| Brexit pushed the stock market down: O the horror |
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Brexit pushed the stock market down: O the horror
Stocks go up, go down: does it really mean anything?
By Jon Rappoport
An investor asked God, "Is the stock market an intrinsically woven
part of the universe You created?"
And God said, "Only if you believe I wanted to create a new sucker
every minute."
In the wake of the Brexit vote, and in many other cases where an
event is said to be "negative," stocks plummet. Major media promote these
downward actions as evidence that "something bad has happened," and the "economy
is suffering" because of it.
On the other hand, if the general trend of the stock market is up,
and "new highs" are reached, media claim the economy is "recovering" or "in good
shape," or "booming."
Indeed, the movements of the market are used as critiques of
political and economic choices and happenings. "X policy-move shouldn't have
been taken, because look at what the market reaction was."
We need to examine all this blather.
First of all, and this is the big one: what is the connection of the
stock market to the companies whose stocks are being traded?
Is the whole landscape of buying and selling stocks intimately tied
to those companies?
What is really going on?
Many people believe the sale of stock benefits a company. This is
true when a privately held company goes public by issuing stock in what's called
an initial public offering (IPO). During the limited time period of the IPO,
money from the sale of stock does go back to the company issuing it, and that
money can used for company growth. Yes.
Later, the company can issue more stock in what's called a follow-on
offering, and then, too, money from the sale of the stock goes back to the
company.
But...by far the greatest amount of activity in the stock market is
the simple buying and selling of shares...and none of the ensuing profits and
losses accrue to the companies whose shares are being traded. It's a pure casino
operation.
***This casino operation does nothing to benefit the companies in the
way of adding cash to their assets.
The casino is all about trading, perception, prediction (and of
course, price manipulation). "What do I think other people are thinking about
Stock Z, and what should my response be? Should I buy Stock Z, should I sell it
short (bet it goes down)?"
The ups and downs of stock prices have nothing to do with the "health
of the economy," whatever that is supposed to mean. The ups and downs occur
according to what investors are willing to pay for a stock or what they are
willing to sell it for. In the casino.
None of the action really reflects the condition of the companies
whose stocks are for sale. None of the money from buying and selling reverts to
the companies. It's all gambling, all the time. That's all.
If a company reports a loss of profits for the current year, yes, its
stock price may go down. But that merely means stock investors believe it should
go down and are willing to pay less for the stock (at the moment). However, the
price of the stock might go up, even on the heels of a loss of profits. Or the
price could stay the same. Whatever the price does has nothing to do with the
condition of the company. It only reflects what casino players believe, because
they are the buyers and sellers.
This is hard for some people to understand. They want to imagine that
the stock market directly reflects the condition of the companies that issue
stock. Wrong.
The market reflects perception of the bettors, plus manipulation
(which isn't the subject of this article).
"Let's see. I think that other people think that I think stock A is
going to go up. They'll buy it, so I guess I should buy it..."
Idiot's delight.
Perception of other people's possible perception. That's the
market.
Of course, much of the trading these days is done automatically, by
computers belonging to large investment funds. But that doesn't change the basic
reality---the buying and selling are removed from the companies whose stocks are
being passed back and forth. Therefore, whether the prices go up or down has
nothing to do with the financial health of those companies or the economy in
general.
This stock market casino operation, its ebbs and flows, are fodder
for media, who pretend the latest down or up is "how the overall economy is
reacting to world events." This is nonsense.
The overall economy does not equal the performance of the stock
market. The performance of the market doesn't equal the state of the overall
economy.
Consider what can happen to a large retirement pension fund. The fund
takes in money from employees. It will later pay back that money, plus
"bonuses." Meanwhile, the pension fund invests a great of the money it is
holding in the stock market. It buys a variety of stocks and sells them and buys
them and sells them. So if those stocks plummet and stay down, and the pension
fund isn't willing to ride out the storm in hopes that the fall will eventually
turn into a rise, the pension fund will sell off those stocks and end up losing
much money. It gambled in the casino with other people's money, and it
lost.
But even here, the basis of the loss was an incorrect
perception/prediction about what was going to happen in the casino. It wasn't
about actualities of the economy.
So when "titans of finance" and media analysts blather about how, for
example, Brexit caused a sudden drop in the market, and how this is an indicator
of the sudden negative state of the economy, they're blowing smoke. Assuming the
titans didn't manipulate the market to make it fall in the first place (a risky
assumption), in order to fabricate a "gloomy outlook," the plummeting market
says nothing about the economy, any more than an analysis of falling profits in
a Vegas casino says anything about the general state of the US
economy.
"Stocks fell today on reports of rising oil prices..."
One, the falling stock prices have no direct impact on the companies
whose stocks are being traded.
And two, falling stock prices have nothing to do with the price of
oil. They might be connected to gamblers' perceptions of what rising oil prices
mean (at the moment), but that's all.
Let me give you a loose analogy. Let's say, in a casino, there is a
game called One to Ten. Depending on the flow of business, there are usually
about 1000 people in a room in Vegas, and each person has to bet on a number
between one and ten. You're one of those people. When all bets are in, if you
bet on the number most other people bet on, you'll win 50 cents for every dollar
you bet. So you think, "Most people will pick a number in middle. Five. So I'll
bet on five, too." You do. And indeed, this time 350 people bet on five. The
other 650 people bet on various numbers, but no other number between one and ten
garnered 350 bettors. So you won. This time.
While this little operation was going on, media anchors were
stationed around the room. They were quickly broadcasting tidbits about floods,
hurricanes, military build-ups, political campaigns, polls, celebrity arrests,
Hollywood box office receipts, new genetic research, a terror attack in
Pakistan, fracking, school picnics, climate change, a man who ate 300 hot dogs
in two hours, and so on. And these anchors are claiming that the result of the
bet you're involved in is definitely connected to these events. They're
insisting on it.
That's a picture of the day-to-day stock market plus what media are
spreading around about the market.
The market is a massive and monumental goof for casino
gamblers.
If it's a measure of how the world is going, I'm selling orange
groves on Saturn.
Here's a final analogy. Bird droppings. You're an investor, and you
see there's a trading market in bird droppings. You decide to put your money
into this market.
The price of droppings goes up. You're doing well.
One day, sitting at your lap-top in the back yard, you think, "Wait.
These droppings are worthless. Of course, that doesn't matter, but suppose a lot
of other investors think that same thought I'm thinking right now. The price
would go down. Are a lot of other people thinking my thought right now? Or are
they going their merry way, buying more droppings because they see the price
going up? Which is it?"
All around the world, other investors in bird droppings are having
the same monologues with themselves.
Now, if enough of those people don't care about the intrinsic worth
of droppings, the market will hold. But if enough of them are worrying about
what other investors might be thinking, they will sell their droppings, and the
price will go down.
Prediction. Perception. Speculation about what other people are
predicting and perceiving.
A share of IBM, once it has been unhooked from an IPO or a follow-on
offering, has no more intrinsic worth than a package of traded bird droppings.
People buy and sell that share based on what other investors might or might not
be thinking about it.
That's all.
"Power outages in three Eastern states have resulted in a severe
depression of the bird dropping market. Analysts are worried and
gloomy..."
They're worried and gloomy because they're supposed to connect world
events to the market, in order to pick up their paychecks, and "worried and
gloomy" is the easiest reaction to have.
If they admitted the power outages had no relation to, ahem,
intrinsically worthless bird droppings, they might end up pumping gas in Death
Valley or selling canned heat in the Sahara
desert.
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