By the way, I never said we should ignore the SM, just its short term fluctuations.
Troy writes:
I'm not sure I know what the fundamentals are.
in general, the fundamental value of a stock depends the expected profit rate of the corporation, which in turn depends on the actual profit rate and the general direction of the company's movement.
I think it would be useful to remember the words of Thorstein Veblen, words truer today than when he wrote them: "The pecuniary magnate ... is superior to the market on which the capitalist-employer depends, and can make or mar its conjunctures of advantageous purchase and sale of goods; that is to say, he is is in a position to make or mare any peculiar advantage possessed by the given capitalist-employer who comes in his way."
I think that's true in an era such as our own (or during the previous Gilded Age, about which Veblen wrote). It wasn't exactly true during the 1950s and 1960s.
What the market does has great consequences at the level of material production. It was the stock market that allowed AOL to acquire Time-Warner.
more fundamentally, it was the craziness surrounding dot-com businesses during the 1990s. That craziness was then exaggerated by the SM.
It was the stock market that drove Enron to its knees.
more fundamentally, it was Enron's fundamental dishonesty (bad even by normal capitalist standards). The SM allowed Enron to survive for awhile despite that dishonesty and then the Enron-bubble popped. This is the usual with credit: lending money can delay problems being faced, which simply makes the problems worse. It does not have to be the SM.
It was the stock market that allowed Jeff Bezos, the owner of Amazon, to have a job (and put pressure on all other book sellers), despite losses quarter after quarter.
it doesn't have to be a SM that allows that: a venture capitalist might give someone a lot of rope (allowing Bezos to run a business without profits) as long as sufficient profits are expected in the future. Those expectations come from the "pressure [put] on all other book sellers" by Amazon.
It is on the stock market that private equity firms are making their plays. In all of this, what is defined as a bubble and what is defined as the fundamentals and about which do the owners actually care?
we can only know for sure that a bubble exists after it pops. But it the SM or an individual stock moves out of line with what's predicted by actual profitability for a significant length of time, that's likely to be a bubble. -- Jim Devine / "The truth is more important than the facts." -- Frank Lloyd Wright
