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To: Arthur Tang who wrote (642)	11/6/1997 8:10:00 AM
From: Arthur Tang	Read Replies (1) \| Respond to of 1471

How do we estimate the indexes on Wall street based on the thermo-dynamics analysis method? Easily, if by "order of magnitude" estimate and supply (number of shares) is constant. Market movement in case of demand exceeded supply is value goes up. If demand (cash input) equals supply (new stock IPO ), market stays the same. If IPO's exceeded demand, the market crashes. With input of $100 billion(401k, foreign investments, tax rebates), and Wall street salary and expenses of $10 billion this year, we can estimate how high Dow can go without dislocations. Dow started at 6000. May end with 8000. $90 billion for 2000. Next year if input less expenses is the same, Dow will go to 10,000. So far so good. All indexes can be estimated the same way. Of course, some money goes to NYSE, some goes to Nasdaq, and very little goes to AMEX. The exchanges compete with each other, so, the estimate is only good in terms of "order of magnitude" accuracy. It does point out the direction. But it also indicates the well being of the listed companies as a whole; when Wall street receives the constant or increasing money input. However each year the stock market appreciates, the formula of cash liquidity is [this year's index-last year's index/this year's index]x5%(constant for trading liquidity)+cash reserve percentage of last year=this year's cash on hand percentages to meet the requirement of this year's index. From cash on hand percentages you can calculate the index pull back to balance the market value. Overvalue or undervalue, thus market value can be estimated.

To: Arthur Tang who wrote (642)	11/6/1997 3:32:00 PM
From: raymond marcotte	Read Replies (1) \| Respond to 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.