BLOODBATH FOR STOCKS DEAD AHEAD…
In recent years, the financial markets have
become completely and totally divorced from economic reality, and
that is a state of affairs that cannot last indefinitely.
Many have compared the current state of affairs
to 2008, but to me what is happening right now is eerily reminiscent
of 2007. The Dow soared to record heights quite a few times
that year, but there were constant rumblings of economic trouble in
the background. Stocks began to drop steadily late in the year,
and 2008 ultimately turned out to be an utter bloodbath.
I believe that what is happening right now is
setting the stage for another financial bloodbath. I truly
believe that we will look back on this two year time period and
regard it as a major “turning point” for America.
HOW STOCK PRICES CRASH…
Equities (stock) markets are merely EXCHANGE
CLEARANCE MECHANISMS BETWEEN BUYERS AND SELLERS OF EQUITIES.
The value of any and all stocks at any given time is ONLY WHAT A
BUYER IS WILLING TO PAY A SELLER TO BUY SHARES OWNED BY THE SELLER.
As sellers outnumber buyers on any stock the
price of that stock axiomatically falls correspondingly and the
amount of money any buyer is willing to pay a seller becomes lower
and lower until a price is reached at which the next buyer is willing
to part with their money to the seller to purchase a stock.
Market capitalizations (the total value of all outstanding shares of
particular stocks times their market valuation per share) fall
accordingly.
When stock markets crash it is because of an
EXCESS AMOUNT OF SELLERS COMPARED TO BUYERS and the bid prices for
stocks plunge as sell orders go unfilled until they drop to lower
prices. When sell orders substantially exceed buy orders then
the MARKET MAKERS assigned to each stock have to step in and buy
stocks on their own accounts to support clearance of stock sell
orders. In the first case above, money to clear stock sales and
cash out the sellers comes from other buyers in the markets. In
the second case above, money to clear stock sales comes from the
MARKET MAKERS from their own cash accounts.
Chas Caldwell
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