Isn't the stockmarket based on supply and demand?

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Isn't the stockmarket like anything else- based on supply and demand? If a lot of people want to buy stock, the price just goes up. With so many people investing through online trading and especially through automatic 401K payments (which people can't pull out) won't stocks just keep going up? It's simply a matter that there is more and more money chasing after a limited supply of stocks. Please don't flame me I'm just a farmers wife.

-- Farm Wife (spamfree@home.com), January 11, 2000

Answers

Individual investors account for an increasing percentage of the market but do not the entire market make. There are also Mutual Funds, Large Investors (i.e. Ted Turner, Bill Gates), and large institutional investors (ie Calpers, Insurance Co's...). Bill Gates buying into a stock will move that stock, me buying into a stock will not be noticed. If the large investors and company's bolt for safety the individuals can keep buying all the way down.

Also the individual investor is not on a single side, there are buyers and sellers. If the market takes a major move down some individual investors buying on margin may be forced to sell to cover their margin position increasing the pressure to sell more.

So no, it is not a certaintity that stocks will continue to go up.

Hopes this helps.

-- Squid (ItsDark@down.here), January 11, 2000.


Don't run yourself down - nothing about being a farmer's wife calls for "just" in front of it.

The market, seems to me, runs on fear and greed, greed being the supply and demand part. The only reason people are buying is that they think others will want to buy tomorrow. If some event makes people think that other people won't want to buy, then they'll quit buying. If some event makes people think other people will want to sell (and prices will drop) then everyone will try to sell at once. That WILL depress prices, making everyone try to sell even faster.

The mood can change from optimistic to pessimistic in an amazingly short time, according to old pros. Me, I just watch it all, but it makes me nervous because the stock market affects so many things. How much a company pays for its liquidity depends on how its stock does, among other things.

-- bw (home@puget.sound), January 11, 2000.


If you watch the stock market at all, you'll see that there is no "logic" to it. The reason for this is simply because it is "manipulated" by the powers that be. Tough one to confront, but it is true. There are more "opinions" about why the stock market goes up or down than you can possibly count. And none of the opinions are ever 100% correct. Because it IS manipulated.

-- GB (y2kbulkfood@ij.net), January 11, 2000.

greed and fear
supply and demand
perception or sentiment

They're all the same things. Basically,
the stock price will rise if people are convinced
to buy it. Once they could be convinced to
it because of attractive dividends.

Dividends are no longer attractive (0 to 2%)
so the only reason for buying is the idea that
someone else will buy the same stock for a much
price later. (This is sometimes called the
"greater fool" theory, because it requires a
greater fool to buy.

It works as long as long as that buyer can be found.
If -- for any reason -- buyers can't be found then
the sales price must be lowered, and stock holders can
get stuck with a loss.

What would discourage buyers? Any news that they
perceive to be bad, or any news that would cause them
to hold back on pumping more money into the
market.

-- (4@5.6), January 11, 2000.


Is it true that most companies don't pay dividends on their stock anymore? To realize income you must sell your shares to someone willing to pay more for the shares than you paid? It seems this would create pressure to sell, driving the market down,...unless that segment of our population that owns stock doesn't need the income and the taxes that go with a sale. Where is all this money coming from?

-- amnesia (Idon@know.com), January 11, 2000.


sorry, 456, I posted too slow

-- amnesia (Idon@know.com), January 11, 2000.

Yes, it is supply and demand. That it is why it is a market. Just like the market for your home or for your agricultural products.

The tricky part is the demand--is it demand to buy or demand to sell. What drives the demand? The famous answer is "fear and greed". If people seem to be buying, then prices go up and everyone else wants to buy too--ie, a mania. If people seem to be selling, then everyone else wants to be selling too--ie, a panic.

There are people here who would say no, markets are manipulated by dark, powerful forces. I disagree but they can speak for themselves.

-- Lars (lars@indy.net), January 11, 2000.


If the stock market is manipulated, I would like to see some supporting evidence.

Forgive me, I am becoming paranoid.......

-- Tommy Rogers (Been there@Just a Thought.com), January 11, 2000.


The "stock market" is part of the industry where my skills are currently focused. Y2K remediation was one of the main things to focus on in the past couple years.

Please believe me when I say the indexes don't lie - the markets are healthy and Y2K was whipped in this industry.

-- Bemused (and_amazed@you.people), January 11, 2000.


Bemused - read the thread. Nobody was questioning whether the brokers or exchanges are compliant - the question is whether anyone WANTS TO OWN the stocks.

-- bw (home@puget.sound), January 11, 2000.


The book to read is by Charles Mackay, "Extraordinary Popular Delusions and the Madness of Crowds." The first 150 pages or so are devoted to financial manias. Bernard Baruch commented that having read this book led him to get out of equities in 1929 before the crash. All of the fundamental (Price/earnings, dividend yield, etc) and technicals (advance/decline line, etc) say we are now in a financial mania with regard to stocks. One analysis alleges that in 1987 only a net 2% of traders shifted from buy to sell, and that triggered the mini-crash. There is an astounding amount of credit being used to buy stocks, e.g., home equity loans. Alan Greenspan vastly expanded credit last fall as a y2k precaution, now he has to take most or all of that back, or else for sure we will have a very bad dose of inflation. I believe that a very severe stock crash will occur this year, as we are very clearly in a classic mania. This is going to end very badly.

-- Les (holladayl@aol.com), January 11, 2000.

OK, good point, fair question. My advice is buy back into the market. If you have a lot of cash because of pre-rollover divestments, you are stitting pretty until mid-month, when the things will be back to normal and the big funds have recovered. Some have already recovered. One good stock tip: VRTS. There are many, many others.

The best to you and yours, I really mean that. If you got taken by the Y2K messiahs because you care about your family, I'm sorry and that's part of the reason why I post in this forum....

-- Bemused (and_amazed@you.people), January 11, 2000.


My "good point, fair question" comment was directed at "bw".

-- Bemused (and_amazed@you.people), January 11, 2000.

One of the main complicating factors of the markets (all of them) in the last few years, is that 22 mafia organizations are laundering money in the markets. At the end of December, I read that the Sicilian mafia has dumped a hugh amount of money into the market. Also, to Tommy, haven't you heard of the Clinton Plunge Protection Team? They have been rushing in for years to keep the market propped up. Clinton has long known that when the market goes south, the American people will wake up. So he hasn't taken any chances..... Plus, Clinton has plenty of mafia buddies to help him in this endeavor. Some of the mutual fund managers are bailing out starting on Jan. 1. Also, a lot of CEOs and VPs are bailing out. They are going to get their money, even if no one else does.

-- Y2kObserver (Y2kObserver@nowhere.com), January 11, 2000.

Y2Kobserver,

"The mafia"? This is just silly. The few Italian guys I know in the financial world are very sharp, but would fall down crying after a hard hockey check into the boards. Not Mafia material, I'm afraid.

-- Bemused (and_amazed@you.people), January 11, 2000.



I think when all is said and done LIQUIDITY has been the driving force for this market for the last3 or 4 years. Alan Greenspan and the Federal Reserve have become totally politicized with NO REGARD for our country or it's citizens.

Ray

-- Ray (ray@totacc.com), January 11, 2000.


Bemused:

Interesting take on the health of the market. Our you just bullish on the market right now or do you lean to the new paradigm/its different this time thinking. It looks to me that the market discounted the non-event in the December run-up. If y2k is priced into the market isn't there at least the possiblity that earnings and interest rates are driving the market. Interest rates definitely leaning toward the negative (aggresive rate hikes).

-- Squid (ItsDark@down.here), January 11, 2000.


Our should be Are,

sorry for the slip in skelling

-- Squid (ItsDark@down.here), January 11, 2000.


The critical factors are supply, demand, and investment alternatives. While the other factors have been discussed above (demand from 401K plan contributions is pretty much constant or slightly growing...in the short term), investment alternatives must be considered. If I feel that the equities market is going to be down or stagnent, I will shift my investment to other instruement...usually bonds. If bonds are strong, then I will shift my money (even in a 401K plan) to something that is relatively secure, and which will yield a good return. Some of that is happening in today's market (especially the Nasdaq...).

On the other hand, if I only feel that I can make an adequate return through equities, I'd have to go with equities. Multiply that decision by millions of working folks, and the demand for equities either increases or decreases...

One factor that no one has considered in this discussion, is that as investors get older, it is suggested that they go to increasingly safe investment funds. Thus with baby boomer graying, we should see increased demand for (perceived) safe investments and decreasing demand for risky investments.

In the somewhat longer term (starting in about 10-15 years), there will be a net decrease in 401K and similar investments. Baby boomers will be cashing in their retirement funds...I would expect to see a definite decline in stock prices at that time (good time for the youngsters to buy...). Similarly, safer investments will be more valuable...so expect to see lower yields from high quality bonds.

-- Mad Monk (madmonk@hawaiian.net), January 11, 2000.


You all might want to read " the Creature from Jekyll Island" by Edward Griffin. hard to put down....all about money past and present ( gold, paper), boom-bust cycles,inflation, depressions, prosperity. It's a history of the Federal Reserve. Be prepared to get very angry at the criminal and immoral policies our economy runs on. Find out what a house of cards it really is, and how easily the whole thing can crumble.

-- lyn hettler (lynhettler@hotmail.com), January 11, 2000.

Another good article about Warren Buffet's views:

www.pathfinder.com/fortune/1999/11/22/buf6.html

November 22, 1999 Fortune magazine. Since Buffet is one of the most successful investors in history (if not THE most successful), his opinion is very credible. I would think this would convince anyone. On the Prudent Bear website, along with lots of other good bearish analysis.

-- J Wheel (motherof5@wellprepared.noregrets), January 11, 2000.


Bemused:

What do you think about Squids question to you?

Are you confident in your expertise?

Because of some *special* knowledge that you possess?

Or are you just as naturally confident as you are perpetually bemused?

-- tim phronesia (phronesia@webtv.net), January 11, 2000.


Hey, Y2KObserver,

Youse got a screw loose? I don't have nuttin to do wit dat pussy Clinton.

-- (TonySoprano@Bada.Bing), January 11, 2000.


Hi,

Corporations extract a percentage of each of their low level employee's salary/benefits and return it to corporate executives in the form of huge, obscene salaries and bonuses (think millions here and you'll be in the ball park). They then buy stock in other corporations run by their "informal associates" who they spend much leisure time with in Aruba (or some other closed society situated in an exotic location far away from you and I).

Meanwhile, back home, these same corporate executives promote and financially support politicians who give us things like "Health Care For Profit" and "Tax Cuts For The Wealthiest 10%" (who just happen to own 95% of all the wealth in the US).

Then, just to show us how generous they are, they throw you and I a bone every now and then (a cost of living raise) which serves to pacify most of us. However, what the average "Joe" doesn't realize is, their "cost of living raise" gets immediately eaten away by a rise in the cost of their health insurance premium. To add insult to injury, they have changed the formula for figuring out inflation! LOL...So you are actually getting further behind while thinking you're getting ahead BECAUSE...they have made it easier to get credit! Yes indeed...Easy Credit will solve Joe's problem...and ensure his future financial demise while shoring up the corporate executives financial and social status. INTERESTing...???

-- GoldReal (GoldReal@aol.com), January 11, 2000.


The idea that the market is being driven up by individuals adding to their retirement funds and mutual funds is a common misconception. Individuals have been net sellers of equity positions over the last several years. This has been well documented by articles on the Northern Trust web site and by articles in Barrons. The major source of demand for stocks has been companies buying their own shares.

-- Danny (dcox@ix.netcom.com), January 11, 2000.

Squid and Mr Phronesia,

First, squid: I'd consider myself bullish.

When you ask if I think it's "different this time", well, different than what? Different than 1929? Assuredly, it's a different market. Different safegards, much different level of involvement in the market from the average Joe (401K's, E-trade, etc) to the Federal Reserve. There is a lot of published information regarding the difference between the 1929 market situation and now. The similarity lies in the investor exhuberance - that similarity is undeniable. If this makes you feel nervous, you're not alone. That doesn't mean a depression will happen tomorrow, it just might mean a series of adjustments are on the horizen. I don't know anyone who thinks that can really detrimentally affect the US economy in any serious way for any length of time. The bears are out there, no-one is stopping you from taking their advice if you think otherwise.

An interest rate adjustment is in the works, that's not news. One thing Greenspan has shown us is that he does not overreact, and the market takes it's direction from that accordingly. This is good news.

Mr. Phronesia: Yes, I am very confident. And theres's nothing "special" about my knowlege.

-- Bemused (and_amused@you.people), January 11, 2000.


Bemused:

The questions were serious, but I didn't make myself understood. There are some who feel the market can not make a serious correction. There are some who are throwing out numbers like straight up (ok at a 45-70 degree angle) to 20,000, 35,000 with no major drop. I didn't bring up 1929 but since you did what would prevent a severe drop? Market circuit breakers? One thing that actually worked for the market in 1929 was the delay in information. In any extreme market action the numbers are displayed instantaneously over CNBC, Rueter's the Net etc... So far this has worked in favor of the upmarket with many in the media re-inforcing the market direction. Couldn't this work in reverse, only faster?

I would not obsess about 1929, how bout 1974? Another item that concerns me is the number of boomers close to retirement. More are counting on market gains to support their lifestyles. Earlier generations got their pension and couldn't give a rats pootoootee what the market did, can the same be said today? Wouldn't a sharp market drop cause them to think twice. We have not seen a major market pull back for years, for many new investors never.

Your earlier posts put you in the bullish camp, but does the market only move in one direction? To suggest to any investor, especially newer ones, that the market is only reward and not risk is dishonest and in the case of securities dealers potentially illegal.

I stand by my humble opinion that the market will in time go higher, at this moment there is a higher chance for downside risk than upside potential (discounting single high flying .com stock of the day). If it would make you fell better to ASSUME that I expect a depression because of concerns of the market level then you are most definitely incorrect.

My questions are asked to guage what is backing your view of the market not to label you at one extreme or the other. History has taught me that the market is smarter than both of us, so I value everybody's idea's.

-- Squid (ItsDark@down.here), January 12, 2000.


Some of you said that the market is different from 1929. One of the major differences is that the market is far more overvalued thday than it was in 1929, using any of the fundamental evaluation measures. such as PE, price/book, marketcap/GDP.

-- Dave (dannco@hotmail.com), January 12, 2000.

Farmwife - I remember the real-estate boom in 1980, when baby - boomers were buying houses even though the interest rate was 17%. In 1989, real estate went bust. There was no way to forsee that in 1980. So now the baby-boomers are buying stock.

Anyone - re the alleged mania - haven't most funds been going up by about 15 to 20 percent a year? How can this possibly be considered a mania?

-- Amy Leone (leoneamy@aol.com), January 12, 2000.


Amy:

If the mean for major indexes is 9-11% and the last 5 or so years the increase is close to double that and the major valuation indicators like P/E are at all time highs (even excluding the no earnings dot.coms) seems like a case can be made for a mania. What happens when the market returns to the mean, the market would either have to tread water for a period or drop back down to clean out the excesses and build a base for the next leg up.

In looking at an ealier post, there was a program once about the Denver real estate explosion. The market topped and the prices dropped so severely people owed much more than the homes were worth and with declining incomes walked away from the homes (after stripping anything of value from the inside) and their loans.

I am sure they thought at the time and had reasonable rationalizations why the market would continue growing ad infintum. You hear a lot of talk from experts bringing out the rationalizations for why the market will continue advancing. The expectations from most small investors is for double digit returns.

Can it go up, yes of course. Is any increase from this level a reasonable expectation, not in my book. The easy money has already been made in this market, and to those who are the last in, best of luck.

-- Squid (ItsDark@down.here), January 12, 2000.


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