I've got a couple of college degrees. I'm thinking of asking for my money back because lately, I've been noticing how much stuff (economic stuff in particular) in the world doesn't make any sense to me. All that higher learning obviously didn't take, because when I look at the world, and say event A happens and it seems logical to me that B should follow, it never quite works that way, all of a sudden I'm left to deal with -B, or C, or D, or E (hey at least that symbolic logic class didn't go completely to waste). Anyway, a couple of events last week, simply followed a pattern that has occurred a lot lately when I look at the stock market, and it has become obvious that either I was completely asleep at the switch during econ classes, things are not going "according to Hoyle" or they taught me the wrong freaking stuff. I need help from any economists on this site. More below.
I've seen similar events before, it's just that only recently have I become so frustrated as to write a diary about it. I mean, back in college we did a lot of plotting Marginal Value Product curves, studying supply and demand curves, talking about substitution and such things. However, little of that seems to do me any good trying to understand what's going on. So lets start with what I believe to be true, you can dash that, then we'll move on to explanations of why things don't behave the way I think they should
- Stock indexes (DOW etc.) are composites that are supposed to reflect the overall "health" of the stock market.
- Stock price reflects the relative value of a company.
- Companies adopt strategies of operation (production, sales, resource management) to maximize return on investment.
- Events or actions that decrease costs (i.e. wage cuts, job cuts) increase stock value
- Things that put more money into consumer's pockets tends to create demand which drives up prices which means more profits which should drive up stock prices.
Perhaps that's enough to start. What I've noticed is that lately, it seems that when something is announced that I think is good, and should drive stocks up, they drop into the crapper. When something is announced that I think is bad, and should drive stocks down, the skyrocket. So, I'm obviously thinking wrong. Help set me straight. Lets start with last week's events.
From the beginning of the week until midweek, it seemed the market was moving up swiftly. I wasn't paying too much attention, so I don't know why. However, midweek, the unemployment figures came out, and WOW the best figures in five years!! Much lower than expected!!! Man this has gotta be great news for the economy and the stock market is gonna shoot up!! So I click on over to CNN and find out WHAAAA?? It dropped over a 100 points followed on Friday by another 50+ points. The article says it's on "inflation fears" and that investors fear "interest rate hikes" from the fed. It seems that all the good impact of more people with money to spend on products is outweighed by other factors. So If that is so, it seems the stock market is independent of the consumer side of the equation and if so why is it considered such a good indicator of economic health? And if the stock market is independent of the consumer side of the equation, how does that trickle down bullshit work?
Which brings me to my final question. The metaphors of trickle-down economics helping everyone, and the rising-water-raises all boats bit is a common one that comes to us from back in the Reagan days. Now I'm an Aggie, I know a little about trickling and runoff and stuff. I know when it rain "trickles" on the hillside, some runs off into the lake, some pecolates into the soil and will eventually end up the same place, but it takes a long time. So my question is, couldn't we raise the boats faster if we just poured it all in the lake directly?
Just wonderin'. I'm stupid you know.
I am doing two things at once this morning, so if I'm a little slow on a response to a comment, bear with me.