We see the Dow Jones Industrial Average, NASDAQ, and other major stock market averages going up and down, but what does it mean and where do they get the information?
Recently there was a report about February Consumer spending. That report came out in the middle of March and represents a delay of about six weeks from the time of the event. This means that somewhere there are very few people gathering a large quantity of information from corporate quarterly reports submitted to the Securities and Exchange Commission.
Recent financial scandals such as over or under reporting sales and wholesale purchases, revenue from the sale of gift cards, the allowance for vague definitions that allow accountants to shift assets and liabilities into and out of various categories, and the back-dating of stock options for individual benefits, has raised the idea that perhaps there are far fewer people working in the accounting departments at major corporations, and if there are, they are probably fall-guys in the making.
To gather industry information and do research yourself takes a lot of time, and the information in quarterly and annual filings can be daunting. What should we look for?
We should begin by looking at a model corporation. One that you know well, like MacDonald’s. It’s good to know the full history of how it began to get an idea about how most other corporations were started and flourished.
MacDonald’s started as a small burger outlet. The owners had decided to start serving milkshakes and they ordered, or were shown, Milkshake mixers by Ray Croc, who had been moving around the country selling the mixers. Legend has it that Ray fell in love with MacDonald’s, and bought it, but Ray had an advantage then that is still overlooked.
By gaining access to the kitchens across the country, Ray learned about all the ways that restaurants were operating and used it to his advantage. Just as Andrew Carnegie used his job as a telegraph currier and errand boy to see how various industries operated from within, something that the customers and public never see.
The Securities and Exchange Commission has a website where they publish the reports from various publicly traded corporations: http://www.sec.gov. This kind of information was never available to the likes of Ray Croc or Andrew Carnegie. This kind of information is also extremely boring to the average citizen. Why?
It’s the way in which we are taught that causes us to avoid some information and be attracted to other information. In school we are taught that there is more value in sports than in math, science or history.
There is some debate about whether or not this is deliberate, but ancient history shows that novelty of experience has a higher value for humans than does the more important value of utility.
The public schools over the years have evolved into places where students compete for social status and are rewarded for competing among themselves with what little their potential will allow at a fixed developmental stage within the preconceived expectations of teachers and administrators.
The reason I can see this is that I spent my freshman year of high school at a private military academy, one of the most prized military academies in the U.S. by diplomats from around the world. For financial reasons I was forced to spend the rest of my high school years in a rural public school in Northern Indiana.
The differences were astounding. Highly valued information at military school was at public school considered the realm of the “Nerd” or the “Geek”. Anyone even remotely showing an interest in science or math was picked on or bullied until they became obedient followers of the Jocks, and then dropped Typing and Home Economics for Shop Class and P.E.
So there are two types of teaching occurring in school. Values, and Values. First, you are taught just enough to make you literate enough to read only your indigenous language and count things most people assume should be counted. Next, you are gradually conditioned to value certain things as more important than others, until those other things are so reviled that you reject them out of hand and never think about them again, like History, or Broccoli.
But I digress. Back to Market Research. At www.sec.gov, you’ll find the quarterly filings of nearly every corporation in existence. The goal here is to find the right corporations to research as leading economic indicators toward the business type you might be interested in starting.
You will see profits and costs. Some stock tracking programs and websites provide financial information trends over long periods such as www.fool.com and www.bloomberg.com, but they usually provide only the value of the company stock. But what influences the value of a company’s stock?
The Stock Exchange has become dependent upon statements issued by the Secretary of the Treasury about Prime Lending Rates, the price of gasoline, heating oil, natural gas, and other fuels, and the availability and price of raw materials and crops. Other aggravating factors are internal strife among board members who have become celebrities for their wealth.
The main outside variable is consumer spending. Since everyone is a consumer of one thing or another, this value has become one of the most important to which attention is paid by traders and fund managers.
Problems occur when consumers are goaded into purchasing things they can’t afford. They buy on credit and then can’t make the payments. Most consumers don’t understand that interest rates change. Interest rates are one of those things I like to call a “Gotcha!”
Humans used to pay attention to pennies when they bought a lot, but pennies are now the scourge of sock drawers and vacuum cleaners everywhere. It won’t be long before nickels follow suit. The only thing holding back the tidal surge of nickels are parking meters and vending machines.
The human perception of value shifts depending on changing influences in the environment. It has been called “drifting normalcy” by military officers in Iraq, who see how local populations wade to the marketplace through puddles of blood on their daily chores.
This means there is a threshold of perception below which changes gradually occur. Sometimes its called “happening below the radar.” Usually such occurrences are midnight legislative sessions of Congress where they give themselves raises or give loopholes to interested political financial supporters. But the news media catches wind of such simple stories and they are easily reported.
Then there was the sale of US Shipping ports to Dubai Ports World, a foreign company headquartered in the Middle East. What happened was very sloppy because the company that was selling the shipping ports was a publicly traded company. They won’t make that mistake again, so now Private Equity Firms are buying up publicly traded companies so the information can no longer be accessible to the public through the Federal Trade Commission.
The foreign countries from which American companies borrowed money to inflate their stock values are calling in their loans. These corporations are now hiding their “Sheriff Auctions” by laundering the transactions through private equity companies.
You probably pay a mortgage or rent to a foreign country. If you are a shareholder of anything, you might want to just cash out right now.