I'm tired of the easy, incessant media references to stock markets as things, or entities with emotions or opinions.
We now know that markets are indicative of little more than their own limitations. They're opaque bubbles, and assigning any further meaning to them is a distraction, if not an outright lie.That's not to say that markets don't play a vital role in our economy, or that they're not internally consistent.
Maintaining places where equity can be raised, ownership distributed, and value assigned is not just a nice thing, but a foundational core of Capitalism. Markets, like baseball stadiums, have physical boundaries and game rules, so what happens on the floors and fields makes sense therein. Prices and batting averages have meaning that is far more real and useful than, say, a government or gaggle of sports writers deciding the numbers and decimals.
But what do markets tell us about the real world or, more specifically, the companies behind the listings?First off, valuations have no connection to actual company performance, and certainly aren't indicators of the future.
Stock analysts -- and the media who follow them -- don't have any special insight into what's going on, and companies are ever-more adept at obfuscating their activities (Sarbanes-Oxley notwithstanding). Worse, companies often don't have particularly accurate insight into what they themselves are doing; witness Citi or any of the financial institutions that lost zillions of stock value overnight, or companies like United that could, with the tap on a keyboard (and without a shred of explanation) write off billions in "goodwill value."Then there's the matter of markets that aren't really open or public, but nevertheless exert enormous influence over those that are.
Private equity, and all the secretive, off balance-sheet, un- or under-regulated ways hedge funds and other mechanisms of the wealthy trade profits with one another render the hapless "public" markets as imperfect, secondary operations of economic life.
Most financial markets are best understood as trailing mirrors of public sentiment, and otherwise self-referencing systems. The primary impacts on stock prices are what stock traders (or their autonomous software programs) think other traders think are the primary impacts on stock prices. So what does, say, "market reaction" to President Obama's inauguration tell us? That traders thought other traders might be suspicious, or worried, so they sold, thinking that others might sell, too.
They expressed no shared observations, though, let alone wisdom. What do we know from assessing the market cap of big brands like Starbucks or Coke? Primarily, that other assessors might hope that yet other assessors would buy the stock, or not. Is there a brand bubble of valuation, as a recently popular book suggests? Not particularly; the entire market is an opaque bubble, ultimately.
To search for brand value there is more an exercise in creative invention than discovery.Markets tell us what markets think about markets. We have no better tool for feeding the cash needs of companies and investors. But to read any more meaning into it, or derive insights therefrom, aren't activities on which I would necessarily depend.
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