Could you answer a question I have always had about the market?


#1

I hear alot about the markets and how important it is to see them increase as its good for America. The question I have is what direct impact does the “global-market” have on the American economy? It appears the only real value it has is when a company just enters into the market and gets all that envestment money on the front end to grow and expand their business.

However, after the IPO stage how does the market really help that company? When you invest in a portfolio you invest as much if not more in companies in other nations and you may not even have any American companies or American companies that have any interest in building in America to give jobs to Americans. So how does a bull market actually create jobs in America?


#2

Are you really that naive? The “market” is buying and selling and making money. The more that is bought and sold, the more people required to manufacture, supervise, etc. And the more money is available to hire those people.


#3

I understand the concept but if i have a portfolio that his heavy on international stock how can we make a direct corralation between the money I invest and its direct impact on “American-jobs.” It just seems like a vast casino in a cloud, like gambling it seems, you put a number of your chips on a number of black squares, the wheel is spun and hopfully your number hits enough to out weigh your losses. Thats good for the individual invester I guess but how does such a system on a global scale insure in any way or direct connect my investment money to creating jobs in America and not in some other country?


#4

You are making the mistake of thinking the economy is only based on money.

Markets are a system of exchanging goods and services produced by one party for goods and services produced by another party.

You exchange goods and services for things that you want more.

If there is job creation in China but not in America, it is because there is no demand for what Americans produce and there is demand for what the Chinese produce. Investment money has nothing to do with creating jobs, any time you are investing, you are buying a piece of a product or service’s production. If more people demand that service, it will increase in value, if less people demand the service, it will fall in value.

Even if all investment were pumped into America, as long as it is true that people want Chinese products or services more, it will not create jobs in the long run.

Money is not the economy, money is just a unit that tracks the supply/demand relationship between products. It allows us to trade our products for the things we want without having to come up with the products that the other party wants, since they will be able to trade our money for those products.

If money is taken out of the system, prices will fall, if money is put in, prices will go up.

Money doesn’t create jobs, demand for goods and services that those employees produce creates jobs. Belief of anything else is plain and simply wrong, and in fact, is the same as saying that people will exchange their goods and services for products they do not want.


#5

I see so the global market is trade without the contraints of individual borders. So who cares how the market does? The market itself should be taken out of the equation when considering the economic health of any particular nation. However, you always hear reports and language that implies the American economic health is in direct coorilation with global market trends and vis/versa.


#6

“Global Market” means the supply and demand of everything globally.
When a movie is made the creators rely on box office returns from around the world, if a movie bombs here it could still be profitable if other countries like it and DVD sales are popular.

That is one easy to explain example but food, oil, technology, building materials and countless other commodities are sold around the world. The health of an American company is just as tied to the economic ability of Asians and Europeans to consume their products/services as American consumers.

If one Nation enters a depression, their population has very little disposable income to consume. That means the entire world that produces now has less demand for its products and more competition in countries that are healthy enough to buy.

This means production will decrease everywhere where stuff is made.
This means people are laid off.
Laid off people have less disposable income so demand shrinks again.
This means nations not originally in recession will now start receding.

This domino effect continues until something occurs that increases disposable income to inspire growth.

Liberals think printing money and spending it (Stimulus spending) will achieve this kickstart and instigate a reversal, this does not work because nobody has confidence in an artificial, temporary cash flow and without consumer confidence disposable income is not seen as “disposable”.

Innovation and expansion inspire economic reversals, either by new things that create much demand or new supplies of things already in high demand.

Innovation requires the Liberty of the populace to pursue their dreams (low regulation environment) and reasonable enough tax rates on capital gains to get those with “paper equity” to risk liquidating their assets to invest in new ideas.

Banks don’t fund “innovation”, banks fund known and verifiable structures. Private money fuels research and development of new ideas and skittish investors do not pay confiscatory taxes to liquidate solid investments on an unknown new idea when consumer confidence is low and the State is going bankrupt.

The “Stock Market” is an entirely seperate animal from the “Global Market”, the Stock Market will thrive regardless of the global market because the Stock Market is the quickest to adjust to global realities.

If Apple sells fewer I-pads next year then Apples stock will fall in value as it misses it projected sales mark, but if Apple then reduces production (saving cost’s) and then lowers its sales projection accordingly so that it beats its estimate the next quarter, Apple stock will rise again.

Any company can maintain a profit margin so stocks recover quickly in most cases.
If the stocks are rising because the world is in a healthy growing economic cycle then we all do well, if the stocks are rising because a company closed 30 percent of its production facilities but only lost 25 percent of its sales then it sucks for everyone other than the stockholders.

America is the number one consumer nation, when we stumble the whole world follows.

The two things we need to reverse this cycle are never discussed because they are taboo.

  1. Innovation, we stifle innovation by blocking individuals from starting businesses do to massive regulation and expense.
  2. Capitalizing on an under-served demand for commodities. Oil, Timber, Iron Ore, Coal and Natural Gas are all plentiful in the United States and in large demand worldwide, we stifle and cripple all efforts to serve this market.

The only two things that can legitimately ignite an economic reversal are rarely discussed and when they are they are deemed “OUT OF THE QUESTION!” by our leaders and special interest groups.

If I am right in assuming you were confusing the “Stock/Investment Market” with the “Global Market” then that should shed some light on it, you are right in saying “then who should care about the market” if you were referring to the “Stock Market” because the Stock Market will take care of itself regardless. Just make sure your 401k is not overly invested in “growth” stocks.

The “Global Market” however is of vital importance to everyone breathing even though most have no idea why.


#7

Thanks and yes i mean the stock market’s global reach. That was very informative. I have a question though. If the strike price of a companies stock is tied into a certain percentage of publically forcasted performance released to the public by the said company, why wouldn’t the said company simply sand-bag and under-forcast ther projected annual performance to insure profitability and maintain a inflated stock value.


#8

They do, Apple is famous for being overly conservative on it’s projections and most companies are careful to set expectations at a doable level. This will not generate an overly inflated stock price for long because sales expectations are only part of the equation, debt to income ratio, assets, patent producing revenue and liquid assets on hand all figure into investor interest as well.

The SEC sets the reporting criteria so they can only fudge so much without breaking the rules.

Over time everyone gets used to what companies are overly optimistic on projections (they do this to generate a big stock value increase at the time they make the projection) and who prefers the conservative approach, this all plays into how effective their projections are at moving the stock price.

If Apple says 100 everyone assumes 110, but they frequently hit 120 anyway. If the hit 105 then everyone is disappointed even though they beat projections because they did not beat them by the usual margin.

These tendencies and nuances are all pretty easy to spot after a little while of watching them.


#9

[quote=“cameryxle, post:7, topic:37031”]
i mean the stock market’s global reach.
[/quote]Besides the economic analyses that some have done here, there’s another factor that comes into play when you look at “global” markets.

And that’s the frequently irrational behavior of US investors when they look at a stock exchange in another country.

If, for example, Japan’s stock market tanks, there will be some impact on the US exchanges where some investors, because of irrational panic or maybe good cause, will react. If the Nikkei 225/Tokyo Stock Exchange plummets 200 points, it is possible that alone will cause the NYSE to go down (and most often does.) If the FTSE index (London Stock Exchange) takes a dive, again NYSE investors may be influenced by that. Some of the ripple may indeed be symptomatic of a global economic decline (that’s the “good cause” part), but some may also just be jittery investors reacting with an irrational panic attack.

[quote=“RET423, post:8, topic:37031”]
These tendencies and nuances are all pretty easy to spot after a little while of watching them.
[/quote]“Market Analysts” are the group that usually do the spotting for large investment houses. Most are assigned specific companies, and some of these guys/gals are pretty savvy and can detect “buzz words” a CEO uses on the conference calls the company hosts for the Market Analysts when the company releases the quarterly results.

I’ve heard some of these discussions, and they can get pretty “lively”. CEO’s generally don’t try to put anything over on these folks because they know these folks will catch them with their hand in the cookie jar. But CEO’s DO try to spin bad news, and most often that’s when things get lively.