In today's industry age, systemic thinking and scenario analysis increase depth of field when going through forecasts. And when we consider many moving parts in financial market, we will discover the important role of such approach in investment industry.
Let's take a scenario into consideration.
Year 2020, forward looking analysis by some financial institutions disclosed recession is undeniable. Central banks started housekeeping for such probable event with foreseen impacts. The recession would be developed as a result of banks shortage of liquidity. And proliferation and speed of information provides an efficient foundation for news.
In such economic condition, price levels and unemployment rate increase. Economic activity has to be boosted to bring aggregate output and price levels back to equilibrium. And for such event to be happened, monatory and fiscal policies are two legs tool in hand. Considering pessimistic consumers' expectations, marginal propensity to save would take the lead. This could be thought of an opportunity to feed business sector indirectly. And in order to strengthen collectiblity, strategists' reports show optimistic forecasts in parallel, of course colourful and acidic bubbles show up as no warming up has been accomplished before such decision making by which economic engine burns out quickly. What if pre-heating is going to be done through fixed income securities?
Sometimes it is not about the right choice of a scenario, but the right flow of scenarios. A scenario lives in a confined space but not so strictly. It's side effects would strengthens or weakens other scenarios and if reordered then the impacts will be adjusted accordingly.
Scenario modelling, machine learning and platforms are just some of the ingredients of a soup which will be served in investment industry in coming years. The tastes should be aligned accordingly, business models be shifted and traditional methods blurred.
Intervention if not cooked properly, detoxification costs rose up.
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