For supply and demand to work we have to have some basic trusts. First that the products to buy will be there; second, that you are willing to sell the product, let it go; third that supply is variable based on the willingness of others wishing to buy the same item and that the demand will continue. While it does the value of the thing in terms of price remains steady if not higher. If any of these things are lacking, the price/value disappears, or in the case of low supply and high demand, the price will soar.
The element of trust or feeling or faith is critical in the economic transaction. Without it commercial transactions fade away; they die.
Same with stock market values from day to day. One report touts market interest building over a few companies doing business in a select product area, and stock prices rise. Another report suggests caution and stock prices soften, maybe even decline. The effects of attention on the market affects price. Good times and good feelings boost market activity and values; the opposite is also true: poor feelings and weak economic jitters produce unstable market conditions and pricing.
Sometimes I wonder if the reporting is designed to create the instability. One day is good, another is bad. The mood swings are broad and swift, very short term. And the markets reflect it. Are they reporting on what the markets did or what the markets will likely do?
My observation: they try to anticipate mood and thus drive the market.
Just an observation. Why else would European debt problems produce deep dives in stock markets world wide one day, and then huge rises the next day? Just because someone reported a government or two were going to support the Euro during the crisis? But the following day doubts resume and markets drop precipitously.
Who profits from this? The markets and brokers themselves. The volume of stocks sold and bought earn them revenues. People attempting to build a market stake will want to influence the market so they can buy low and sell high. Someone always sells and buys. The price varies. Equilibrium, remember? But the people who handle the transactions are in the business to make money on the transaction, and maybe on the shifting positions in the market as well; in fact that is where the real money is made.
Just an observation……..One wonders who……..and why………
Am I a cynic? Maybe; but probably not. Just being realistic after years of watching. Watching.
November 26, 2011
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