Stock Market Questions

[SavageEagle]

First, if this belongs in the Politics section, sorry. Wasn't sure.
Second, if my questions sound dumb, don't bash, just be patient as I'm a n00b in the whole stock market thing. I know a bunch about it and some of how it works, but I'm unclear on much of it. Please bear with me here.

My First question is a broad scope of things. How the hell does the stock market REALLY work? I know companies sell themselves in the form of stock, people buy them, they own part of the company, then I'm sorta lost. What makes the prices go up and down? How do speculators play a role in things? And how do we benefit from the Gov owning 51% or more of most financial institutions?

Me second question is why do we even need the stock market? I mean seriously, most small buisnesses in America drive the economy. Or so they say. Most small buisnesses don't publicly trade stock and they make money just fine and prosper. So why do big buisnesses have to have stock to make money? Would we be better off if we just eliminate the stock market altogether?

Don't blast me on this, I'm just trying to sort through somethings. It would seem to me that the stock market, no matter which way you cut it, mostly benefits the wealthy and barely helps out the middle class. The poor can't win here because they can't afford to buy stock let alone keep up on how their stock is doing.

I'm so confused....

 

[AFA1CY]

First, if this belongs in the Politics section, sorry. Wasn't sure.
Second, if my questions sound dumb, don't bash, just be patient as I'm a n00b in the whole stock market thing. I know a bunch about it and some of how it works, but I'm unclear on much of it. Please bear with me here.

My First question is a broad scope of things. How the hell does the stock market REALLY work? I know companies sell themselves in the form of stock, people buy them, they own part of the company, then I'm sorta lost. What makes the prices go up and down? How do speculators play a role in things?

Companies that need cash will sell stock to raise it. This is different from getting a loan in that you dont have to pay it back but you loose some control of the company. Prices go up and down with what someone is willing to pay someone else for their shares of stock. Such as if I own 100 shares of XYZ company and I want to sell. You want to buy XYZ stock so your broker will go to the exchange and find my broker and negoiate the sale. (This is a very simple illustration)

And how do we benefit from the Gov owning 51% or more of most financial institutions?

Me second question is why do we even need the stock market? I mean seriously, most small buisnesses in America drive the economy. Or so they say. Most small buisnesses don't publicly trade stock and they make money just fine and prosper. So why do big buisnesses have to have stock to make money? Would we be better off if we just eliminate the stock market altogether?

True but for a small business to grow in to a big business they need money. You don't see too many small businesses making automobiles, big screen TVs, or commercial aircraft.

Don't blast me on this, I'm just trying to sort through somethings. It would seem to me that the stock market, no matter which way you cut it, mostly benefits the wealthy and barely helps out the middle class. The poor can't win here because they can't afford to buy stock let alone keep up on how their stock is doing.

I'm so confused....

Not totally true. there are discount brokers and low price stocks. (In fact, now there are quite a few low price stocks). I am in no streach of the imagination an expert.

 

[Prometheus]

Hehehehe...

To get any decent reply we're going to need a bigger thread.

There is what is taught in junior achievement, whats taught in basic college level economics, what the big boys know and everything in between.

This is SUPER bare bones stuff here,,,

Origins: Interest rates on loans back when the markets came about were high... think 20%. In most cases it was crazy for business to borrow a lot of cash. Basically it would take a business 20 years to double in size, if not longer. By selling stocks, the company would get interest free money. --again this is basic, easy reading here, I'm simplifying like crazy and leaving a lot out--

What does the stock holder aka share holder get? A stake in the company, most stocks paid dividends and you'd get a voting stake in the company and have a say in how they moved forward and what they did. You get one vote per share. If you own 50.1% of the shares you basically control it. In most cases (since most stock holders don't vote, or don't agree exactly) you could hold 20% of a companies shares you could control it's direction, elect board members ect.

With dirt cheap interest rates, we don't need a stock market. It's silly for a company not to max out it's debt to maximize growth. Again simplified. When rates rise, we 'need' stock markets to allow these businesses to raise the capital they need and not pay outrageous interest fees. Example, at a rate of 5% a business only needs to make a return of the money they borrow of just 5.1% in order for borrowing to make sense. When rates are 20% they have to make at least 20.1% in order for borrowing to be beneficial.

The markets are HIGHLY manipulated and no matter how well they try and stop "insider trading" (where people who know what teh companies numbers are before they are released and sell or buy before anyone else gets a chance) it happens ever day. Enron was huge.. but just this month Fuld with Lehman is yet another example.

Basically the markets are like a craps shoot a vegas. Only difference is that wall street makes you think you control the wheels on the slot machine.

Something for you to consider... today it was announced that retirement accounts have lost 2 trillion dollars in the last month. You last paragraph is right on... yes 2 trillion was lost. That begs the question where did it go? The rich get richer. This money is like matter. neither created nor destroyed.

Bare bones, but you'll be hard pressed to find anything of similar size as succinct or truthful.

 

[SavageEagle]

So why don't we set a cap on what interest rates can be? Say like 10%. Then the loan companies make money, the buisness makes money, and we no longer need a Stock Market. Buisnesses don't need to sell off ownership in their investment to make money. If they are selling a bonifide, good product or service then they don't need stocks to make money. If they start losing money, do what every other buisness does. Cut Expenses. If your product stops selling or your service isn't needed, switch gears or cut your loses and start a new business.

Just as my same arguement against this bailout. If you mess up, make bad decisions, and your buisness starts tanking, you don't go to the government for a bailout. You take it like a man, admit you made a mistake, and go under like any other buisness would. Give someone else a chance. By God if you make millions and your company is going under, take a damn pay cut. If you're a small buisness and you're not making anything just to keep your buisness afloat, you might have to sell some assets to stay afloat.

My point is, the stock market seems a bit overrated. I'm in no means telling someone how to run a buisness, but I am saying that the stock market seems more like a scam than anything. Imagine if the companies didn't have to pay stock holders dividens. How much more money would they have to put into assets? Payroll? Expansion?

So how about drop all interest rates to 5%-10% (10 max) depending on credit, banks only loan out what they can instead of asking the Fed to print worthless paper, and do away with the stock market?

From what I can tell most of this Country's money is worthless anyway since we don't have the Gold and Silver to really back it up.

 

[indyjoe]

So why don\'t we set a cap on what interest rates can be? Say like 10%. Then the loan companies make money, the buisness makes money, and we no longer need a Stock Market.

There are problems when the interest rates are artificially set to anything (low or high). The issue with the housing problem was legislation passed by Clinton that among other things allowed for sub-prime mortgages to be allowed. This was to help people who could not afford a house get a house, betting that they would build equity to offset that fact that they could not afford it. Housing prices have historically tracked pretty close with inflation, until this was changed and the interest rate was held criminally low. Then house prices rose much faster than inflation. This change put more money into the economy and forced house prices up artificially high. To a certain extent, the supply of houses in areas is slightly fixed. So available money going up, put more people available to buy, increases demand and increases price. We are paying the price for not allowing the market to correct itself, instead allowing the Federal Reserve (not really a government agency, but a group of bankers) set the rules that would make the the most money. Just like letting children decide if they want good food or candy for dinner. We can just ignore for now that the Federal Reserve is completely unConstitutional.

 

[SavageEagle]

Yea the fed is something else I was wondering about since they are pretty much robbers in suits. How does all that work?

 

[Prometheus]

Yea the fed is something else I was wondering about since they are pretty much robbers in suits. How does all that work?

Imagine one guy, sitting behind a desk with a check book. That is the Federal Reserve System.

Just a check book. Nothing to back it up (I mean that literally, NOTHING). No bank (just a building with a desks and offices, not even paper money is there).

So the FED gives a check to the treasury and the treasury says "yeah we have money". They start printing money (either on paper or digitally) because now they have it... how kind of the FED huh? Remember the check isn't issued to the treasury from any bank. The FED writes the check and BAM, there is money. The FED then controls and manipulates everything monetarily. They control the rates, how much money is given out. Thats why the FED is in business. They make a virtually unlimited about of money because when the FED gives money to the treasury, the FED holds the promissory note. They are lending out money that doesn't exist and then charging the US Government interest on it. Talk abotu a racket. Also, since the FED knows when it will raise and lower rates or when it will or won't issue credit and money they can exploit all the markets in the country by buying and shorting whatever stocks will benefit or suffer because of their decisions.

The treasury is at the whim of the FED. The FED is PRIVATELY OWNED. They are as 'federal' as FedEx... which is to say, they aren't.

The FED can also STOP giving the treasury money. Thats the simple way to explain why the crash leading up to the depression went from bad to worse. People needed money and the FED refused to issue any more. No money, no credit, no commerce... collapse. Sound familiar to whats happening today?

Click this link and then click "creature from jekyl island". It explains the creation of the FED and how they 'make money' alot better. about a 40 minute audio, but WELL worth it.
RADIO.BLOG

 

[SavageEagle]

Thanks man! You've been alot of help. I'll check that out later when I don't have 2 kids leeched to my legs! LOL

 

[Prometheus]

Thanks Savage Eagle!

Youtube clip for those who prefer it, 7 parts, here is part one:
[ame=http://www.youtube.com/watch?v=F3TAh1gy6rc]YouTube - Second Look at the Federal Reserve by Edward Griffin 1 of 7[/ame]

 

[indyjoe]

The U.S. dollar was originally created and defined by the Coinage Act of 1792. It specified a dollar to be 27.0 g of silver and an eagle to be 17 g of gold. It set the value of an eagle at 10 dollars, and the dollar at 1/10th eagle. It called for 90% silver alloy coins in denominations of 1, 1/2, 1/4, 1/10, and 1/20; it called for 90% gold alloy coins in denominations of 1, 1/2, 1/4, and 1/10. This kept the relative price of goods fairly constant from 1635 to 1913. Gold coins were confiscated in 1933 and the gold standard was changed to 0.888g per dollar or $35 per ounce. Dollar used to be gold certificates and redeemable for Gold. They are now Federal Reserve Bank Notes and redeemable for nothing. When France tried to cash in dollars for gold in the 60s, there was not enough gold, because the Fed was printing more than it had. This caused the break from a gold backed standard (in 1971, I believe) and instead of lying about being gold backed, the dollar is backed by nothing.

 

[SavageEagle]

So if the dollar is worth nothing, and is backed by nothing, then what is this Country's wealth based on?

 

[indyjoe]

So if the dollar is worth nothing, and is backed by nothing, then what is this Country\'s wealth based on?

The belief that the dollar is worth something.

 

[Prometheus]

So if the dollar is worth nothing, and is backed by nothing, then what is this Country's wealth based on?

Things are worth what people are willing to pay/exchange for them.

Firewood:
A bundle of firewood, for example, may be worth $10.00 USD (US Dollar), 8.75 Euro, 9.90 Canadian, one whole chicken, 10 cups of rice... ect.

If tomorrow all your neighbors got all the free firewood they wanted your bundle would be worth zero dollars, zero chickens, zero rice, zero euro ect.

BUT you would still have the bundle of firewood. It has a use and you aren't left with "nothing". It has 'intrinsic value'.

The USD is, intrinsically speaking, nearly worthless. You can't use it to write on (it's already colored on), it burns in a second and is useless besides kindling for the firewood, it isn't absorbent and would make crappy toilet paper.

If people stop accepting it, you have nothing.

Back in the day, if people stopped accepting the dollar, you could trade it in for gold or silver. Gold and silver have intrinsic value. Not just for jewlery, but science and medicine as well. Back when there were film cameras, you had to have silver for that... now we use silver and gold in everything from medical devices to smart bombs. Who knows how much gold has been vaproized over iraq and afganistan in the past 7 years!

The USD has 'worth' only because the US Government says it does and because people believe them.

Keep in mind that the euro, canadian dollar and basically most other currencies at this point are also backed by thin air. AKA they have "Fiat" currencies.

It's not just the USD thats guilty.

 

[indyjoe]

A good example of the worth of a dollar is the Iceland currency, the Krona. The perceived value of this currency in the world market has dropped by 50% in less than a few days. The reason is that the country is essentially bankrupt. By the way, so is the US in the sense that we owe much more than we can pay. The world has been cool with keeping to give us debt, much like credit card companies keep giving credit. The interest and fees made it a good investment. Until we can no longer pay...

 

[SavageEagle]

Ok this may be off subject a little bit, but for all the help in the form of blood we've spilled in these other Countries name's our debts should be erased.

And basiclly stocking up on goods rather than money would be a good idea? If that's the case I have a bunch of odds and ends but I'm lacking in barter goods and ammo. That will change soon I hope.

I'm still trying to wrap my head around this whole situation. The Fed is illegal, the stock market is a bunch of crap, people TRUST their GOVERNMENT, and everyone is close to being homeless unless they defy the law and defend their homes. Then today the Dow closes for the week under 8500 points. Or is it dollars?

Anyway, world markets are plunging because our stock market is collapsing? How's that work? Sure they may have money tied up in our economy, but that's no reason for them to have a mass-selloff in their own marketplace. And if these overseas markets collapse, what does that mean for us?

 

[indyjoe]

Most people call it point. It is NOT dollars. It is a price weighted average described in more detail that you like here: Dow Jones Industrial Average - Wikipedia, the free encyclopedia