Tuesday, February 6, 2018

Michael Roberts — Stock market crash: 1987, 2007 or 1937?

Michael Roberts looks at past stock market declines from the POV of the profit rate. Different conditions applied in each case, and the contemporary situation is different, too.

Michael Roberts Blog
Stock market crash: 1987, 2007 or 1937?
Michael Roberts


Stumbling and Mumbling
Emergence in stock markets
Chris Dillow | Investors Chronicle

Markets in financial instruments are comprised of two principal cohorts. The first cohort is comprised of "investors," who buy to hold longer term. The second is comprised of traders, who buy to sell shorter term.

Prices in markets are based on changes at the margin. Total capitalization is based on the most recent price. This is obviously unrealistic, since all units cannot be sold at this price even though they are valued at it.

Traders are generally a predominant influence on margin price. Their incessant incremental activity to extract gains based on price fluctuations makes markets liquid, relatively stable, and efficient.

Major turning points involve buying and selling pressure from both traders and investors converging to create buying or selling pressure depending on the ratio of "greed and fear."

Roberts's analysis focuses more on investors, and Dillow's analysis more on traders. It's the melding of the two that make the market at the margin.

1 comment:

Matt Franko said...

$76b of non-risk assets dumped into depository accounts on Thursday and Friday....

Price of risk assets has to come down....