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

Click here to read the article

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

Click here to read the article

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'

Click here to see the article

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.

Five Stories of the Unemployed

Real-wage Unemployment

Meet James. James lives in Michigan and he's worked as a delivery man in a pizza chain for over a year now. Although the wage is very low, he is satisfied with his job, because he thought he will never get a job after quitting highschool. James is diligent - he never gets late to his work and he never delays his delivery service. The company that's hiring him pays him $5 per hour, which is the minimum wage the government assigned. If he worked 8 hours a day, he could earn $40.

But one day, James gets a call from his boss, Tom. Tom says "I'm sorry, James, but we are not hiring you anymore". Baffled, James asked. "What?! Why? Did I do something wrong?" "No, but the government has increased the minimum wage. We have to pay you $8 per hour, and we can't afford that". James was angry and upset. He asked, "You really don't have to raise my wage, just let me work he here please." Tom, sighs and says "I'm sorry but we can't. That's illegal. We are cutting off some of the men we'd got, sorry. You don't have any family that you're responsible for. Find another job."

James got fired because the government raised the minimum wage. The company couldn't hire him anymore because hiring him would be "too expensive". Number of workers are the same, but the demand of the workers now fell, which led to unemployment.

Demand-deficient (Cyclical) Unemployment

Julia is a music teacher. She doesn't teach in school - she does private lessons. She has many students whom she teaches violin to. She earns $2000 a month, as each student pays $200 for her private lesson and she teaches 10 students. 

But now the Great Depression hits America. The students' parents are trying to reduce the household expenditure as much as possible. Well, they decide they can't cut down money for food, electricity fees, or etc. They have a better idea - my kid doesn't need violin lessons anymore!

Kids start to quit the lesson. They say it's too expensive to afford the lesson at their current wallet situation. Julia says okay, but she's so depressed because now she can do nothing to earn money. She is now jobless and is unemployed. 

Julia was unemployed because the aggregate demand of violin lessons has fall. The demand has fall because the kids had no money to spend on the expensive violin lessons. 

Frictional Unemployment

Tommy is a diligent boy who works as a cook in a small restaurant in Birmingham. He is generally satisfied in his job which pays him $2000 monthly. But he thinks maybe he could get higher salary, since he toils in the kitchen alone with no one else helping him. But he never tells it to his employer because he's afraid he could get fired.

One customer comes and orders a grilled chicken and a steak. Tommy, cooks the food and the waiter serves the food. Later, Tommy receives a namecard from the customer. Tommy doesn't know why the customer gave him that card. After he got back from work, Tommy calls the customer.

"Umm... I got your card today, I'm the cook in the restaurant." Tommy says. "Oh, yes. Thank you for calling me." The man responds. "Why did you want to talk to me?" Tommy asked. "Oh, in fact... Would you mind working for our new grand restaurant in the hotel? I tasted your food today and it was good enough. I offer you a job with $4000 monthly." 

Tommy, after the phone call, thinks for two seconds and decides to move to a new job. He calls his employer and tells him he can't work anymore. His employer is dumbfounded, but accepts it. But later Tommy gets another call from the hotel-man. "Hey, I forgot to say this - the hotel construction is going to be completed in two months. I will contact you in mid November for the contract, so be ready."

Now Tommy is unemployed because he's trying to shift to a new job. Tommy has quit from his initial job, and was planning to get into a better job - but that job is only available after two months. During the two months, Tommy stays unemployed because he is in the transition stage where he is trying to work in a better place.

Seasonal Unemployment

Haruka is a girl who has her icecream stand around downtown. During summer, she finds her business extremely profitable. She earned about $120 a day, after subtracting the initial capital investment. She is so happy and now she dreams to continue her icecream stand and become rich. 

It's fall. It's getting cold. Her customers now just passes by. If 300 people bought her icecream during hot summer day, now only 70 people buys her icecream. She doesn't now if she has to close her icecream stand, but since there are some customers, she decides to leave it open. Indeed, there's nothing else for her to do.

It's winter. It's really cold. Now no one is buying an icecream from Haruka's icecream stand, but now they buy hot chocolate from the hotchoco stand next to Haruka's. Haruka decides to close the stand, since no one buys her icecream.

Haruka had to close her icecream stand because the "season" made her products useless. During burning summer day, many people needed icecream, but now the demand has fall and no one's coming to Haruka's icecream stand. Haruka is unemployed because of the season - she can open her icecream stand next summer or think of another business such as selling hot chocolates. 

Structural Unemployment

Willie is working in a company that produces typewriters. His monthly salary is $2000. He studied technology at school. He works as an engineer. The company earns quite lots of money during the first era of typewriters. The company is satisfied - they don't hire any people to develop further technology, but they concentrate in producing the current level of typewriters. Willie is little bit worried about that, so he often walked to the CEO to suggest investment in new technology. But the CEO never listen to him, so Willie just decides to zip his mouth. 

One year later, the Microsoft and many other companies simultaneously started bringing out newer version of typewriters, and furthermore, something what's now called "computers". People now threw away their typewriters, and got fascinated by computers that has new features - monitors and mouse and many other software that are used more usefully and frequently rather than typing.

Now the company where Willie's working for is crippling - its revenue has fallen by 300% and it couldn't pay its money loans for the bank and of course the workers were not getting their money by the end of the month. The company just kept falling into nadir and finally the company broke, making every single employees of the company unemployed - of course including Willie.

Willie is now unemployed because his knowledge for typewriter technology is obsolete and useless - new technology has made him jobless. If he wants to work, he now has to learn some computer related skills to follow the trend.

Response to Obama's Stimulus Plan

Unfinished!!!


President Obama has two ways in reducing unemployment rate. One way is to reduce tax - to cut down the payroll tax. Another way is to spend money in national projects, for example, and benefit both the nation and the unemployed people.

I'll focus on the spendings that Obama is planning. He specified several places to spend - infrastructure bank, immediate surface transportation, modernizing schools/vacant property, extending unemployment benefits, help for long-term unemployed, subsidizing jobs training, and keeping teaching and first responder jobs.

What to do:  Explain the proposed stimulus plan which President Obama is trying to have passed into law.  In your post, provide specific details of the plan and explain how these ideas are designed to affect the unemployment rate.  Finally, provide your own evaluation of the plan and explain any positive or negative aspects as you see them (keeping in mind what you have learned about economics).

In your post, please include two pictures and provide a link to the article under review.

Short Overview :)

I began studying Economics about one year ago as I started the IB Diploma. IB Econ was one of the six IB subjects, and the only subject that I was sure I would do in HL. I wanted to learn Economics because I always wanted to understand the stock market, and after I knew about it, I wanted to learn more about Economics. I think every students should study economics in order to understand the world and how money circulates the world. I mean, everything comes to money in the end, isn't it? (although the definition of economics is not "money"... it's all about it!)