Re: Re pension funds

[Doug Henwood <dhenwood@xxxxxxxxx>]

Oliver Kamm wrote:

>If this is a secret agenda, it's a misguided one. Stock prices, unlike
>other prices
>in basic microeconomic theory, are not determined by shifts in supply and
>demand
>curves. They're set by, and only by, investor expectations for the
>fundamentals
>that determine the net present value of a future stream of cash flows.
>
>Suppose every quoted company in the US market bought back all of its own
>stock
>simultaneously, with the single exception of Microsoft. The supply of
>equity would
>plainly contract sharply, while the volume of liquid funds available for
>stock market
>investment would expand. But the price of Microsoft stock would not
>change, because,
>other things being equal, there would have been no change in the earnings
>prospects of
>the company.
>
>Bond prices, incidentally, behave differently, because the bond market,
>unlike the
>stock market, has a single price-setter - the government.

Hahahaha this is funny. Expecations are meaningless unless they're
translated into decisions to buy or sell - i.e., demand. And one of the
reasons for the bull market in the U.S. has been the shrinkage in the
supply of stock because of M&A and buybacks: U.S. nonfinancial firms have
retired over $800 billion in stock since 1984.

It will also come as news to the bond market that supply & demand have
nothing to do with bond prices; the Fed can set the funds rate, but for the
rest of the curve, it's up to our old friends, buyers & sellers.




Doug

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Doug Henwood
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