In Michael Lewis' Liar's Poker (I'd write "Michael Lewis' classic Liar's Poker," but since Michael's a Slatecolleague, it'd probably look like log-rolling ... oh, what the hell, the book is a classic), he introduces us to a character named Alexander, whom Lewis describes as essentially holding a coherent vision of the entire global economy in his head. In other words, when something important happens, Alexander recognizes not only why that event is important in itself but also what the implications of that event will be in seemingly unrelated markets all around the world.
So, as soon as the nuclear accident at Chernobyl happens, Alexander is on the phone buying oil, and within minutes owns the equivalent of "two supertankers" of crude, because what's bad for nuclear power is presumably very good for other energy sources. A couple of minutes later, Alexander is off buying (and telling Lewis to buy) Idaho potatoes, since the impact of fallout from Chernobyl on European agricultural crops was going to drive up the price of similar commodities across the world. Alexander, in other words, understands that everything really is connected to everything else. (Or almost everything. No one ever figured out what Steve Forbes' campaign was connected to.)
I am not Alexander. And the evidence of it is that right now I don't own any shares of Watchguard or Entrust or ISS Group. If well-known Internet sites are being attacked and actually brought down by hackers, it's predictable that the stock prices of those sites will drop. (Though interestingly not as sharply as you might expect.) But what companies' stock prices will rise?
In a sense, once you ask that question, the answer becomes painfully obvious: stocks of companies that protect Internet sites from hacking. And that is, in fact, what happened. WatchGuard jumped 46 percent today, Entrust was up better than 10 percent, and ISS Group leapt 11 percent, and all of this on a day when most stocks were down.
Now, this is the kind of move that is so routine that we take it for granted. But that's a mistake, because there is something remarkable about this. Even though almost none of us are Alexanders, the market as a whole is, which is to say that it understands the connections between events and redirects capital on the basis of that recognition with great speed. (In this case, it's a little surprising that these stocks didn't jump this sharply yesterday, since the first attacks--on Yahoo--took place on Monday. But that, I think, is more because people believe that the Net's infrastructure is essentially robust than because of anything else.) And this redirection of capital is exactly right. Even though many of these companies don't make products that would have helped E*Trade or eBay defend themselves from these particular hacker attacks, companies are undoubtedly going to be beefing up their defenses, even if only for PR purposes. And that means Watchguard and the rest are more valuable than they were a few days ago.
Again, this is what happens in markets every day. But it's the routineness of this that's so astounding. There's no central intelligence, no Alexander, making these decisions, just thousands of people making individual choices that, taken together, add up to a good result. Mandeville's bees remain hard at work.