Home > Uncategorized > 2019 was “one of the strongest in the history of financial markets.” What does that mean?

2019 was “one of the strongest in the history of financial markets.” What does that mean?

from Edward Fullbrook

Here is a passage from an article that appeared last week in The Guardian.

With one day of trading to go, 2019 is on course to be one of the strongest in the history of financial markets after shares around the world racked up record after record in another barnstorming year.

On Wall Street the Dow Jones industrial average has gone up almost 25% having reached record highs day after day, while the broader S&P500 is up 30% and the tech-heavy Nasdaq has grown 40% in value. The FTSE100 in London is close to its record high, as is the Dax30 in Germany. In the Asia Pacific, the Nikkei is up 15% while Australia’s ASX200 is still close to its highest ever point (reached in November).

But none of these countries, with the exception of the US, are in particularly good shape. Instead their stock markets are being sustained by ultra-low borrowing costs led by the US Federal Reserve.

This latest round of rate cutting has turned many of the assumptions about economics on their head to create a bad-news-is-good-news paradigm for markets.

Martin Farrer, The Guardian

Do these huge increases in the market-values of stocks mean that the riches of the world, including assets and income, have increased hugely in 2019?  That depends on what kind of metrical structure market-value has.

Is market-value what is termed an absolute quantitative order like length and mass whose magnitudes exist independently of other instances of that magnitude, or is it a relative one like probability?  If it is an absolute quantitative order, as Economics 101 infers, and the market-value numbers assigned to non-stock riches remained comparatively unchanged, then the riches of the world increased hugely in 2019.  But if on the other hand market-value is a relative quantitative order, then what we have witnessed is not a huge increase in the world’s riches but rather a huge redistribution of them – a redistribution between income and assets, and between people who own lots of assets and those who don’t.  Which do you think happened?  And if it was the latter, why wasn’t it reported and discussed, because surely it deserves to be big news?

  1. Helge Nome
    January 8, 2020 at 3:01 am

    Pushing up the stock market is just another way of creating new money out of nothing,
    I call it white collar fraud.

  2. January 8, 2020 at 5:48 am

    There was an article today in the local Fin Review [Sydney] on this very topic, except it explained that it’s the repo market being topped up by the Fed to the tune of 99 billion dollars last night.
    I’m not up to speed on the repo market so I can’t say what the implications are except it all looks a bit ponzi to me.

  3. Frank Salter
    January 8, 2020 at 9:29 am

    Another step towards the next crash in the real economy.

  4. Cristi C
    January 8, 2020 at 11:38 am

    To the specific question asked about the market – value, and leaving aside the not-QE4 of the FED, the markets front-running the expected gains from the non-QE4 to be just like those from previous QE1, QE2, QE3…. is the market-value a relative term like probability? Yes.
    The market-value of an asset is starting to become not how much it can produce but rather how much could someone else be ready to pay to have it. If it was the former, the market-value could be thought to be a bit more “absolute”. Apple is no longer growing in terms of operational profits, thus in terms of phone sold, thus something absolute like number of phone x price = stock price. Instead, its market – value is given by expectations of a service-based reorientation, thus a fact-less, hypothetical story that would make another stock buyer to increase the bid.
    I think the markets swing from absolute to relative in cycles. The Dot-com crash was a massive swing to relative. The tulip mania was too. The bitcoin is also a relative market-value combined with a constrictive Ponzi scheme (cashing out is difficult for large sums).

  5. ghholtham
    January 8, 2020 at 5:52 pm

    EF puts an interesting question but I am not sure it is well specified. Stock market assets are not uniformly held across society. Therefore, even if a change in their valuation unambiguously represented real absolute value, a change in that value would cause redistributions of relative wealth within society. A house is a real asset but its price can change for substantial reasons in which case the owner is better or worse off relative to non-owners.
    That can be said without prejudice as to the nature of stock-market wealth. The rise in markets is very largely attributable to very low interest rates. Lower rates will raise equity prices in theory and in practice – in theory because the flow of future dividends that a stock embodies is discounted at a lower rate and is therefore worth more. In practice if rates are low, bonds and cash deposits are less attractive so people buy shares looking for a return. In this case the expected flow of dividends is unchanged but they are being rated more highly relative to cash. In that sense, if you like, this is a relative change. If stock prices were up because expectations of future growth were higher you could say that was more of an absolute increase in wealth, albeit future wealth.
    Incidentally low interest rates cannot be entirely blamed on the Fed or other central banks. They largely control money-market rates but not long-term bond yields and certainly not real yields, adjusted for inflation. The fact that these remain low and the yield curve is flattish despite a lot of monetary stimulus tells us that something has changed in the real economy. I think I know what it is but that’s too long a story for now.

  6. Ken Zimmerman
    January 12, 2020 at 12:06 pm

    Trading ‘markets,’ of which stocks are only one form have been a problem since their inception. In the middle of the 13th century, Venetian bankers began to trade in government securities. In 1351 the Venetian government outlawed spreading rumors intended to lower the price of government funds. Bankers in Pisa, Verona, Genoa and Florence also began trading in government securities during the 14th century. These were independent city-states not ruled by a duke but a council of influential citizens. So, such trading was tolerated. Italian companies were also the first to issue shares. Companies in England and the Low Countries followed in the 16th century. About this time, a joint stock company–one whose stock is owned jointly by the shareholders—emerged and became important for colonization of what Europeans called the ‘New World’ (e.g., East India Company).

    As for what stock markets are, John Brooks writes this in his 1968 book “Business Adventures: Twelve Classic Tales from the World of Wall Street.”

    THE STOCK MARKET—the daytime adventure serial of the well-to-do—would not be the stock market if it did not have its ups and downs. Any board-room sitter with a taste for Wall Street lore has heard of the retort that J. P. Morgan the Elder is supposed to have made to a naïve acquaintance who had ventured to ask the great man what the market was going to do. “It will fluctuate,” replied Morgan dryly. And it has many other distinctive characteristics. Apart from the economic advantages and disadvantages of stock exchanges—the advantage that they provide a free flow of capital to finance industrial expansion, for instance, and the disadvantage that they provide an all too convenient way for the unlucky, the imprudent, and the gullible to lose their money—their development has created a whole pattern of social behavior, complete with customs, language, and predictable responses to given events. What is truly extraordinary is the speed with which this pattern emerged full blown following the establishment, in 1611, of the world’s first important stock exchange—a roofless courtyard in Amsterdam—and the degree to which it persists (with variations, it is true) on the New York Stock Exchange in the nineteen-sixties. Present-day stock trading in the United States—a bewilderingly vast enterprise, involving millions of miles of private telegraph wires, computers that can read and copy the Manhattan Telephone Directory in three minutes, and over twenty million stockholder participants—would seem to be a far cry from a handful of seventeenth-century Dutchmen haggling in the rain. But the field marks are much the same. The first stock exchange was, inadvertently, a laboratory in which new human reactions were revealed. By the same token, the New York Stock Exchange is also a sociological test tube, forever contributing to the human species’ self understanding. The behavior of the pioneering Dutch stock traders is ably documented in a book entitled “Confusion of Confusions,” written by a plunger on the Amsterdam market named Joseph de la Vega; originally published in 1688 ….” Not much has changed since 1968 or 1688. There are more traders, now these markets are a 24-hour serial for the well-to-do, bigger money pots, faster trading, and more gullible and imprudent losing their money, but also more looking to shift the weight of their loses to any of those not involved in the market at all. Or even shift the weight of their wins, if those become the subject of law-breaking inquiries or popular revulsion.

    Based in this history, I conclude that no one trading in the 2019 market knows the answer to your question or is ever likely to. While those outside the market are on guard so as not to fall victim to the long reach of the consequences of the market’s failures as they unfold in 2020.

    • Craig
      January 12, 2020 at 5:51 pm

      The run up of the stock market is “mysteriously” like the run up in debt that Steve Keen recognized as a fore bearer of financial disaster before 2008, and has fostered the same false “great moderation” belief in economists and demagogic politicians. The money and profits keep going up for the capitalists and the financial elite until the body politic loses sufficient ground and can no longer service their ever increasing debt DUE TO THE FACT THAT DEBT IS THE ONLY FORM AND VEHICLE ALLOWED FOR THE DISTRIBUTION OF MONEY/CREDIT.

      Direct and Reciprocal Monetary Gifting is the new monetary and financial paradigm concept. Once you see that, and see where you could most quickly and effectively make it a temporal universe reality the “light bulb” lights up and its a straight forward rational process of modeling it and herding the entirety of the political apparatus toward its implementation.

      • Ken Zimmerman
        January 14, 2020 at 12:23 pm

        Craig, in stock markets in 1688 and 2020, there’s money to be made, particularly by the richest players in chaos and confusion. de la Vega didn’t title his 1688 book as he did by chance. He wanted his readers to know the world they were entering.

      • Craig
        January 14, 2020 at 5:42 pm

        Precisely. It’s just that he and every other “economic scribbler” never cognited on the paradigmatic significances and power of a price and monetary policy at the point of retail sale. It’s way too simple for the erudite to countenance and way too temporally inverting of current paradigm realities not to be the new paradigm that, once implemented, everyone adapts to.

        The summing to zero effect of equal debits and credits in one of the greatest tools mankind ever created in double entry bookkeeping has been sitting around in plain sight for over 500 years, the instantaneous-ness of cybernation and digitalization on systems in the last 40+ years and the broad concept and study of the signatures of historical paradigm changes now enable us to see the efficacy of such policy at such point in the economic process. Now all we have to do is look.

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