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That's easy. You come up with that number because the market organically came up with it thru supply and demand. You could argue the government interfered unfa
by vladimirralev 6y ago
That's easy. You come up with that number because the market organically came up with it thru supply and demand. You could argue the government interfered unfairly but the price is the price either way.
- montalbano 6y agoI don't agree because that argument says that the price is sensible because it is the price. You could equally make that statement about the price of tulips in 17th Century Holland, where "single tulip bulbs sold for more than 10 times the annual income of a skilled craftsworker." [1] Of course the price is what it is due to supply and demand but I don't think that's what most people mean when they say the price is 'not sensible'. The stock prices are so high because stocks and real estate are the only investments that might provide any sort of real return, and we've been in that situation since bond returns crashed in the wake of the 2008 financial crisis. In that context, stock values are massively inflated (in terms of P/E) relative to what investors may have considered sensible before 2008. [1] https://en.wikipedia.org/wiki/Tulip_mania https://en.wikipedia.org/wiki/Tulip_mania
- MiroF 6y agoThe suggestion that modern financial markets are similar to markets in 17th century Holland is certainly interesting. Even academic detractors of the efficient market hypothesis agree that it is accurate on the macro-scale.
- banads 6y agoThat may be what your ECON101 text book says, but its plainly obvious that's not the case in reality.