I so do not get the stock market!

[Bennyboy]

I have no idea about how it works, goes up, goes down, stays the same or any other function of the stock market as a whole. I understand indivdual stocks, but the way that it works collectively I have no clue.

This week especially is flummoxing. Terrible economic news overall and it actually goes up. Rate cut hike and it goes down. Down yesterday and up today.

[mainegreen]

1. I don't think anyone does.

The economists are all faking it.

[Bennyboy]

2. So I am not alone?

That makes me feel a little better... To me it seems like everyone is an "insider trading" person. A Fools game for neophytes.

[kwassa]

3. Rate cut hike? No, a rate cut. The Fed cuts the percentage of it's prime rate

which makes loans more affordable for business all the way down the pipeline. This should make the market go up, that was the intention with the .5% reduction in the cost of the loans.

[Bennyboy]

5. But borrowing is bad in the long term isn't it?

I could borrow all the money in the world right now and my business would still be stagnant at this time.... GM, Ford could borrow all the money in the world but somewhere down the line the are going to default on those loans, right? Builders could borrow money but if no one is buying houses then they are stuck with a loan and no income, right?

And rate cut hike...hell I can't even get the terminology right.....WTF does that mean "cut hike"?

[kwassa]

6. there is no such thing as a "cut hike", simply a rate cut.

Borrowing isn't bad, it gives companies the capital to expand operations. The profit generated by such expansion allows them to pay back the loan. No one goes into a loan expecting to default, that would kill their business.

What has happened is that the willingness of banks to loan money dried up in the face of the subprime mess, often in financial areas that have nothing to do with subprime mortgages. When loans dry up, it stifles businesses that have no connection to the housing industry, and can create a recession that throws many people out of work.

as one expert said, the entire subprime mortgage industry is a tiny speck of worldwide finance, but the reaction to the mess has been psychological and emotional rather than rational.

[LeftyFingerPop]

4. Pure emotion in the short term...

Driven by day traders in the short term.

Manipulated by the hedge funds.

Driven down by big players so they can buy at lower prices.

Driven up by big players so they can short it.

Anyone who beats it substantially in the short term is either very lucky, or has insider knowledge.

Never listen to anything you hear on TV about particular stocks. Whomever is doing the talking has a motive. No one, and I mean no one, is looking out for your best interests.

[Bucky]

7. It helps if you study the origins

The market's idea of the economy going up or going down is significantly different from ours.

If unemployment numbers are high, this is sometimes good for stock values. It means that labor costs are being driven down, which in turn means that companies are able to control costs better. That makes a company more efficient and thus makes its stock shares increase in price.

A low unemployment rate creates more competition for available workers, which of course drives up labor costs--in theory an unwelcome expense for corporations, since they'll have to divert their assets away from capital investments or R&D. So this means the companies are working less efficiently, which in turn drives down the cost of a share of a company.

Oh crap, having explained it, I now can't understand the stock market either!

[Bennyboy]

8. Thanks for clearing that up!!

:HEAD EXPLODES: