Whenever too many people are counting on a financial market to do something, it won't.
That truism provides as good an explanation as any for the mulish behavior of the U.S. stock and bond markets the past couple of years. It raises disturbing questions.
What if the markets become chronically deadlocked, logjammed, stalemated, by a surplus of investors chasing down every conceivable opportunity to make money? Could the financial world have become so crowded and so sophisticated in its methods of digging that the whole gold mine is getting played out?
This line of thinking can get downright nasty for anyone accustomed to earning generous rewards from a 25-year financial boom.
Throughout financial history, the point of vulnerability in markets has typically been too much expectation of one particular kind, in one particular direction. At the turn of the millennium five years ago, for instance, wretched excess was concentrated in enthusiasm for the "New Economy" embodied in the Internet and other new technologies.
This had many parallels to previous speculative sprees in the 1920s and 1960s. All three of those runaway markets were followed by collapses that, while devastating to many, fostered new moneymaking opportunities for others.
After the Great Crash of 1929, for instance, some alert souls saw that investing could be done smarter and with better information. Hence the founding of such eminent entities as Capital Group Cos.' American Funds, now the third-largest of all mutual fund groups, and Arnold Bernhard's Value Line Inc., a stalwart of research for individual investors -- both in 1931.
The 1970s letdown that followed the 1960s bull market gave rise to such enduring innovations as money-market and municipal bond mutual funds, as well as the all-purpose asset management account. The 2000-02 bust created a hothouse environment for hedge funds, which could trade the market on the down side as well as the up.
The process works in either direction. Ten years in a trading range from the early 1970s to the early 1980s convinced legions of people that stocks were vehicles for jumping in and out of, not for buying and holding. This sowed the seeds for an 18-year bull market from 1982 to 2000, during which you could have multiplied your money 21 times simply by sitting tight in the Vanguard 500 Index Fund.
What's different today? Well, money is now positioned to profit if the markets do anything at all -- a rise, a fall, a group rotation out of small stocks into big, an enlarging or shrinking of the bond risk premium.
Any price changes that may occur have been pre-sliced and repackaged via derivatives to isolate and concentrate their effects. Most anything upon which a number can be put has been securitized, from the weather or the outcome of political elections to the future earnings of rock star David Bowie.
That leaves one glaring threat. What if, with somebody ready for everything, nothing transpires? Suppose the stock market, the bond market and every other ancillary market lapse deeper and deeper into stasis, remaining for the foreseeable future as sluggish and trendless as they have been through the first two-thirds of 2005.
Fortunately, there are several ways out of this suffocating trap. One is the possibility that globalization will create so much sustained growth around the world that securities markets will be forced out of their torpor.
Another, far less pleasant, is that some or another of those globalization perils will hit the markets with disruptive force, inducing "volatility" of the downward kind.
In the gambling business, the appetite for risk is never sated. No matter how many people have tried all possible strategies, there is always one more poker game on cable TV.
To keep this machine humming in the 21st century will demand large amounts of effort and ingenuity, not to mention good luck. The good news is, for as long as anybody now alive can remember, the supply of all three of those commodities has never run out.