'wealth' there is (- and no one has ever suggested we move to a 'Heinz Beans standard'). Gold money, the gold standard or gold as an investment don't seem to have much future; having said that it probably wouldn't do any harm to bury some kruggerands in a secret location!

A Good Company?

Does it make something people want, or will want in the future? Does it sell; does it make a profit? Is it well-run? Is it going to get sued?

Goodwill

Goodwill is an asset that is created when one company acquires another. It represents the difference between the price the acquirer pays and the 'fair market value' of the acquired company's assets. Existentially dubious.

Greenspan Put

This is a general term for a trade which is so risky, that should it go wrong, the authorities would be 'bound' to bail you out. The term comes from 'Put' - which is a type of option having unlimited risk potential, and Alan Greenspan, the top US money-man.

In investing you will often hear a lot about risk-return - the basic idea is that the riskier something is, the more you should be compensated for taking it on; the important point to make is that it is you who is prepared to shoulder the risk, not anyone else. There is thus a reciprocity and a balance between the trades being made. A Greenspan Put, on the other hand, encourages uncontrolled, unbalanced, risky behaviour by giving the trader what is effectively, a Get Out of Jail Free card.

This helps to illuminate the wider consequences of governments bailing out ailing financial institutions; this often seems like the best, and necessary, short-term solution to a disaster - but even if the situation is fixed, it fails to address the underlying causes of the problem, and is in the long-term, counter-productive as it sends a message to other similar organisations that they too will be bailed-out; there is thus no incentive for them to modify their own behaviour leading to a greater future likelihood of similar problems arising.

Guru

A guru is a wise teacher, a Master, someone with deep insight and uncommon knowledge. Someone who you would wish to emulate and learn from.

As regards the stock market, there are any number of gurus out there - mostly either touring the country giving seminars at $500 a pop, or wheeled out by the news media to make some prognostication whenever the market moves up or down by a large enough factor. These gurus like to make serious, often opaque, assessments of the market based on some arcane knowledge only they are privy to - they like to cloak themselves in the apparel of rigorous academic analysis, but like the Emperor, they often have No Clothes - when pushed, they may make some assertion like - 'if the FTSE drops to 60% of its high, then the lack of support will lead to a further fall to 2,700 ...' Pretty clear, huh?!

Why does this not mean anything?

Well, because if you want to actually make a trade to try to make some money (- which is what it is all about!) you need to know when things happen - it's kind-of important, isn't it?? If you wait long enough, the FTSE or DOW will reach practically any value you can think of - but so what, this does not provide me with a viable trading strategy, it doesn't tell me whether I should be buying or selling, speculating or hedging, right now. It has no practical use.

A stopped clock, it has been said, is still right twice a day ... in much a similar manner, the gurus like to present themselves with massive self-congratulatory 'I-Told-You-So' arrogance every once in a while when they are right, while staying out of the limelight when they are wrong.

At the risk of becoming a guru myself, let me give you my predictions - in the future the market will ... go up, go down, go up by large amounts, go down by large amounts, and by small amounts as well; will mostly go up for extended periods, and mostly go down for extended periods, plus there is also a good chance of it going sideways as well; there will be panic, fear, greed, smug arrogance, big winners and big losers, and a large dose of scandal and chicanery - So just keep dollar-cost averaging those greenspan puts through the dead cat bounce until the mini-supercycle hits ... all these insights and more in my monthly newsletter, just $299 per yearly subscription ...