Forum Post: Higher stock prices with no justification by revenue. Inflation by speculation.
Posted 11 years ago on Sept. 6, 2012, 2:24 p.m. EST by richardkentgates
(3269)
This content is user submitted and not an official statement
NEW YORK (AP) -- Investors finally got what they wanted from the European Central Bank: a concrete plan to support struggling countries in the region by buying up large amounts of government bonds. That set off a global market rally and sent U.S. indexes to four-year highs.
The Standard & Poor's 500 index jumped to its highest level since January 2008, just one month into the Great Recession. European markets also surged. Treasury bond prices and the dollar dropped as traders sold low-risk investments.
The gains were extraordinarily broad; 98 percent of the stocks in the S&P 500 index rose.
"There's just a sea of green," said JJ Kinahan, TD Ameritrade's chief derivatives strategist. "It's pretty fun."
At a long-awaited meeting Thursday, Mario Draghi, the ECB's president, unveiled a new program to buy government bonds from the region's struggling countries with the aim of lowering their borrowing costs. Draghi said the program will have no set limit on how much it can buy.
Kinahan praised Draghi for two details in the plan. He didn't declare a limit for the bond-buying program and also said it wouldn't put itself first in line in the event of a default, something investors had been clamoring for. Both details should make other investors more willing to buy government bonds along with the ECB.
"In a situation where it was easy to have a slip-up, it seems like he did everything right," Kinahan said.
The S&P 500 index jumped 27 points to 1,430 as of 2 p.m. The Dow Jones industrial average surged 230 points to 13,277. That's just two points away from its highest level since December 2007.
The Nasdaq composite index jumped 65 points to 3,134. The Nasdaq also breached a major milestone, its highest level in 12 years.
European stock markets also jumped in response to Draghi's announcement. Germany's DAX and France's CAC-40 each soared 3 percent.
The gains were even bigger in Spain and Italy, the two largest countries to become caught up in the region's long-running government debt crisis. Spain's benchmark index soared 5 percent, Italy's 4 percent.
The interest rates on their government bonds also fell sharply. That's a sign investors anticipate a surge in demand for them as the European Central Bank starts up its bond purchase program. Spain's benchmark 10-year bond yield fell to 6 percent from 6.39 percent. Italy's comparable bond yield fell to 5.21 percent from 5.43 percent.
Traders shifted money out of U.S. Treasury bonds, considered one of the world's safest places to stash money, and the drop in demand lifted yields. The yield on the 10-year Treasury note rose to 1.67 percent, up from 1.60 percent late Wednesday.
In an encouraging sign for the U.S. job market, a report from the payroll processor ADP said businesses added 201,000 jobs last month, the most reported by the survey since March.
Separately, the Labor Department said the number of people applying for unemployment benefits fell by 12,000 last week to 365,000. That figure won't affect the August jobs report, due out Friday, but could be a sign of a better hiring this month.
My Comments on the matter
We need legislation that requires movement in stock prices be justified by revenue. This type of speculation has no real purpose except to enrich people that inject themselves into the process in order to filter money into their own pockets. It doesn't help the economy nor does it benefit investors in the long term because the volatility it brings into the markets.
Happening again today on 9/11 - no real reason oil went up again (should bode badly) but I guess Wall Street likes it when main street tanks ...it's good for them
And now here comes the credit downgrade I mentioned. But, the conversation on this forum is no longer about the Occupation of WallSt, it's about partisan politics as usual. As can be seen by flip, who just posted a comment about oil and economics that is "on message" with the democratic party line. flip by the way will venture into the absurd to defend the FED's QE and general printing practices but when called on it, denies it to the fullest. How about the Moody's press release about a credit downgrade, huh flip?
Why are you talking to flip through elf3?
Because it's my thread. I'm not responding to any more of the party preachers on this forum. Not to threads or individuals. If they want to read my opinion, they are free to do so. I'm also done explaining myself.
Okay. Just might be better to address him directly. He may not see that comment.
Make decisions for your own actions.
Here is a link that will give you some idea about whats going to happen.
http://www.youtube.com/watch?v=S39hZbkAx2E&feature=em-uploademail
Same case I've been pointing out. The difference in his point from mine comes from our different financial backgrounds. My argument is about the FED artificially sustaining current prices which are not justified by demand. His point is how it effects the bond markets. Same story, different pages.
if prices are not justified by demand,
the poor just can't buy
true
thanks
I feel a little lost in the finance carnival
The DOW consists of only 30 trading companies and that is what everything is based upon - definitely wrong - these companies could all be doing very well when in fact there is very little trading goning on.
Here's a link to the list of companies that make up the DOW:
http://money.cnn.com/data/dow30/
So you think by singling out one index that you can discredit an argument about the entire finical sector? The Dow is not a point of focus in this article, it is Part of WallSt. Secondly...
Dow30
Well, look beyond the DOW and compare the overall tradiing volume now compared to 2000?
Let me tell you why the ECB buying govt bonds is important. Suppose bond prices are allowed to fall, this would also drop prices of other stocks. This will cause 2 things
Investors will want higher interest rates for their govt bonds. This will mean that govt will find it even harder to raise money by selling bonds and of course the existing bonds gets devalued.
Investors will take money out of the market (stocks, bonds etc) and park it elsewhere, usually in Gold. As such, money supply dries up, banks will want higher interest for lending and companies will find it increasingly difficult to borrow money for business.
The above 2 factors will drive the economy into a deeper abyss. Sometimes, it's better to spend your way out of a crisis.
The only important factor you address is bond interest rates. Unlike Italy or Spain, the US is in no danger from higher bond yields. The FED is buying US bonds to justify the printing anyway so bond yields are going to be paid out either way. It's fear mongering for people that don't understand the circle jerk that is Quantitative Easing.
Americans are not in as much danger as Italy or Spain but the logic is the same. Yes, QE hasn't been all that successful but that also has to do with the grim economic scenario world wide. Everyone has an opinion on what the Fed should do, I have my own but I sure don't want to be in Bernanke's shoes.
You're right about that, he does look more pissed off every time I see him on the boobtube.
Your comment made me laugh so hard that I spilled my very expensive coffee on my $3000 suit.
I pissed my cheep sweatshop work pants.
LmfAo.word
Be careful, it isn't speculators keeping the market up it's the fed through the banks. Prices are up and volume is down, the speculators have headed for the hills.
What's going on is keeping the market afloat until after the election. Without these fed buys the market will crash and Obama will have no chance at being reelected. You'd better hope the market stays up or you'll deal with President Romney for 8 years.
It isn't going to happen till after the election. And yes, speculators are just as guilty. Stable or rising stocks do not allow for downward price adjustments as would be required by low demand.