Wednesday, September 19, 2007

Rate Cut and Market Soars

The Dow Jones gained 300 points today, 9/18, on the news that the Fed had dropped its rate 1/2 point. The market gained 2.5 % on what? A half point might have some small effect on new home mortgage rates but it certainly will not undo what ails the mortgage industry. A certain amount of money will make its way into the market with credit a little cheaper. Most certainly the Fed's action will have not one bit of effect on wages.

What got the market into an uproar was that the Fed did what effect is a mystery. The market gained because market investors felt good, or at least better than they have for awhile. The reality of what stocks actually are is quite simply immaterial.

If you stop to think about it, a stock is a piece of a company, a percentage of its value. The value of a company is composed of two factors; its assets - its buildings, equipment, materials, cash - and its business - its ability to turn a profit. The first factor isn't real hard to determine, the second a little tougher, but still fairly reasonable to get to. That is what a stock is and the market isn't anymore than a trading place for those stocks but it certainly isn't used in that fashion. The stock market is a wealth generator in and of itself, a playground of emotional psychosis having so little to do with real economic health as to be almost meaningless. Perception is the game, if you read it right you can win big, pay attention to reality and it's a crapshoot.

There are investors who work stocks hard, research companies and make reasoned decisions based on the companies themselves and they can do well, if they're not overtaken by some market emotional swing. Mostly investing in stocks is investing in the idea that things will be fine; well, things aren't fine. Unless you're a're here - you're not.

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