Why is the market still going up?

[moneymaker]

[quote=XBoxBoy]
Stock prices instead are based on what traders think other traders will pay for the stock in the near future.

XBoxBoy[/quote]

Just replace “stock” with “house” and you will see that this represents the reason we just had a housing bubble.

I’m not wishing for the stock market to tumble, I just don’t see what is supposed to be so rosy out there just yet. If we were going green,building/buying smaller cars,converting from gas to diesel,investing in solar, or producing more as a nation I would be more optimistic.

[XBoxBoy]

[quote=davelj]Occasionally, stock prices ARE linked to the underlying fundamentals of the company. The problem, of course, is that this is the exception rather than the rule.

…snip…

as you can see from the performance of US stocks in aggregate over the last 130 years, stocks can spend long periods of time – up to 10 years in some cases – dramatically over- and under-valued.[/quote]

I absolutely agree! With the qualification that I often wonder if we have reached a place of permanently disconnected stock prices. Seems to me stock prices left fundamentals sometime in the early ’90’s and haven’t been there since. Are they ever going to return to being based on fundamentals? Not sure which way I’d vote on that.

[quote=davelj][quote=XBoxBoy]
Typically, when a company buys another company and then lays off a bunch of workers, that stock will bounce. [/quote]

This is incorrect. Typically when one company buys another – regardless of proposed “synergies” – the acquirer’s stock goes down. This occurs in at least 80% of cases and there are reams of academic studies supporting this.

…snip…

OCCASIONALLY, the stock of the acquirer will go up when a merger or acquisition is announced. But this is the exception rather than the rule.[/quote]

Dave, I don’t know how often this happens, and you could easily be right that it’s only 20% of the time whereas 80% of the time the aquiring companies stock goes down. I don’t watch many individual stocks, only those in my industry, video games. From what I see, it is common for a publisher’s stock to bounce up when they buy a developer. The joke of this is that usually three or four years later the publisher closes the developer, having gotten nothing out of them but having successfully run the developer into the ground.

I think the interesting question would be, given that sometimes the acquiring companies stock goes up and sometimes it goes down, what percent of the time is this movement a good predictor of the success of the merger? In other words, does that stock price movement correlate to the actual improvement or deterioration in acquiring company fundamentals? My hunch is that there is very little correlation, and that this is another example of stock prices not being based on the businesses fundamentals but instead based on the perceptions of traders.

XBoxBoy

[XBoxBoy]

[quote=davelj]Occasionally, stock prices ARE linked to the underlying fundamentals of the company. The problem, of course, is that this is the exception rather than the rule.

…snip…

as you can see from the performance of US stocks in aggregate over the last 130 years, stocks can spend long periods of time – up to 10 years in some cases – dramatically over- and under-valued.[/quote]

I absolutely agree! With the qualification that I often wonder if we have reached a place of permanently disconnected stock prices. Seems to me stock prices left fundamentals sometime in the early ’90’s and haven’t been there since. Are they ever going to return to being based on fundamentals? Not sure which way I’d vote on that.

[quote=davelj][quote=XBoxBoy]
Typically, when a company buys another company and then lays off a bunch of workers, that stock will bounce. [/quote]

This is incorrect. Typically when one company buys another – regardless of proposed “synergies” – the acquirer’s stock goes down. This occurs in at least 80% of cases and there are reams of academic studies supporting this.

…snip…

OCCASIONALLY, the stock of the acquirer will go up when a merger or acquisition is announced. But this is the exception rather than the rule.[/quote]

Dave, I don’t know how often this happens, and you could easily be right that it’s only 20% of the time whereas 80% of the time the aquiring companies stock goes down. I don’t watch many individual stocks, only those in my industry, video games. From what I see, it is common for a publisher’s stock to bounce up when they buy a developer. The joke of this is that usually three or four years later the publisher closes the developer, having gotten nothing out of them but having successfully run the developer into the ground.

I think the interesting question would be, given that sometimes the acquiring companies stock goes up and sometimes it goes down, what percent of the time is this movement a good predictor of the success of the merger? In other words, does that stock price movement correlate to the actual improvement or deterioration in acquiring company fundamentals? My hunch is that there is very little correlation, and that this is another example of stock prices not being based on the businesses fundamentals but instead based on the perceptions of traders.

XBoxBoy

[XBoxBoy]

[quote=davelj]Occasionally, stock prices ARE linked to the underlying fundamentals of the company. The problem, of course, is that this is the exception rather than the rule.

…snip…

as you can see from the performance of US stocks in aggregate over the last 130 years, stocks can spend long periods of time – up to 10 years in some cases – dramatically over- and under-valued.[/quote]

I absolutely agree! With the qualification that I often wonder if we have reached a place of permanently disconnected stock prices. Seems to me stock prices left fundamentals sometime in the early ’90’s and haven’t been there since. Are they ever going to return to being based on fundamentals? Not sure which way I’d vote on that.

[quote=davelj][quote=XBoxBoy]
Typically, when a company buys another company and then lays off a bunch of workers, that stock will bounce. [/quote]

This is incorrect. Typically when one company buys another – regardless of proposed “synergies” – the acquirer’s stock goes down. This occurs in at least 80% of cases and there are reams of academic studies supporting this.

…snip…

OCCASIONALLY, the stock of the acquirer will go up when a merger or acquisition is announced. But this is the exception rather than the rule.[/quote]

Dave, I don’t know how often this happens, and you could easily be right that it’s only 20% of the time whereas 80% of the time the aquiring companies stock goes down. I don’t watch many individual stocks, only those in my industry, video games. From what I see, it is common for a publisher’s stock to bounce up when they buy a developer. The joke of this is that usually three or four years later the publisher closes the developer, having gotten nothing out of them but having successfully run the developer into the ground.

I think the interesting question would be, given that sometimes the acquiring companies stock goes up and sometimes it goes down, what percent of the time is this movement a good predictor of the success of the merger? In other words, does that stock price movement correlate to the actual improvement or deterioration in acquiring company fundamentals? My hunch is that there is very little correlation, and that this is another example of stock prices not being based on the businesses fundamentals but instead based on the perceptions of traders.

XBoxBoy

[XBoxBoy]

[quote=davelj]Occasionally, stock prices ARE linked to the underlying fundamentals of the company. The problem, of course, is that this is the exception rather than the rule.

…snip…

as you can see from the performance of US stocks in aggregate over the last 130 years, stocks can spend long periods of time – up to 10 years in some cases – dramatically over- and under-valued.[/quote]

I absolutely agree! With the qualification that I often wonder if we have reached a place of permanently disconnected stock prices. Seems to me stock prices left fundamentals sometime in the early ’90’s and haven’t been there since. Are they ever going to return to being based on fundamentals? Not sure which way I’d vote on that.

[quote=davelj][quote=XBoxBoy]
Typically, when a company buys another company and then lays off a bunch of workers, that stock will bounce. [/quote]

This is incorrect. Typically when one company buys another – regardless of proposed “synergies” – the acquirer’s stock goes down. This occurs in at least 80% of cases and there are reams of academic studies supporting this.

…snip…

OCCASIONALLY, the stock of the acquirer will go up when a merger or acquisition is announced. But this is the exception rather than the rule.[/quote]

Dave, I don’t know how often this happens, and you could easily be right that it’s only 20% of the time whereas 80% of the time the aquiring companies stock goes down. I don’t watch many individual stocks, only those in my industry, video games. From what I see, it is common for a publisher’s stock to bounce up when they buy a developer. The joke of this is that usually three or four years later the publisher closes the developer, having gotten nothing out of them but having successfully run the developer into the ground.

I think the interesting question would be, given that sometimes the acquiring companies stock goes up and sometimes it goes down, what percent of the time is this movement a good predictor of the success of the merger? In other words, does that stock price movement correlate to the actual improvement or deterioration in acquiring company fundamentals? My hunch is that there is very little correlation, and that this is another example of stock prices not being based on the businesses fundamentals but instead based on the perceptions of traders.

XBoxBoy

[XBoxBoy]

[quote=davelj]Occasionally, stock prices ARE linked to the underlying fundamentals of the company. The problem, of course, is that this is the exception rather than the rule.

…snip…

as you can see from the performance of US stocks in aggregate over the last 130 years, stocks can spend long periods of time – up to 10 years in some cases – dramatically over- and under-valued.[/quote]

I absolutely agree! With the qualification that I often wonder if we have reached a place of permanently disconnected stock prices. Seems to me stock prices left fundamentals sometime in the early ’90’s and haven’t been there since. Are they ever going to return to being based on fundamentals? Not sure which way I’d vote on that.

[quote=davelj][quote=XBoxBoy]
Typically, when a company buys another company and then lays off a bunch of workers, that stock will bounce. [/quote]

This is incorrect. Typically when one company buys another – regardless of proposed “synergies” – the acquirer’s stock goes down. This occurs in at least 80% of cases and there are reams of academic studies supporting this.

…snip…

OCCASIONALLY, the stock of the acquirer will go up when a merger or acquisition is announced. But this is the exception rather than the rule.[/quote]

Dave, I don’t know how often this happens, and you could easily be right that it’s only 20% of the time whereas 80% of the time the aquiring companies stock goes down. I don’t watch many individual stocks, only those in my industry, video games. From what I see, it is common for a publisher’s stock to bounce up when they buy a developer. The joke of this is that usually three or four years later the publisher closes the developer, having gotten nothing out of them but having successfully run the developer into the ground.

I think the interesting question would be, given that sometimes the acquiring companies stock goes up and sometimes it goes down, what percent of the time is this movement a good predictor of the success of the merger? In other words, does that stock price movement correlate to the actual improvement or deterioration in acquiring company fundamentals? My hunch is that there is very little correlation, and that this is another example of stock prices not being based on the businesses fundamentals but instead based on the perceptions of traders.

XBoxBoy

[patientrenter]

Supply and demand determine price. That’s true for peanuts and also for assets, like stocks and homes.

The aggregate demand for investment assets is total domestic savings plus imported savings, which is equal to the trade deficit. The aggregate supply of investment assets is all the houses we build, and new companies we fund, and new investment by existing companies, etc.

Supply of investment assets:
Since the 1980’s or even earlier, the US has needed about 10% of its GDP to be devoted to investments. It used to be higher when increases in our productivity were driven primarily by supplying workers with more and better machinery. Since we’ve become more focused on intellectual work, our productivity is enhanced most by education and knowledge and training in general. And that takes less capital.

Demand for investment assets (=savings):
Our trade deficit has been large for a long time, and increased significantly with China’s recent explosive economic growth. By 2007, this supply of savings from abroad looking for US assets amounted to about 5% of our GDP annually, or half of our entire annual supply of investment assets.

Whenever you have too much money chasing too few goods, you get inflation. And this mismatch between total savings and available domestic investment opportunities, driven by trade deficits and the lower need for traditional investment in our knowledge-driven economy, is at the heart of our asset bubbles. Until we deal with the causes of the mismatch, we will only be moving bubbles from one asset class to another, or re-inflating the ones that pop.

[patientrenter]

Supply and demand determine price. That’s true for peanuts and also for assets, like stocks and homes.

The aggregate demand for investment assets is total domestic savings plus imported savings, which is equal to the trade deficit. The aggregate supply of investment assets is all the houses we build, and new companies we fund, and new investment by existing companies, etc.

Supply of investment assets:
Since the 1980’s or even earlier, the US has needed about 10% of its GDP to be devoted to investments. It used to be higher when increases in our productivity were driven primarily by supplying workers with more and better machinery. Since we’ve become more focused on intellectual work, our productivity is enhanced most by education and knowledge and training in general. And that takes less capital.

Demand for investment assets (=savings):
Our trade deficit has been large for a long time, and increased significantly with China’s recent explosive economic growth. By 2007, this supply of savings from abroad looking for US assets amounted to about 5% of our GDP annually, or half of our entire annual supply of investment assets.

Whenever you have too much money chasing too few goods, you get inflation. And this mismatch between total savings and available domestic investment opportunities, driven by trade deficits and the lower need for traditional investment in our knowledge-driven economy, is at the heart of our asset bubbles. Until we deal with the causes of the mismatch, we will only be moving bubbles from one asset class to another, or re-inflating the ones that pop.

[patientrenter]

Supply and demand determine price. That’s true for peanuts and also for assets, like stocks and homes.

The aggregate demand for investment assets is total domestic savings plus imported savings, which is equal to the trade deficit. The aggregate supply of investment assets is all the houses we build, and new companies we fund, and new investment by existing companies, etc.

Supply of investment assets:
Since the 1980’s or even earlier, the US has needed about 10% of its GDP to be devoted to investments. It used to be higher when increases in our productivity were driven primarily by supplying workers with more and better machinery. Since we’ve become more focused on intellectual work, our productivity is enhanced most by education and knowledge and training in general. And that takes less capital.

Demand for investment assets (=savings):
Our trade deficit has been large for a long time, and increased significantly with China’s recent explosive economic growth. By 2007, this supply of savings from abroad looking for US assets amounted to about 5% of our GDP annually, or half of our entire annual supply of investment assets.

Whenever you have too much money chasing too few goods, you get inflation. And this mismatch between total savings and available domestic investment opportunities, driven by trade deficits and the lower need for traditional investment in our knowledge-driven economy, is at the heart of our asset bubbles. Until we deal with the causes of the mismatch, we will only be moving bubbles from one asset class to another, or re-inflating the ones that pop.

[patientrenter]

Supply and demand determine price. That’s true for peanuts and also for assets, like stocks and homes.

The aggregate demand for investment assets is total domestic savings plus imported savings, which is equal to the trade deficit. The aggregate supply of investment assets is all the houses we build, and new companies we fund, and new investment by existing companies, etc.

Supply of investment assets:
Since the 1980’s or even earlier, the US has needed about 10% of its GDP to be devoted to investments. It used to be higher when increases in our productivity were driven primarily by supplying workers with more and better machinery. Since we’ve become more focused on intellectual work, our productivity is enhanced most by education and knowledge and training in general. And that takes less capital.

Demand for investment assets (=savings):
Our trade deficit has been large for a long time, and increased significantly with China’s recent explosive economic growth. By 2007, this supply of savings from abroad looking for US assets amounted to about 5% of our GDP annually, or half of our entire annual supply of investment assets.

Whenever you have too much money chasing too few goods, you get inflation. And this mismatch between total savings and available domestic investment opportunities, driven by trade deficits and the lower need for traditional investment in our knowledge-driven economy, is at the heart of our asset bubbles. Until we deal with the causes of the mismatch, we will only be moving bubbles from one asset class to another, or re-inflating the ones that pop.

[patientrenter]

Supply and demand determine price. That’s true for peanuts and also for assets, like stocks and homes.

The aggregate demand for investment assets is total domestic savings plus imported savings, which is equal to the trade deficit. The aggregate supply of investment assets is all the houses we build, and new companies we fund, and new investment by existing companies, etc.

Supply of investment assets:
Since the 1980’s or even earlier, the US has needed about 10% of its GDP to be devoted to investments. It used to be higher when increases in our productivity were driven primarily by supplying workers with more and better machinery. Since we’ve become more focused on intellectual work, our productivity is enhanced most by education and knowledge and training in general. And that takes less capital.

Demand for investment assets (=savings):
Our trade deficit has been large for a long time, and increased significantly with China’s recent explosive economic growth. By 2007, this supply of savings from abroad looking for US assets amounted to about 5% of our GDP annually, or half of our entire annual supply of investment assets.

Whenever you have too much money chasing too few goods, you get inflation. And this mismatch between total savings and available domestic investment opportunities, driven by trade deficits and the lower need for traditional investment in our knowledge-driven economy, is at the heart of our asset bubbles. Until we deal with the causes of the mismatch, we will only be moving bubbles from one asset class to another, or re-inflating the ones that pop.

[moneymaker]

Are you saying there is still money on the sidelines,predominately from people who got out first last time and hence don’t feel burned like many others, or could it be that China is buying America the American way. I think it will be a double dip like it was back in the Depression,of course I could be wrong,as my wife occasionaly reminds me.

[moneymaker]

Are you saying there is still money on the sidelines,predominately from people who got out first last time and hence don’t feel burned like many others, or could it be that China is buying America the American way. I think it will be a double dip like it was back in the Depression,of course I could be wrong,as my wife occasionaly reminds me.

[moneymaker]

Are you saying there is still money on the sidelines,predominately from people who got out first last time and hence don’t feel burned like many others, or could it be that China is buying America the American way. I think it will be a double dip like it was back in the Depression,of course I could be wrong,as my wife occasionaly reminds me.

[moneymaker]

Are you saying there is still money on the sidelines,predominately from people who got out first last time and hence don’t feel burned like many others, or could it be that China is buying America the American way. I think it will be a double dip like it was back in the Depression,of course I could be wrong,as my wife occasionaly reminds me.

[Author]

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