There is nothing more beautiful to watch than an efficiently functioning market. It is like viewing an automobile race where multimillion-dollar race cars speed around a track at 100 miles an hour almost in unison.
You can also see this during a three-day sale at the local shopping mall. Merchandise is properly displayed and buyers can easily evaluate price against quality. A knowledgeable sales staff is there to assist shoppers and help them make their decisions. Cashiers are in abundance to facilitate the transactions and make sure the people get the goods they have paid for.
Now, imagine the chaos of a market that has completely broken down. Two similar items are marked with different prices, confusing shoppers and the sales crew, half of whom never showed up for work. While the merchandise is marked “20-percent discount”, the cash registers are deducting 23.75 percent and no one knows how to manually correct it for the proper price.
Financial and hard-asset markets work exactly the same way and can function just as efficiently, or with just as much confusion and turmoil.
While we think of the stock, debt, currency and commodity markets being simple; they are not. There are some critical factors that allow them to function efficiently and effectively, the most important of which is liquidity. There must be consistency of liquidity and it cannot be manipulated.
On August 9 it was announced that the shares of PhilWeb Corp. were to be suspended for trading for 10 days. This was in light of the stock price losing 70 percent of its value in five days. This kind of suspension is normal to allow a “cooling off” period until material facts can be assessed. But magically the next day, the suspension was lifted and within three days the price was 100 percent higher.
The suspension was approved “due to material uncertainties and unverified material information affecting the business of PhilWeb Corp. that will materially affect the investing public.” The suspension was lifted when it was announced that the majority shareholder would auction the shares to public on August 18. The auction did not take place. The share price fell 50 percent. Ask your stockbroker what the genuine reason was for the trading suspension being lifted.
What if the department-store owner paid people to come in and shop during the three-day sale? There really wouldn’t be anything wrong with that, unless it was an attempt to manipulate the headcount of shoppers to raise mall rents.
Listed companies do that all the time under the guise of a “share buy-back”. The last years have seen countless companies borrow cheap money to buy their own shares. This does nothing for the long term prospects of the company, but it does hold or increase the short-term price of the stock.
Since 2008, interest rates have dropped to record lows and over $15 trillion of new money has been pumped into the world economy representing 20 percent of the global economic output. But that money has not created jobs, capital expansion of personal wealth. It has created higher and higher stock prices.
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E-mail me at mangun@gmail.com. Visit my web site at www.mangunonmarkets.com. Follow me on Twitter @mangunonmarkets. PSE stock-market information and technical analysis tools provided by the COL Financial Group Inc.
2 comments
Bravo !!! Educate the public thus…..
So, do we conclude that the market is overheated and about time to unload our positions? There is a need for you to explain the situation further, rather than just leaving it hanging by a thread.