Is the US Stock and Bond Market OVER or UNDER-valued?
There has been A LOT of speculation out there about the near-term total collapse of the US stock and bond market. I thought I’d add MY 2Cents…..just for fun! (lol….) I know this will stir a debate…..but this is all I have to say.
The daily price action, up or down, of any stock in any stock market around the world, (or for that matter, the price of ANY commodity; ie, pigs, stocks, bonds, computers, cars, onions, even gold, etc) IS SET BY THE TOTAL NUMBERS OF BUYERS AND SELLERS OF THAT STOCK, or any commodity, AT THAT MOMENT IN TIME.
THUS, if there are MORE BUYERS of pigs, than there are SELLERS of pigs…..what must happen to the price of pigs? The price of pigs must go UP.
IF there are MORE SELLERS of pigs, than BUYERS of pigs….what must happen to the price of pigs? The price of pigs must go DOWN.
Personally, I really don’t care what causes more buyers to come to the table….or more sellers to come to the table….on any given day. (But I do watch alot of news to see what’s going on.) Why there are more buyers or sellers on any given day is what makes the price of stocks…..or bonds…..or pigs…go up or down. (Supply and Demand is what makes the price of any commodity go up or down.) But, let’s talk about stocks and bonds here…….
Generally speaking, in the case of stocks and bonds, good news (optimism that the current price is a “good” price, and thus a good time to buy) brings in more buyers. Bad news (pessimism that the current price is a “bad” price, and thus a good time to SELL) brings in more sellers.
That is the AMAZING part of the stock market. Every day….throughout the day….buyers and sellers are matched up…..and prices move up or down. It is a very LIQUID market…unlike your home. ( PS: Our homes DO NOT get “valued” each and every day, but the price action for homes, up or down, works the same way…..as we ALL know after the housing market collapse in 2006. When the enthusiastic number of BUYERS of homes went bye-bye……that only left the sellers…..and the prices collapsed in many regions of the United States.)
Now……does the current value of a stock really reflect the “real” value of the company? AHA! THAT “perception” ……accurate or not……is what drives the prices of stocks up or down EVERY DAY!
The price of any stock….(and thus, for the price of all stocks in the market)…represents the TOTAL “PERCEPTION” OF VALUE of all the buyers and sellers of that stock at any given moment in time. **
The price of any bond (a specific corporation like Ford, or Bank of America….or the US Government) represents the TOTAL “PERCEPTION” OF VALUE (financial strength of that company…their ability to pay the promised interest and principal on time, for that bond) of all the buyers and sellers of that bond at any given moment in time.
The same thing goes for the price of the US Dollar, too! All around the world…..24 hours a day…..the currency markets are open somewhere. And the pressures of BUYERS and SELLERS of that currency…any currency…even the US Dollar……sets the value of that currency every minute! The daily amount of money traded in the currency markets is much, much LARGER than the amount of financial trading that happens every day in the US Stock market. But, all markets work the same way……it’s buyers vs sellers…and the prices react accordingly.
I keep hearing that the value of the US Dollar is dropping….and will be worthless soon. Really? Follow the price action of currency trading…….that will tell you what’s going on today. Follow the trends and you can see what the perception is around the world about the “value” of the US Dollar. (I understand the ‘case’ being made about the US Dollar being worthless……I’m talking about the current perception of value, right or wrong.)
What’s my point in all of this?
YOU may believe there is a coming TOTAL COLLAPSE ahead for the stock market…….even a possible near-term TOTAL COLLAPSE. And/or…..for the U.S. Bond market, too….maybe one day….who knows, maybe soon.
Well…..it really doesn’t matter what YOU or I ‘think”…….what matters is what “EVERYONE WHO TRADES STOCKS AND BONDS” thinks about that…….reflected EVERY DAY, buy the number of BUYERS…..versus the number of SELLERS…..who come to buy and sell stocks and bonds every day in the market-place. Until the SELLERS OVERWHELM the BUYERS……the price of stocks….or bonds…..will remain higher than you may “think” they should be. And until the BUYERS OVERWHELM the SELLERS….the price of stocks in particular……will be UNABLE to trade up and go back to the old highs. (DOW 14,000+) (Remember….if YOU are NOT a trader/buyer/seller in the market, your opinion DOES NOT COUNT. Buyers and Sellers are actively expressing their opinion, good or bad and right or wrong, when they buy or sell. THAT moves the markets…..moves the prices……!) Some people's opinoins DO move markets.....most don't. But your opinion and my opinion do NOT! And on any given day, normally there are many, many opposite opinions expressed.....some people think now is a GREAT time to bjy stocks.....and otheres think it's a GREAT time to Sell stocks. They can't all be right!! lol.... that much I know for SURE!!
But….there may (will again) come a day……(as on October 19, 1987) when the SELLERS do OVERWHELM the BUYERS…..and on that day….the price of stocks will go DOWN dramatically. The reasons that cause all the SELLERS to show up and that hold back all the potential BUYERS from acting as BUYERS that day, will be very very important. And you and I could make a long list of what that “BAD NEWS” could one day be. (ie, the US debt, the Rapture…..etc etc etc…..whatever….)
The US and World markets for bonds and stocks….are an amazing place…….it is something for all of us to keep an eye on, whether you are an investor in stocks and bonds, or not. I follow A LOT OF NEWS every day…..and in light of that news…and MY perceptions of that news and how it will affect various investment choices….and factoring in my personal opinions about investment alternatives …..I try to make informed decisions……and then keep a very close eye on them! I’m still trying to find ways to make a decent return, rather than settle for CD rates, as low as they are. Yet there are people that say we shouldn’t even be investing in CDs at US banks. IF that’s really the “risk” that is out there about US banks….then US Dollars won’t be worth anything either…..and then what are you to do. Oh oh……I know their answer to that….BUY gold. What, put everything you have in gold? That’s a pretty risky bet itself……. (Remember, everybody’s got an opinion, including me…..and that’s just what they are…opinions. Time will tell whose opinions are correct. I will say, that over the past 3-10 years….gold has moved nicely UP!)
I heard one person recently say “I’m in the market…..but I’m dancing close to the door.” I liked that…..so am I! When and if things turn down….these days they tend to turn down VERY FAST!!
PS….I don’t plan to respond to any posts…(unless I get really motivated….lol….) ....just so you know. This is just my point of view…..and I wanted to share it.
By the way……Nowhere above did I say the stock market was headed to NEW HIGHS…..nor did I say we are on the verge of a TOTAL COLLAPSE. I was not making predictions…at least not in THIS post. I don’t know WHEN the Sellers will once again…one day…..overwhelm the buyers. But I do know it has happened before….and I am sure it will happen again. I also know that over time, the Buyers normally outnumber the sellers…and that’s what makes the stock market go up, more than down…..normally. I also know that the markets tend to rise more slowing….and fall much more quickly and dramatically…sometimes historically….as on Rosh Hashanah 2008…..when the DOW fell 777.68 points in one day. WHEW!!
My crystal ball for predicting the stock market broke in 1987…and hasn’t worked since! Lol…. But I do KNOW THIS! The markets have been…..and continue to be…… much more volatile than normal. That, I think, will continue for some time to come! And…..as I’ve said before, I don’t think the markets will COLLAPSE until the Rapture. (TICK TOCK.....) If you have an historic event like that……who do YOU think will show up at the markets that day? The Buyers…or the Sellers?
**You can, and should, have an OPINION if you are an investor. And, your opinion can and should be expressed, even months ahead of future “developments” in a particular company. Example: IN Jan, 2008, I told a lot of people “I thought Washington Mutual Bank was ‘going to go to zero!’” And I was RIGHT!! It did. But while I was right….I didn’t make any personal investments to back up my opinion…WAH!! I wish I’d a bought lots of PUTS. I’d be retired by now!! LOL>…. So, if you are an investor…..or more aggressively, a “speculator” ….. have an opinion, and invest accordingly! BUT YOU BETTER BE RIGHT! Your opinion alone, if not backed up by other people over time (more sellers or more buyers of this thing…this commodity) will not make you money, unless you are RIGHT!! It’s an amazing game…..this capitalist market system!! LOL…..