The Dead Cat Bounce

The Uptick s Downside

Will Rising Interest Rates Torpedo Stock and House Prices?

Are Equities Overvalued?

The same is true with stock prices.

The stock reached its high point last July.

Eventually, stock prices do reflect the fundamentals of the economy.

Share prices show that investors believe that they got a really good deal.

A stock index or stock market index is a measurement of the value of a section of the stock market.

Emerging market stocks and bonds are down for the year and their economic growth is slowing.

What will this landmark change mean for prices of such assets as stocks and homes?

Most importantly, the firms top executives regularly unloaded shares and options, and thus were able to cash out a lot of their equity before the stock price of their firm plummeted.

Sovereign interest rate spreads have been well behaved, the euro has strengthened, and equity markets have risen robustly.

But stock prices tend to move much more closely together at times of market dislocation.

In the eurozone, stock prices are soaring, while joblessness is at a record high 12.2 .

When stock prices and profits seemed to defy gravity, shareholders meetings resembled American political conventions a show to promote a company s image, rather than a forum to debate contentious issues.

Taxpayers money was spent to purchase corporate stocks in a failed attempt to support collapsing stock prices.

Central bankers cannot explain equity or housing prices and their movements any better than investors can.

Is it sustainable? Is the recovery in stock prices another bear market rally or the beginning of a bullish trend?

True, easy money did help to restore equity prices, but it might also have created new asset bubbles.

(This behavior is, of course, not unlike that of many other financial assets, such as exchange rates or stock prices, though gold s price swings may be more extreme.)

The interest rates on loans to brokers at the stock exchange soared to 70 and, with brokers unable to get money, stock prices fell to a low not seen since December 1900.

The rise in equity prices has not come with a contagious new era story, but rather a sigh of relief story.

Declining stock markets and low interest rates, have left private pensions around the world more vulnerable than was expected.

But if a major flare up causes investors to lose confidence in low volatility, the bottom could fall out from under equity and housing prices.

Shareholder democracy simply does not work, but managers fear that if the stock price drops too low they will be out on their ears provides a useful restraint.

Dramatically lower share prices and a 35 fall in home prices reduced household wealth by 14 trillion, a loss equal to 140 of annual disposable income.

Some recent rises in the prices of equities, commodities, and other risky assets is clearly liquidity driven.

The resulting rise in equity prices would increase household wealth, providing a boost to consumer spending.

More specifically, exchange rates such as the Australian dollar yen became strongly correlated with global equity markets.

Structural concentration of incomes at the top is combining with easy money and a chase for yield, driving equity prices upward.

NEW YORK In the past three months, global asset prices have rebounded sharply stock prices have increased by more than 30 in advanced economies, and by much more in most emerging markets.

MILAN Since the global economic crisis, sharp divergences in economic performance have contributed to considerable stock market volatility. Now, equity prices are reaching relatively high levels by conventional measures and investors are starting to get nervous.

Markets responded euphorically, with stock prices in the US, for example, reaching post recession highs.

Judging by low stock prices and high capital outflows, investors were already betting against high growth rates.

Indeed, US and global equities have vastly outperformed gold since the sharp rise in gold prices in early 2009.

As long as stock prices are buoyant, business leaders are not scared of future taxes or of policy uncertainty.

During the mid to late 1990s, Ford continued to sell large numbers of vehicles, in a booming American economy with a soaring stock market and low fuel prices.

Since share ownership (including mutual funds) of American households totals approximately 17 trillion, a 15 rise in share prices increased household wealth by about 2.5 trillion.

That is fine in theory, but where do such assets come from? Some stock prices are normally relatively uncorrelated with the market.

Government stabilization of the banking system can either be international, provoking complaints by outraged taxpayers about subsidizing others, or national, but only at the cost of greatly extended regulation of capital movements.

The US government has been particularly aggressive in supporting the stock market since the peak of the equities price bubble in 2000, most notably cutting interest rates repeatedly.

Similarly, the gravity of weaker growth will most likely overcome the levitational effect on equity prices from more quantitative easing, particularly given that equity valuations today are not as depressed as they were in 2009 or 2010.

The only other significant channel to transmit QE to the real economy is the wealth effect of an equity market increase, but there is some circularity in the argument that QE3 will lead to a persistent rise in equity prices. If persistent asset reflation requires a significant GDP growth recovery, it is tautological to say that if equity prices rise enough following QE, the resulting increase in GDP from a wealth effect justifies the rise in asset prices.

Usually they were reading the share prices, and the bit of the paper with your article on was on the floor, or something like that, and you know, For heaven's sake, what are they doing!