I think it is fair that you question my belief that the markets produce value. If there was no stock market there could be no IPO's to raise money. Yes, most of the activity in the market is not to finance new investment but without the on-going activity there could be no IPO's.
Much of the financial markets are not derivatives. Bond's and Stocks are not derivatives they are first order products. (derivatives)
an arrangement or instrument (such as a future, option, or warrant) whose value derives from and is dependent on the value of an underlying asset.
Regarding why I was prompted to state the economy is not the market and the market is not the economy, it is right there in your title, it is the premise of the story unless your story is disconnected from its title.
"If We’re in a Recession, Why The F*ck is The Stock Market Going Up?" I asked myself a similar question in the mid 1980's, why are stock prices still rising when we are about to go into a recession. I have known the answer for a long time now but I still fear to act on it. The market climbs a wall of worry. Addicted to the market's returns people keep bidding up stocks past all reasonable valuations until the bubble can't bear the pressure anymore. I went risk off the market more than a year and a half ago thinking the end was nigh. Like the Bible says "But about that day or hour no one knows, not even the angels in heaven, nor the Son," (I am not a Christian, but the sentiment seems right) then the bubble pops. I wonder if the central banks can unwind this bubble with only a minor crash. If we are in a recession and the data says so it is different than other recessions. The other recessions were coincident with pretty big sell offs in the stock market and the stock market did not recover until after the recession ended. This time the market lost almost a third of its value in just a month earlier this year. It recovered almost immediately. There is another shoe to drop.
If there was no stock market there could be no IPO's to raise money. Yes, most of the activity in the market is not to finance new investment but without the on-going market there could be no IPO's. Bond's and Stocks are not derivatives they are first order products. Without a market to trade bonds, interest rates would be higher since you would be required to hold them to maturity. Of course, without the ability to trade bonds you would still be able to borrow using them as collateral. Markets are actual indispensable, you can't eliminate them at best you could drive them underground. The biggest value produced by markets is liquidity. If you don't value liquidity so be it.
Oh, I don't "gotta justify this claim" or any other claim I might make. I could rest on my claims being self-evident or just leave it to the readers to decide the validity of my claims. I doubt we have many readers so it is just something I do, I like these kinds of exchanges of ideas.
I don't know if I am a shoe-loathing hippie but I have strong tan lines from my sandals.
Peace, love and happiness.
TEK
