Stock Markets can only go up under one condition; that is when more money flows into the stock market. This can be by either existing investors, new Local investors entering the market or international investors entering the market, mostly through financial institutions.
All the new investment that comes into the stock market is automatically reduced by a certain percentage due to fees and charges that a broker will charge.
The massive rise in the stock market lately is not due to some extraordinary performance of companies but mainly because of a shift in the way companies and governments work. Governments regulated money supply and debt. Governments have allowed debt to go out of control virtually in all countries. Most debt tends to find its way into the stock market and other speculative activities since huge amounts of money can drive stocks up and give immense profit as against setting up a factory or engaging in a business which takes, time, money and immense effort to set-up and make profitable.
The above is akin to the carry trade in currency trading, where one borrows the YEN a currency giving zero interest rate. It is wiser for Japanese banks to lend this money to foreign institutions and make some interest. Foreign Institutions on the other hand use low interest yielding currencies to buy high yielding currencies and keep rolling this over year on year resulting in a risk less profit. Riskless because the currency that is being bought will rise in value, yielding a double whammy for the buyer, first making money on interest and then on the value of the currency. Today the USD is responsible for inflation all over the world.
Likewise when more funds flow into the stock market, the stock market tends to go up and the best performing companies benefit most. This money called as hot money, is also easy to pull out which results in large swings in the market.
All the new investment that comes into the stock market is automatically reduced by a certain percentage due to fees and charges that a broker will charge.
The massive rise in the stock market lately is not due to some extraordinary performance of companies but mainly because of a shift in the way companies and governments work. Governments regulated money supply and debt. Governments have allowed debt to go out of control virtually in all countries. Most debt tends to find its way into the stock market and other speculative activities since huge amounts of money can drive stocks up and give immense profit as against setting up a factory or engaging in a business which takes, time, money and immense effort to set-up and make profitable.
The above is akin to the carry trade in currency trading, where one borrows the YEN a currency giving zero interest rate. It is wiser for Japanese banks to lend this money to foreign institutions and make some interest. Foreign Institutions on the other hand use low interest yielding currencies to buy high yielding currencies and keep rolling this over year on year resulting in a risk less profit. Riskless because the currency that is being bought will rise in value, yielding a double whammy for the buyer, first making money on interest and then on the value of the currency. Today the USD is responsible for inflation all over the world.
Likewise when more funds flow into the stock market, the stock market tends to go up and the best performing companies benefit most. This money called as hot money, is also easy to pull out which results in large swings in the market.
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