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Strategies & Market Trends : Analysis Class for Beginners

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To: Arthur Tang who wrote (642)	11/6/1997 3:32:00 PM
From: raymond marcotte	Read Replies (1) of 1471

i have heard that $ makes the world go around, but there more poor people than rich people, and the rich people have so much more than they need that all they really have that the poor don't have is guaranteed subsistance and bragging rights. speculative bubbles, large and small, are not explained by either of your 'two ways to analyze wall street.' so, i must conclude that you really meant 'among the many ways, here are ...' the paper value of all stocks in any market is the marginal (last) price of each trade times each of the corresponding outstanding units. now that is really incredible! everything is valued at the margin. this is good if the market is perfectly efficient. on average, it must be assumed to be otherwise arbitragers would instantly have work to do everywhere in the market. but we know that many of these sidline speculators are constantly being bankrupted. they perform a very valuable constraint on most fluctuations. to the extent more and more people believe that these marginal trades are a measure of their net worth, they either feel wealthier or poorer. even when they have no need for more or less liquidity they may be seduced into action and join the marginal traders. nominal practices and resources in marketplaces do not accomodate such imbalances well. thus, not money, but perceptions will determine weather markets become more or less risky. when the risk-and-price are outside nominal or historical ranges a correction up or down becomes overdue. just when, is not predictable. luck more likely issues the instruction to change course. there may be some forewarning but never so systematically correct to concentrate too much in the hands of too few lucky ones that are not sleeping at the time -- on average the would is sleeping one third of the time. remembering that only the marginal trade is determining the 'value' of an asset in one instant (history), it is easy to see why the total supply of money has nothing really to do with total value of an asset now or its future value. there are several empirical underlying facts to support these views. but i will defer to a later time if there is interest in a discussion.

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