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LitleMissfit(122) pic

DOW at 25,883.25


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3 points

One of the interesting things about stock prices is that they are an exercise in consensus reality. Even more interesting is that the consensus is less about current reality than about expectations of future reality;stock indices do not measure what people think those stocks are currently worth, but rather that they will be worth in the future.

The stock prices are only vaguely associated with the value of the companies. What rising stock prices really tell us is that a fairly large number of people are certain enough to risk their money on a bet that people will have enough money to invest in the future that they will pay more than the current price. Rising stock prices are primarily an indication of economic optimism.

This optimism becomes contagious, largely because stock indices are so widely publicized.

Contagious optimism encourages people to take risks to start (or invest in) new businesses, bring new products and services to the marketplace. That is, in general, good news for people who need jobs, and for people who want tax revenues to increase so that government programs can be paid for.

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