Especially as of late – it was going “bad” with the economy and interest rates were rising. How come we see so many stocks with an “All time high”? I’m not looking for a psychological explanation, but literally: where do the coins come from to purchase?
In: Economics
Interest rates were rising because inflation was high. Inflation was high because *on average* people had a lot of spending money after covid (ie, the “economy” was “good” on average), but global supply chains were still shaky. Oh, and because a big oil producer invaded a country that produced a good fraction of the world’s wheat. And corporations used the excuse “oh, inflation is high” to jack up profits. Those also pushed inflation up.
Unfortunately, the people for whom the economy was best were already well off, which explains why *generally* it might have *felt like* things were bad – inflation was high, now interest rates are also high, but the average Joe isn’t the one with the extra money.
But there *is* a lot of extra money, even if it’s not in average Joe’s pocket, and this pushes IP corporate profits and share prices.
The price of a share is just the last price the share was sold. What exactly is the question here? People have money, people buy shares. Now they have shares and someone else has their money.
The various governments of the world are responsible for regulating their own money supply. They have the power to create units of currency out of thin air if they so desire. Ultimately all currency which exists has been issued through such means.
However it is important to understand that money is not a one-way flow. It isn’t created and consumed like some kind of video game resource. When shares are bought by someone the money passes from one person to another; the price of stocks going up doesn’t require the money supply to expand to keep up, the size of the purchase can just increase because the amount of money that exists before a purchase and after a purchase is the same.
Since the stock market isnt really a stock market in classical terms this is hard to answer. The people moving on the stock market come in a great variety. While a big part is still ‘shareholder’ in some classical form the majority by now is more the type ‘financial instrument gambler’.
The decoupling of stocks into more of an instrument leads to market movements that are often not explainable with real life issues. There are automated systems trading in tiny margins purely for profit. Nothing relates to any real industry there.
Most of these answers apply to normal circumstances. In this situation however, the absurd market caps in the market are the result of accelerating upwards money transfer. Money that is typically distributed more evenly (though nowhere near anything approaching evenly) throughout the different socioeconomic strata is being consolidated into as few pockets as possible. You’re seeing the result of the middle, lower, and petty upper classes being bled dry and that wealth being transferred to a smaller proportion of the top 3%
So, there is a stock trading method called “shorting” or a “short sale”. You’re selling a stock you don’t have at today’s price. If the price goes down tomorrow, and you buy then, you’ve made money! If you sold at today’s high price, and buy tomorrow at tomorrow’s low price, you make money!
However, you must buy at some point to give your buyer what you sold them (aka “settle the trade”), no matter what the price is.
If the price goes up, you lose money. You’re buying at a high price for your sale at yesterday’s low price.
There’s an offensive stock trading technique where if your data (aka expensive Bloomberg terminal access) tells you a bunch of people just “shorted” a stock, you can buy a ton of the stock and drive up the price. This causes the “shorts”, aka the people hoping the price goes down, to panic and settle at the higher price so they don’t lose more money as the price goes up. As you’d expect, this launches the price even higher with all the buying activity.
This is why, when the economy is turning for the worse, the stock price goes straight up at first. At any given day, there are stock traders trying to guess what the top of the market is going to be, and taking out a large short position, in the hopes that this is the day the market crashes. Someone with a lot of cash using this offensive technique can earn a lot of money, as they buy big, and then sell back to these shorts at an inflated price.
If the shorts start winning (aka the price continually goes down), the company itself can apply this technique using “stock buybacks”. Early in the downturn before a recession is called, companies have ample cash to buy their stock back and blow up any successful short positions on their stock, causing the price to rocket back up to the original high price and then some.
This is also why “bad news is good news” before a recession. When there is bad news, there are always more traders that decide to take a short position, hence more positions to blow up, and subsequently sending the stock price much higher than normal.
Eventually this stops working when companies run low on cash, and the selling pressure from the greater population becomes too great to overcome, as they become unemployed and sell their stock to generate cash for rent and other responsibilities.
Also, the stock market doesn’t reflect the entire economy. As a hypothetical, publically traded companies could be making more money by increasing their market share over smaller private or mom and pop companies. Stock prices go up for those companies, but the bad fortune of the private companies isn’t reflected in that stock index.
Simple answer: the fortunes of the largest publicly traded companies can rise even if other aspects of the economy are not doing as well.
People can exchange goods and services for those coins to buy stock to invest in the future.
That’s where they come from.
A stock or share is a small slice of the value of a company. It is a percentage. So let’s say you own 1% of a company, and the company is worth $100 million, based on physical assets, stock on hand, business forecasts, profit expectations, and demand forecast. Your holding is worth $1 million, and you might expect a dividend of $50,000.
As time goes on, the situation changes – demand goes up, performance exceeds the forecasts, profits are up, and the stock on hand can be sold at a higher price. The market analysts and those who want to buy shares now value the company worth at $120 million. Your 1% share is $1.2 million, and your dividend might be $55,000.
At this point your share of the company is still 1%, but it is worth more to anyone who might want to buy your shares. At any point in time, the share value represents a mix of actual, measurable value and forecasts, and how the company and its future is perceived. Sometimes perception is more important than hard numbers, and sometimes the actual numbers are more important.
For people investing in the stock market, the only thing that is important is the buy price and the sell price, and any dividends they get on the way.
The money are created out of nothing and fast with added interest, growth needs to be constant and increasing, one easy way for “growth” is stocks.
Don’t let “experts” confuse you with details or systems on systems, money as it works today is a failing model. Thats the biggest reason why the world is like it is today.
Have a nice weekend
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