Oil back up as well and a long way. OK, there may be some factors (other than an international crisis) causing that but it never helps."FTSE down 75 today, Wall St 200. Not really working, is it? Or maybe this is just a stepping back from last Friday's giddiness."
But really, is it always good for the stock market to rise? Should that be a goal? Surely it's best if the stock market values companies fairly and or accurately (whatever that might mean)? There is something not right when the value of the top 100 capitalised companies in this country is fluctuating so wildly.
Well, the point I'm making I guess is that if you are an investor you are making a bet that the valuation of a company will increase. There is or ought to be some kind of link between the valuation of the company and how successful (ie profitable) it is. Presumably profitable businesses are to be valued by the government and so a strong stock market may in some way be deemed a good thing. However, short term measures such as banning short selling are in no way increasing the profitability of the underlying company and are merely a way for the government to help those original gamblers to change a losing bet into a winner - why are they so keen to do that? It seems very much a case of treating the symptoms rather than the disease."On the one hand, you can always argue that the value of these companies isn't bouncing around crazily - what's changing is investors' perception of the net present value of the company's assets and future earnings, which can obviously be a much more volatile thing, especially when you consider that the market feeds upon and magnifies any message coming out of sizeable stock movements.
On the other hand, if you actually want to buy or sell, then the price that the market sets is the price that the market sets. There's no point arguing that Company X is worth 20% less than the market is willing to sell its stock for. No-one's going to sell it to you at that price, even if it is "right"."
I'm sure that depth is something to do with it, also familiarity. Also, how often to companies go bankrupt? I mean, it's always a risk but if you stuck a pin in a list of companies on the stockmarket and looked at that a year later it's more than likely it will still be going isn't it?"Just thinking aloud - but it's interesting to reflect on why the stock market (or even just the stocks belonging to specific industry sectors, like banks) haven't frozen up in the same way that the MBS / CDO market did. The press has blamed it on the complexity of structured credit and its lack of transparency. But is, for example, $100m of shares in Goldman Sachs THAT much easier to value than $100m of senior CDO paper? Can you really be much more comfortable with the prospects of Goldman than the prospects of your CDO? I don't think so. Plus, in an extreme scenario, equity should be riskier than debt - if Goldman's stock goes to zero, you get nothing. If you're a senior bondholder, you'll get some kind of recovery.
I'm guessing that the depth of the equity market is what keeps it relatively "sane": there may be (pulling numbers out of the air) 5,000 institutions globally who would buy CDOs, but there must be hundreds of thousands of investors, retail and institutional, who'd buy bank stocks. It'd be easier for the CDO market to suffer a catastrophic loss of liquidity than for equities to do the same."
But really, is it always good for the stock market to rise? Should that be a goal?
Yeah, that's what I meant with this bit."In fact, isn't this the problem (i.e. bubbles), not the solution?"
What are the consequences of low share price except that investors lose money? I guess it can be hard to raise money, it can make the company vulnerable to a take over, it means that investors get annoyed and so it can be destabilising, anything else? Why should I care is what I mean? I guess that if all investors start losing money they get annoyed with the government but is that enough reason to bail them out?"then isn't it best if the share price is "right" rather than artificially high?"
Can't see too many tears being spilled over them. Have you got a link?"According to RGE Monitor, hedge funds and private equity firms are next on the chopping block..."
You've got to have a bit of sympathy for people who have had the goalposts moved on them but really do hedge funds bring any benefit to anyone except their investors and controllers?"On Friday, the FSA banned short selling in financial stocks, and forced hedge funds to disclose their positions. As the underlying shares rose as a result, the industry was looking at well over £1bn in paper losses on the day."
Thanks for that. Good stuff.
You've got to have a bit of sympathy for people who have had the goalposts moved on them but really do hedge funds bring any benefit to anyone except their investors and controllers?
A surprisingly pro-regulation link."This is good in a non-hysterical kind of way:
Anatomy of the financial crisis -- Barry Eichengreen, VoxEU"
Well that's what I used to do for a living but I didn't work for a hedge fund."Hedge funds which look for arbitrage strategies would argue that they make the markets more rational by identifying inefficiencies and anomalies and taking advantage of them until they disappear."
Maybe so but how contrarian a position have they taken? Seems (as far as it's been possible to tell) that hedge funds have on aggregate been betting the same way as everyone else this time around doesn't it?"I do think a defensible argument could be made for them in some ways "oiling the wheels" of the financial system by taking on risks that other people are unwilling to take, and by acting in a contrarian fashion to other investors at times of stress."
Maybe so but how contrarian a position have they taken? Seems (as far as it's been possible to tell) that hedge funds have on aggregate been betting the same way as everyone else this time around doesn't it?
Sure, I don't want to attribute to you an opinion you don't hold and I see what you're saying - just as I'm not totally opposed to hedge funds as a matter of principle. I'm just not sure that they are unique in providing the things that they claim to provide or that they provide them to that the extent that they claim. Hard to know for certain though. Has there been a notable improvement in market efficiency in the era of the hedgefund?"Again - not trying to say that hedge funds and PE funds are ace. But they do on occasion have something to offer the system as a whole."