I know that most people think that the stock market is upset about this new disease; but I know Wall Street – they live for this type of market volatility. Perhaps folks believe that the economy is affecting the stock market, when really it is the other way around. The big investors that have large portfolios worth billions of dollars see this as an investment opportunity.
The term that I hear a lot is “distressed assets”. We know that America’s infrastructure is intact. The plants and factories are not going anywhere. So, production can be resumed quickly. However, investors live off the concept of “buy low, sell high”. Private capital and others come swooping in like hawks to snatch up assets priced at a bargain. They love volatility.
The sell off in the market is not really that – the term investors like to use is “cashing out”. These money managers have information that people like us normally do not hear about. They already bought low and when they get privileged information about the market, they sell. The sound the market is making to them is “Ka Ching”.
The reason that the stock market affects the economy is that credit is tightened. Companies operate mainly off of short term credit. During times like these, firms find it harder to raise capital: issuing new stock, getting a good bond rating, banks get stingy, and suppliers want their money. Furthermore, oil is traded on the stock market and moves with it. If oil prices decline, then companies cannot make the money they need to operate. The market affects the economy in so many ways, the problem is that the market is dominated by “speculation”.
If a company’s stock price falls too much, it is a good time to start buying back stock. However, credit is tight so it may not be easy. Sometimes a corporate raider comes in and buys a voting majority of the stock. What usually happens next is that the raider will sell off the companies assets, piecemeal, for the cash; eliminating the company and laying off thousands of workers.
For those of us who are not privy to the secret information, this is a market crash. We found out too late about the assets that were to rise and bought on the upswing. We also did not know about the coming crash and are selling too late. We are lucking to break even. But to the money changers, this smells as good as “punkin pie”.