What Affects the Price of Stocks?

What determines the price of stock? The very basic thing factor is demand and supply. More demand, higher the price. Less demand, lower the price. Then, let's say, what determines demand? Well, everything comes under two umbrellas: Good news or Bad news.

Good news

• Rise of company earnings 
• Growth of company
• Good analysis from analyst
• Presenting new techonology
• Kudos from the press

Bad news

• Terrorist attacks
• Downfall of company
• Lawsuits from rival company
• Market scandals
• Laws regulating firm production

By buying stocks, people are investing their money into something that they never know what the result would be. The only thing investors can do is to speculate the future stock price, and to predict the stock price, they have to consider all the good and bad news (information). They want to buy a stock that steadfast, productive and in long-run. No one wants to invest in a fluctuating and limited-ability companies.

In short, so many things can affect the stock price, but in fact, it's all about "good news? bad news!" Investors will sit down all day searching for news and information that may influence their stocks. It is reasonable to say that in stock market, information is everything.

The Role of the Government in Adjusting the Economy

The government plays vital role in the economy. Governments can affect the supply and/or demand by enacting many different policies. Among the various fiscal policies that government can enforce, one thinks that the two most effective policies are education & training and research & development. And one thinks that the two least effective policies are deregulation and reduction or elimination of minimum wages.

To start with, education & training is one of the interventionist supply-side policies, in other words the government has a fundamental role to play in actively encouraging growth. In education & training policy, the government subsidizes the training program for people who lack necessary skills and knowledge. By providing the opportunity to learn necessary skills for free, the government is pulling advanced-skilled people to the labor pool.

For example, the government of Canada is helping aboriginal people in Meadow Lake, Saskatchewan, to develop skills they need to get and keep jobs. The government of Canada is investing $210 million over five years, and all aboriginal organizations are eligible to apply for funding programs.

(To read the article, click HERE)

The possible drawback of this policy is simply when the trained people still can’t get any jobs. But one thinks this drawback is inevitable and easy to solve, since there always will be demand for trained people later in time.

Another policy that one praises is research & development. This is another interventionist supply-side policy. Research & development is necessary because it may increase the economy’s potential output by developing and furthering production techniques. The government can encourage firms to jump on to research & development by either offering tax cuts on the retained profits used for R&D, or by financing R&D in public facilities and universities.

For example, right now the British car firm such as Jaguar Land Rover is seeking R&D tax cuts so that it can pump more money into the economy and create over 7,000 new jobs.

(To read the article, click HERE)

The possible drawback of this policy is the opportunity cost of tax cuts or direct investments. The government otherwise could spend that money on other public projects. Also, not all results come out as people wish – even though the government pours tons of money, there are many other factors in discovering new technology.

The first least effective policy that one thinks is deregulation. Deregulation is one of the market-oriented supply-side policies, which the government tries to let the market operate freely and intervene only little. Deregulation is when the government loosens the existing regulations on the operations of businesses. Since it may cost firms to abide by the regulations, deregulation will lower the costs. If the cost of production is lowered, than the firms now will produce more thus there would be an increase in aggregate supply.

For examples, right now the federal government in Nigeria is planning a deregulation of the oil sector. This, it predicts, will create jobs in the country. Emeka Wogu, the Minister of Labor, said that when the oil sector is deregulated, investors will come in and set up refineries and will be in a position to employ Nigerians.

(To read the article, click HERE)

One evident drawback of this policy, is of course, harm to the environment. Most regulation policies that are held currently are set to prevent the firms from harming the environment. Such regulation dictates firms to refine their wastes and keep track of them, and make sure it does not flow into the ecosystem. But once those regulations are lifted, than the firms may exert their waste regardless of the surrounding environment.

Another policy that one does not prefer is reduction or elimination of minimum wages. This is also one of the market-orientated policies. By setting up minimum wages, the government keeps the price of labor at a certain level that could burden the firms. If this minimum wage is reduced or eliminated, the firms will have decreased cost of production thus they will be an increase in aggregate supply.

One apparent drawback of this policy is that there will be so many people losing their earnings. The minimum wage, to people, is like a legal protection. If minimum wages are to be reduced, the firm would be happy but most of people would not. And since in most cases people did protest against the government, government is not likely to enact this kind of policy but will instead choose from other options.

The Eurozone Crisis and Slovakia

Greek default is just a matter of time

Slovakia holds up European bailout plan

Euro stability fund is a mirage (European Financial Stability Facility)

Slovakia gives OK to Europe bailout plan

This first thing we have to know is that the whole thing going around here is related to Greece default. The debt level of Greece is not sustainable and they will surely go into default - a condition where they cannot pay their creditors. The large debt is due to its economic recession for years. 

On Tuesday, October 11, Slovakia government has not approved the plan to overhaul the bailout fund, or the European Financial Stability Facility (EFSF). Since it was tied to a vote of confidence of Slovak Prime Minister Iveta Radicova, she has resigned. 

The EFSF is a company which was agreed by the 16 countries that share the euro on May 9th 2010 (Slovakia was not a member of European Union back then), to function by its objective to preserve financial stability of Europe's monetary union by providing temporary financial assistance to euro area member states in difficulty. The plan Slovakia has rejected was a plan to enhance the magnitude of the EFSF, to give the fund more flexibility to stabilize shaky government finances and provide money for banks that need to raise capital - and that would be the banks of Greece.

The bill Slovakia has rejected is suggesting to increase the amount of bailout fund to €440 billion, which means the member states have to pay more to the EFSF. 

What will EFSF do with this money? One of the many scenarios tells that the EFSF could buy €440 billion worth of bonds issued by Greece government and use those securities as collateral to borrow from banks in the private sector. The proceeds could then be used to buy even more government bonds.

The High Cost of Market Failure

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The protest in the wall street is now entering its fourth week. One of the many reasons why Americans protest is that executive pay is rising strongly while share prices are down and returns to shareholders falling. The article is pointing out that while people have worker's pay rising roughly 3% a year, executive salaries put on double digit returns. "The market is broken", they say, because supply and demand are not intersecting efficiently. There is no credible evidence that paying more to CEOs result in better profit. For example the CEOs of America's Big Four banks are paid $10 million salaries despite presiding over corporations that cannot go bust. And it's unfair since no small business in the country is afforded the same protection and guarantee.

To me, the wall street protest doesn't make sense. People are violently joining and enlarging the protest and are marching here and there. They are disturbing local business that relies on tourism. To me, they don't look angry on greedy wall street CEOs; they are happy because finally they found a place where they could exert their anger that's simply based on their inability and ineptness, not the market structure or the "greedy" CEOs. CEOs taking so much salary is NOT the sole reason why the economy is trembling and people losing jobs, but now they are blaming the CEOs because they are jealous that they are jobless while CEOs earn so much more. Of course, they might be angry of the thought that the increased interest rate is burdening them while feeding the CEOs and other high rank officers of the bank. Then why are they begging their jobs in the protest? People who don't have income thus who don't have money to invest or to save in banks have no right to protest against banks, and blame banks of their unemployment. People with better skills and better degrees have no trouble in getting jobs - people who love to blame other for their failure, they are the ones who fail to have jobs or get paid higher salaries. They should go back home and think what they've done wrong. 

Lee Says Korea's Economy Faring Well Despite Global Crisis

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President Lee Myung-Bak said Korea's economy is faring well despite the global fiscal crisis. He said that the country's national debt represents 33% of its GDP, only a third of the average 98% of the members of the rich nations' club of the OECD. Korea's liabilities in foreign exchange market has drastically improved after going through the crisis. Also, Korea's trade volume is expected to reach $1 trillion this year. He also emphasized that the psychology of the people also matters. He said "It would not be desirable for the nation to be overwhelmed by a crisis mentality", and that the government will closely monitor the domestic and external economic situation, with special emphasis on ensuring fiscal and external financial soundness.

In fact, since I don't live in my home country, generally I have no idea of the economic situations in Korea. When I visited Korea this summer, I felt no difference in the change of price level compared to the prior year's summer. But my friends, who have been living in Korea, said that they were experiencing rising price level. Recently I read the news that said the government would increase public transportation fees, upto 20% of the current fees. 20% is a huge increase in price I think, thus I think that no people could elude the impacts of it. However, I am glad to hear that the overall trade volume is stable and that the government is trying to lessen the magnitude of future fiscal crisis.

Climate Change 'Could Hit Canada GDP'

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The article is warning Canada of its vulnerability of increasing world climate. Higher temperatures could kill Canadian forests, flood low-lying coastal areas and spread disease. The damages resulting from this could cost Canada the equivalent of 1% of its GDP by 2050 and 2.5% by 2075, about 41 billion Canadian dollars! The proposed measures in reducing the damage included enhanced forest fore protection, pest control and an effor to forster the growth of climate-resilient trees.

After I read this article, I recalled some of the documentaries I've watched about global warming and island countries which are suffering from it. Many island countries were suffering from rising sea levels, including islands such as the Maldives. I felt pity for them because they weren't emitting much of carbon gases while other highly developed countries were causing most of the harms.

That's why I found this article a little surprising - I never thought the highly developed countries could someday become a victim of global warming. That also reflected the disastrous impact of global warming on our lives - and to Canada GDP.

Recalling from what I've learned from class, GDP (Gross Domestic Product) refers to the market value of all final goods and services produced within a country in a given period. The possibility of decline of GDP as 1% means huge, since in economy, a change of a percent of tenth of a decimal is a news. As shown in the map above, Canada has high GDP as the U.S. The map also shows the vulnerability of Canada of climate change, since Canada is located in the northern hemisphere and is surrounded by big bodies of water. 

Solutions for Reducing Unemployment

Demand-side policies affect the aggregate demand of the market. These policies aim to increase consumer expenditure in order to stimulate the market.

For example, let's take a look at demand-deficient or cyclical unemployment. In the graph of demand-deficient unemployment, the aggregate demand falls from DL1 to DL2. This fall in demand almost always ensues the income fall. Because supply of labor stays constant, L2-L1 amount of unemployment occurs. Before the demand fall, there was L1 amount of employees working at a wage of W1. But now, there are L3 amount of people working at a wage of W2 (less employed people in less wage). 

The government is likely to intervene and pull up the aggregate demand back to where it was, to restore minimum wage for the employees and re-increase the employment from L3 to L1. The government might do this by reducing tax or interest rates thus leaving a room in households to spend in other things.

Supply-side policies affect the aggregate supply of the market. These policies aim to increase the number of qualified labor thus make employers to hire more people. Supply-side pertains to long-term solution.

Recall Willie from the stories you've read below. Willie's company broke because its products were out of date, and Willie couldn't be hired to any other technology companies because his technology skills were now obsolete. The companies that produces high technology products were suffering too, because they couldn't get people who had adequate skills and knowledge to apply to new products. 

Here, the government can intervene and provide educations to people who are willing to be qualified - the government can offer free job trainings and prepare the unemployed people to get another job. This would of course take longer time than demand-side policies, but it is necessary to benefit both the unemployed people and the company that is willing to hire qualified people.