Close the Stock Market for a Vacation

[Under The Radar]

Just for maybe a month. Things seem to run just fine on weekends and holidays so why not give the stock market a vacation?
How does the price of your stock effect your cash flow?

I think it makes more sense than ripping our country another $2 Trillion. The rough math is that is $5,800 for each citizen....groceries, rent and utilities for a couple months, right?

[unblock]

1. yeah, no. this would make the situation several times worse.

i know it's fun to hate the financial markets when they're crashing, but it's still the oil in the economic engine.

drain it and it all comes to a complete halt.

note that keeping the market closed doesn't mean the value of shares isn't continuing to plummet. it just mean we don't know exactly how much until the markets reopen.

[Under The Radar]

2. Excuse my ignorance - I am still confused

Bill’s barbecue restaurant isn’t traded daily, it is a private business. The ownership or partnership doesn’t change much at all. The value of its stock has nothing to do with its day to day operation, or its bank account. Bill can close to go on spring break with his family, sure no revenue but his expenses go down too. The Value hasn’t changed other than maybe some customers that go to another place.
How is Exxon or Boeing different?

[unblock]

3. a public company's stock price isn't merely an idle valuation

many decisions that business makes, and many decisions their counter-parties make, are dependent on the value of a company's equity and debt.

if i run a public company and my stock price is doing well, i can raise capital by issuing more shares at a good price. or i can simply use that possibility as a negotiating point to borrow money from banks at a low interest rate. if the stock market is closed, i'd have to borrow and the bank can charge me a higher rate. or they might not lend to me at all, being worried that my company is too risky, without the stock market to guide them.

private companies like bill's barbecue pay a price in general because if they ever sell shares of their company, the valuation is substantially lower due to the lack of liquidity (investors can't get out any day they feel like it because there's no active market for those shares.) just because they're used to it doesn't mean they're equally efficient.

[Under The Radar]

5. Why do you need to raise capital When closed?

There is no need to build an expansion in a time of crisis.
Sure stock holders are forced to hold their shares but the price is locked in a closed market.
My point is simply that if you don’t pay your fair share of taxes, skirt by the taxes laws by holding cash offshore or incorporating offshore to avoid taxes, then you should not be eligible for aid from this government.
There is no more danger to close the stock market in NY or Chicago than it is to close the Farmers Market in a Jackson Tennessee, It was closed during 9-11 with little damage, and the world kept spinning.

[unblock]

8. Several topics here

First, I agree that corporations that have behaved badly shouldn't get government help, but that's a rather different topic than shutting down the stock market.

Second, shutting down the market for a day or two is very different from shutting it down for a month or longer.

Third, most public companies are not altogether closed, and many other them are having a close look at financing right now. The stock market is relevant to financing even when the financing isn't done through the stock market.

[Blue_true]

7. There are very successful companies that don't issue stock, some

don't even take out loans. I don't know what type of company the Mars Candy Company is now, but for a long time it was a private company that funded growth from profits, it didn't issue stock or take out bank loans, I once read that the founder's philosophy was that if the company owed another entity money, it no longer controlled it's destiny. Of course Mars is gigantic now and has bought up a lot of former rivals, so it may now have loans outstanding.

If you are running a successful company, why can't you set aside a percentage of profits for expansion and purchase of supplies? In theory, if your company is successful, the only constraint self-funding would induce is a slower rate of expansion, but Mars now own it's once publicly traded rivals because it made great candies that developed iconic names, Snickers, Milky Way, Butter Finger, ect. So if Bill's Barbecue was indeed successful and had customers lining up before opening time and lining up to buy dinner, why can't Bill self-fund expansion and also set up a rainy day fund, used to recover from disaster or setbacks, like his barbecue burning down?

I believe that the modern stock market is significantly detached from the idealist concept that you laid out, and that is a big part of the problem.

[unblock]

12. There are indeed some very large and successful private companies

Goldman Sachs was private for ages.

Many big alcohol makers and shipping companies are private.

Going public is not a requirement; however, it can help with faster growth. If that's not a part of a business's strategy, it's not necessary.

There are certainly a number of problems with corporate behavior, but have the stock market open and available as a secondary market per se isn't really the problem.

I think the bigger and more direct problems are things like tax policy, executive compensation, lack of unions, diminished government oversight and enforcement, corporate lobbying, etc.

[Blue_true]

13. Good points, can't truly disagree with any of them. nt

[Under The Radar]

14. you don't have to find growth from profits

Expansion. And come from capital loans, not even cash rich Walmart expands from cash, especially when lending rates are low.
But expansion could be delayed, capital spending can be delayed, yes it can all be put on hold as long as the market is down.

[Yavin4]

11. Bill's barbecue restaurant's has a supply chain, food, soda, alcohol, etc.

His restaurant may not be traded daily, but his suppliers are.

[Blue_true]

4. You are wrong.

The modern stock market is way detached from it's original purpose. The original intent was to provide funds to companies that had good ideas, or to an individual or individuals that had a new idea that had potential. All that is done more efficiently today by venture capital firms and by the new crowd-funding concept. The original stock issue, I think, was done by the Goldman Company to provide money to a company that wanted to mass produce burlap sacks so that grocers could sell consumers pre-packaged amounts of staples like flour, rice, beans, ect. The Goldman Company had, before issuing stock, loaned money to aspiring companies. Issuing stock allowed Goldman to expand the number of companies that it gave money to. Rivals like the Sachs Company took up the idea of issuing stock. Early stock was held by people and the issuing companies paid off the investors as the funded company made money. Once the stock was paid off, it was permanently retired.

Eventually, the financiers realized that by allowing stock owners to "trade" their stock, the finance company could make additional money from the repeat trading. Eventually there was no requirement that the underlying company for the stock pay the stock issue off and retire the stock. Numerical values such as "book value" and P/E Ratio" were developed to "value" stocks. But "book value" is sort of like mixing ingredients in a soup pot, the soup that one gets is a function of how each ingredient is added, so book value can be shaped by difficult to measure numbers such as "goodwill", and "asset market value", both use guesses at best because both numbers are highly dependent upon circumstances that a company finds itself in.

Today's stock market is very detached from the original concept, "if one loans a company $30,000 (big money in those days), how long, if ever, will it take the company to pay back the stock. So today, we see zombie companies, that have little capacity to pay back a stock loan, being traded on some exchanges or in the penny stock area. Speculation has taken over what used to be a methodical process of evaluating and funding viable companies or ideas, at least on stock exchanges, venture capitalist still run the methodical effort because they implicitly are loaning money, at least until they can take a company to a stock exchange and offload it to the casino.

[unblock]

6. This is so completely off base

I have no issue with your basic observations. Yes, the stock market is very different now than it was originally, and the vast majority of trading is secondary investing/speculating rather than ipos.

Buu still, many corporate decisions and prospects remain dependent on stock price, arguably even more so today than originally.

Sorry if my post was misleading by having mentioned only the raising of funds. There are many other effects.

For one, many employees of public companies have stock options as part of their compensation. Certainly management, at a minimum. Whenever stock prices plummet, employees/management might seek more rewarding pastures elsewhere.

For another, public companies may have to worry about getting taken over, something low stock prices make them more vulnerable to.

Even back to the point about venture capitalists, they only function as they do because they have a secondary market to cash out into.

[Blue_true]

9. I don't disagree with the points that you made, they are modern realities.

But a private company can pay employees bonuses that depend upon how profitable the company is over a set time, say 6 months or a year. Maybe employees that are getting good bonuses will see dollar signs and move to a company that sells stock, personally, I would have a legally binding non-disclosure agreement with those people and would enforce it if need be, but other than that, I would wish such a person good tidings, I want people that are committed to helping my company succeed, people that are getting paid well, but are eying what they think are greener pastures are compromised IMO.

A private company can't be taken over if it doesn't take out bank loans or issue bonds.

The Goldman Company was founded to provide "venture" capital to existing or new companies or owners. The process was not called "venture capital" during that time, and it worked a little different from today's VC, the Goldman Company loaned the money with an agreement that x company would pay back the full agreed amount in y time. Eventually issuing stock allowed Goldman to offload the risk that a company could not pay back a venture loan.

Today's stock market is like the collaterized debt obligation fiasco. There is no concern about the quality of each underlying loan because the loan company can sell the loan, which gets packaged with a lot of other loans to form the CDO, or what even in the hell they are called (yes, they are still around, just moved on from housing). When an investment bank underwrite a stock offering, concern seems to center more around how heavily the offering will be subscribed rather that the underlying concept upon which a company is based and run under, so we get situations where a blood testing company can be valued at billions of dollars, even as the technology that underlay it is deeply flawed.

[JustABozoOnThisBus]

10. Many working people are buying stock every few weeks.

With every paycheck, some of it goes into a 401k or similar saving plan. That gets invested, buy some stock. It's a great thing, buying stock when the price is this low.

Others, like me, are selling stock every month to get my Required Minimum Distribution from the IRA. Not my choice, I'd rather let it sit in this market, but i have it on "auto-pilot".

None of that can happen if there's no market.