You are right in saying he doesn't contradict me as I am giving precision and I am trying to contradict him. :-)
Basically you say that the decrease in friction in a market drives the demand up: as markets grow efficient it become easier for buyers to enter. However I see that it become easier for seller to enter as well! So it is not necessarily a driver of demand..
This argument can be correct in an asymmetrical market like the ones for bonds, equities, real estate, commodities but it doesn't hold in FX markets for instance (perhaps the money market as well) or other derivative markets where there is not so much bias in being a buyer rather than a seller.
Although, I might say this argument can be available in a world were investors are in majority of the 'buy and hold' type. Which is the world we live in actually! So I can agree with him that new market opportunities and improvements in market efficiency can be an explanation for the flow of cash, and thus inflated prices... even bubble genesis! The venture capital markets or the crypto-currency ones are perfect examples.
To conclude you made me think twice about that and I kind of agree with him but I still don't think it is a universal argument.
"Unfortunately, when we flip the point around, and say that the universe of risk assets should grow more expensive in response to improvements, people get concerned, even though the exact same thing is being said."
Discredited the article to me..
Improvements of a market reduce its friction and make it more efficient: transaction costs disappear for instance. Cost and price aren't the same thing. The latter includes the former.
Price can be seen as formed by a supply-demand process. In this process investors and capital seekers are BOTH subject to the cost of an inefficient market. They're not two sides of a coin.
Basically you say that the decrease in friction in a market drives the demand up: as markets grow efficient it become easier for buyers to enter. However I see that it become easier for seller to enter as well! So it is not necessarily a driver of demand..
This argument can be correct in an asymmetrical market like the ones for bonds, equities, real estate, commodities but it doesn't hold in FX markets for instance (perhaps the money market as well) or other derivative markets where there is not so much bias in being a buyer rather than a seller.
Although, I might say this argument can be available in a world were investors are in majority of the 'buy and hold' type. Which is the world we live in actually! So I can agree with him that new market opportunities and improvements in market efficiency can be an explanation for the flow of cash, and thus inflated prices... even bubble genesis! The venture capital markets or the crypto-currency ones are perfect examples.
To conclude you made me think twice about that and I kind of agree with him but I still don't think it is a universal argument.