Alan Crane Productions in association with the Emergent Lights Studio presents
the Illinois State Collegiate Compendium, Academic Lectures in Business and Economics.
This is Business Finance, FIL 240 for spring semester 2024.
Today, Financial Markets and Institutions.
I was expecting to have guest speakers present for the business week coming up,
but they haven't shown up, so if they do show up, I may still give them a little bit of time.
Other than that, we'll just roll forward with today's happy class,
which I'm going to be adjusting your due dates, obviously,
since we didn't have a class on Monday.
So I'll have to extend the dates because I didn't finish with Chapter 1,
and now we're in Chapter 2, so it's going to be a little bit of a catch-up
over the next couple of days to get back to where we're supposed to be on the schedule.
I was, in fact, going to give you a surprise quiz next Monday,
but that's not going to happen now, so you don't get to be surprised.
But other than that, let me think what I'm going to do first here.
I guess I can get right down to it here.
The first thing that I always do when we convene a class is I say,
let's look at the numbers, and that is going to be a process that we go through every day here.
And of course, oh, there it is.
Now, the unfortunate part is that...
Hi, I'm here for Business Week to speak on.
I know it. I do it. It was going to happen.
Really? Okay.
Yeah. Bear with me a second here to stop this.
Today, Financial Markets and Institutions.
As I said in the first lecture, every lecture after that one,
I will begin by looking at the numbers, and this is fair bait for quizzes and exams,
but it's also much more importantly a way for you to become empowered
to be able to look at numbers yourself on stocks, bonds, and other types of securities
and know what to do instead of always listening to the talking head
and to the investment blogs and all those people.
I'm going to tell you how to look at numbers and the terminology we use to some extent
to make you sound like a genius with stocks.
First things first, I am using Yahoo Finance, which is not a great site.
It's not real time. You get numbers that are jumbled sometimes,
but I could use an actual trading platform within my account with Shell,
and I don't trouble you with my account numbers.
So we'll just use this Yahoo Finance for the time being.
Now, starting out, when markets are up or when a stock is up,
we would say that's a bull situation.
The market is bullish today, or the investors are bullish on this stock.
It's a bull market. If it is down, if there is a down stroking, that's a bear market.
You would say, well, the investment sentiment is bearish today, or we're in a bear market.
Right now, overall, we are in a bull market, and that's a longer term thing to say.
What do you think? Green up, red down, green bull, red bear.
So in this run of numbers, you look at the predominant.
And another thing, we don't care about actual numerical values.
All that matters in finance, as in most science, are the percentage changes.
The percent is everything.
Think about it this way, if you've got a $10 investment and it goes up by $1,
that's a lot different from a $100 investment that goes up by $1.
So the percentage is all that matters to us.
And you'll hear these reports or see these news reports, the Dow dropped 700 points.
Oh my God, 700. That's a very small percentage.
So it wasn't anything at all to worry about.
A percentage change is all that matters to us.
Now, you see those numbers up there.
Those are representative of markets in one way or another.
If there is a number after a word, after a symbol or a word,
that means that you're looking at an index portfolio.
Stocks that have been put together and said, all right, how does this portfolio,
this portfolio move today?
So for example, the Dow 30 is a hypothetical portfolio of 30 of the largest companies on earth,
oligopolies, the safest of the companies that could possibly be around, low risk.
And so the Dow 30, it used to be called the Dow industrials.
They're not industrials anymore because the largest companies in the world are mostly service
and entertainment companies now.
But that would tell you, the movement of that would tell you what the large scale of the economy is doing.
What is it, a positive sentiment, negative sentiment?
Has news been good for this day?
Has news been bad for this day?
Now, as you see with the Dow 30, that little chart is called a spark chart.
You'll learn about those in your Excel certification, I hope.
You can make there really nice little quick little representations of the data as a mini chart.
Now, if you look at the spark chart for the Dow 30, you notice that at the beginning of the day,
it opened up, which means that overnight and pre-market, the aftermarket and pre-market,
there were more buy orders and sell orders.
So there was upward pressure.
And as soon as the bell ding, ding, ding, ding, the price spiked up.
As you can see there, at the beginning it was up.
But immediately, the bears grabbed a hold.
Do you see how they pulled it down?
They started dragging it down.
It almost went down into negative.
But then the bulls came back and we had a rally.
That's a bull rally.
The rally took hold there.
And then it just kind of popped up and down, kind of up and down.
And now we have the bears really grabbing hold here in the afternoon after the lunch hour.
Apparently something wasn't tasty for lunch.
And the bulls are in the bathroom barfing or something.
I don't know what it that.
It just dropped off a cliff.
This is happening moment to moment.
This is how markets work.
The past has nothing to do with these markets.
These are all being driven by the information of the minute.
Good information or bad information.
There's nothing before that matters.
That's why charts and historical data and historical information means nothing in our world.
The accountants have the rules and there are good reasons for those rules.
But that's the rules that we can't abide because we have to see what's coming.
This actually comes from a physics principle, one of Newton's laws.
Anything in rectilinear motion will stay in rectilinear motion unless acted upon by some force.
That's what's happening.
A stock or a market will just drift if there's no force.
The force in our world is information, data.
As that comes in, that moves it from just flat straight line to an up or a down stroke.
From minute to minute this is happening.
Remember that this all goes back to that talk I did on the first day about greed.
There's no sentiment in this.
This is an animal.
If you ever have a chance to go to the floor of an exchange, you see that animal in process.
The yelling, the screaming, the back and forth.
Some on this side, some on that side.
It's pushing it back and forth.
Whichever sentiment is the strongest about what the information is telling us,
the information of the moment, that's what will move the market up to an up or to a down position.
What happened there was that there was some positive information right before that drop off.
But then see how fast it just turned on a dime as more information came in and it dropped it.
Now the S&P 500, those are 500 really big companies.
In your economics class, micro, you should have been taught about monopolistic competition.
These are monopolistic competitors.
They're fierce, scrappy.
Their products have monopoly position in the short run.
But then they go to perfect competition in the long run.
They're constantly looking for the next win, the next edge over their competitors.
These 500 constitute about two thirds of the value of the entire world.
That's kind of scary.
In fact, oftentimes you'll hear me talk a lot about, we'll use the concept of the world portfolio.
This theoretical portfolio that is all the stocks and bonds of the world in it.
The S&P 500 is kind of a pretty decent proxy for that because it has so much of the world in it.
So this is the large picture of the world.
But it's of those big companies that drive a lot of the economic success and failure of our economy.
So the Dow is very large.
Where it moves is telling us where the largest companies of the world are assessing the information
for what it tells us about the future.
S&P 500 is somewhat smaller companies, but a very large swath of the world.
And then the NASDAQ.
Now notice that the NASDAQ doesn't have a number after it.
Because it is an exchange, an actual trading platform for many, many thousands and thousands of stocks.
Now the NASDAQ is not physical.
It is actually electronic.
And it's been around forever.
I think even I back in the 80s and 90s was trading.
I had a penny stock house, it was the NASDAQ, back then we called it the electronic BBS.
Because it was a bulletin board service.
Some market maker would pop up, I got 600 shares to sell.
And then all these other market makers around the country would see, well, I could pick up 200 of those.
I could pick up 100.
And that was how the markets cleared.
It's extraordinarily more efficient now.
But the NASDAQ is an exchange.
The exchange that's probably quite familiar to many of you would be the New York Stock Exchange.
NASDAQ has thousands of very small, what we call small cap companies, scrappers, fighters, and high risk companies.
Higher risk than the S&P 500.
And the 500 are higher risk than the 30.
So you'll see more volatility, more sensitivity in the NASDAQ than you will most of the time in the S&P 500.
And you will see more sensitivity, volatility in the S&P 500 than you will see in the 30, Dow 30.
And notice what the percentages show.
You'll see this, the Dow 30 is up only 0.07%.
That's miserable, just barely up.
These are huge companies.
It takes a lot to move one of those whales, those 30 whales all in the same direction.
The S&P 500, see how it is more sensitive.
There's positive information.
It's definitely a bullish day.
See all the green?
It's definitely a bullish day.
But see how that bullish sentiment has more impact on the S&P 500 than it does on the Dow.
And then there's the NASDAQ.
Notice how it is even more sensitive.
It is higher risk stock.
Risk is volatility, what we call vol.
And so there you go.
We've got a nice, it is a bullish day.
Now you say, wait a minute, what about that Russell 2000?
You really don't know what, it's hard to say anything about it.
There are literally tens of thousands of these index portfolios out there.
Russell 2000, Wiltshire 500, PIMCO 500.
I mean, they're just, for some reason, Yahoo just lets everyone know what the Russell is doing.
But you can't really read any large picture in the Russell because it's not identifiable as a sector of the economy or a grouping of the economy.
It's just 2000 stocks.
Okay.
That's your first round.
Now we're going to go ahead and look at a couple of stocks here in a few minutes.
But we need, I want to take you through one thing here.
Now this is part of chapter two and they go into this in a little bit of detail.
You can divide markets into all kinds of different, this one versus this one.
One of those that you can distinguish is securities markets from commodity markets.
In other words, things that really don't have any physical physicality to them, stocks, bonds,
as opposed to markets that are trading in some physical thing, oil, gold, silver, copper, titanium, pork bellies, wheat, things like that, gasoline, juices even, I guess.
But so crude oil is a commodity market.
Now crude, now there are many, many different variations on the word crude.
I was in the oil and gas industry many years ago and the crude that we would pull out of the ground in Texas was this stinking hot sludge, almost like tar.
It was just miserable.
We called it sour crude.
Now this, however, what they are measuring here is a very different one.
It's light sweet brent and that's kind of like a benchmark.
Wither goes the light sweet, so goes the other ones.
So it's like the one we look at to tell where all the others are going.
And in this case, you see crude oil bouncing around.
It is, commodity markets can be pretty darn volatile.
Oil has gotten awfully volatile because on one day, you know, the reserves are full and the dirty tankers on the high seas are full.
And there are plenty of ports open for even the very large as well as the intermediates and all that kind of stuff.
So that would be one day, supply is up, price is down.
Then the next day, oh my God, one of those countries is about to start torpedoing oil tankers in the Persian Gulf or something like that.
And then everyone panics and the price goes up.
So it pops, boom, boom, boom.
And it's all based upon expectations.
Nothing about what has already happened.
It's about what's about to happen next.
And everyone is trying to get the edge on the right information and the right direction of movement of these markets, minute to minute data on it.
And it's amazing with the crude oil markets, there's this vast network, extremely complex,
that even marks where every ship containing anything and what it's containing is on the high seas.
And we'd use all that data from minute to minute.
Oh, this one just left port.
It's a supertanker carrying crude.
We know where these are.
We calculate all of this.
And that tells us, OK, that's going to get to this port in this many days.
So we know how to price it in this many days.
So let's price it there now so we can get ahead of it so we can benefit from the price jump when it gets price, the price drop when it gets to the port.
Things like that.
It's just vast oceans of information.
It's gotten to the point now where it's overwhelming.
And that's one of the driving forces behind artificial intelligence, its vast capability of processing data mindlessly, mind numbingly large amounts of data.
And it is helping to drive these trading prices and the trading strategies now.
And I think more than people are, I'm afraid.
But anyway, crude, it's been in a trading band from about seventy two to seventy nine a barrel for some time.
It's bouncing.
Now, last year or early this year, it was way up there over one hundred hundred and twenty five a barrel.
That was last year.
And then, of course, once the panic and the pandemic passed, then the price started sliding.
And by the fact, it broke in.
It usually it'll start bouncing in a trading range.
It got into seventy two to seventy nine early.
Oh, well, middle of last year.
And it's been behaving itself stays pretty much in there.
And right now, it's kind of at the lower end.
But as you can see, see how it is quite volatile.
See how it's going up and down and up and down and all that good stuff.
Now, let me take you to another one.
Move this forward here a little bit.
The next ones you'll see are gold and silver.
Gold is weird because most commodities are driven by pure supply and demand dynamics.
The supply of that resource and the demand for it.
Gold has a another fact, speculative factor.
You have this kind of sometimes influential cadre of what we call gold bugs.
They're always looking for some excuse.
The world is ending tomorrow to buy gold or, oh, darn it, the apocalypse.
We missed it.
And gold was dropping price.
So you have that extra dimension and gold that makes it a little bit more difficult to forecast or to think about where it's going to go next.
It all depends on how the crazies are trying are thinking how long it is before they think the world is going to end.
But that having been said, silver is a much more normal kind of market.
Silver, gold and several other metals are used in industrial processes and in cosmetics, cosmetic jewelry, that kind of thing.
So silver behaves according to the supply and demand conditions for what it's made for, for why we extract it.
See how it's behaving differently from how gold behaves.
They're both metals.
They're both technically just decorative or industrial, but gold has an extra factor in it that pushes it around more than normal things.
You, sir, are a normal person.
You get up, you shower, you go to school, you go to work, you eat your meals.
So you would follow a normal pattern day to day.
You, unfortunately, are occasionally possessed by a demon.
So even though you get up and do everything he does, every now and then suddenly you're standing on a rooftop saying, hail Satan.
So you say, well, that's different.
Didn't see that one coming.
Neither did I.
I mean, we were at dinner and you said, I'm going to eat your dog.
And we were eating beef, but I thought, you know, if that's what you wanted, I could have found one.
Anyway, try to stay on the topic.
Okay.
You understand, though, that gold's got that weird little kicker in it that knocks it around a little more than normal ones.
Okay.
Now, I want to teach you a little bit about currencies, but I won't do that right away.
Let me go over here to bonds.
Bonds, the quote, is exactly the opposite of any other quote.
When you see, see the red?
That means price is going up.
The green means price is going down.
In this course, you will, because that is showing not the price, it's showing the yield, which is mathematically inverse to the price.
You'll learn that in Chapter 7 in this course, that price and yield are inversely related.
So why do they show the yield? Because that's important.
The one they're showing here, you hear, is the 10-year bond.
It's a treasury bond.
It's considered the benchmark.
You see where the yield interest rate on that goes, so go interest rates in the economy.
So they show the yield, the interest rate, instead of the price, because that's what we really care about with bonds.
So you can see that bonds started out down.
The yield was going down.
That would mean that the price was going up.
That would mean the demand was pushing price up for bonds.
But you notice that suddenly it turned tail, and then the yields started rising.
That would mean the demand backed off later in the day.
The demand started backing away, so the price of the bonds started falling, and that makes the yields go up.
Now, yield.
See that 0.0320?
That is, I would say, that's a percent.
I'm sorry, I look at it wrong and I'm dead.
Well, yeah, that's fine, 0.0320.
This one is a little weird.
Those are basis points.
I would say 3.2 basis points.
Every 100 basis points is 1%.
So in this case, the yield went down 0.32, rather up 0.32 basis points.
What does that mean? Why would we care about that?
Well, if interest rates on the bonds, those benchmarks are going up,
that would mean that all interest rates should start to follow.
If interest rates start rising, that will slow down the economy.
So we care about this one, and this is one of our crystal balls for seeing what's coming.
If interest rates on those benchmarks are sliding, that means interest rates overall are sliding,
and that's going to help the economy, boost it.
Companies will borrow money for more projects, people will borrow money for homes and big ticket items.
So it's worth our while to keep an eye on.
Now, let me take you over here.
One thing I should mention here is that stocks and bonds have a trading day.
All over the world there's a trading day, 8 to 5, 8.30 to 4, whatever.
Commodities don't work that way.
Commodities are on fire day and night. They're clockers.
And so if you're into the commodities world, it's always open for business.
There's always some country where there's a trade, where 100 trades happen.
There's always some place on the high seas where a load of wheat is being hauled somewhere,
or a shipload of oil or whatever is moving.
These markets are all over the world, 24-7. They're clockers.
And in this world, the people who do this, including what I used to do,
you're always, even when you're sleeping, you've got one eye open on the trading deck of your commodities.
Interestingly enough, though, see the Nikkei 225?
That is an index of 225 very large company stocks on the Tokyo Exchange.
So through this, we can see what's going on in Japan, in Asia, in East Asia.
So if I look here, we see that the Nikkei 225 had a pretty bad day.
It wasn't a horrible day. I mean, this isn't a...if we have a really, really, really bad day,
like 5% down, 10% down, we call that a black swan.
But this is a lot quieter than that. It was just in a pissy mood all day.
And so it slid down to, down, totaled down for the day of about 0.8%.
I'm sorry, yeah, 0.8%.
Notice, interestingly enough, that that drop happened in stages.
There was a drop right off the belt. Do you see how it was down when the belt opened?
Do you see how it started down?
That would have meant that there were more pre-market sell orders than buy orders,
which would bring it down.
And by the way, I'm going to do this every day.
If you don't get what I'm saying, that's fine. That's how we do it.
But it was down. And then it kept having...notice how it went...there was this volatile period.
And then it stabilized around the later morning in Tokyo.
No more information. And then something really set it off and it had another drop.
But that was just a punch of information. It wasn't like a stream of bad information.
Something just hit and it dropped.
How do I know that it didn't keep going on? The bad news.
See how it stabilized after that. No more news.
So it goes rectilinear motion, just like Newton's law says it would.
Now, that was when we were asleep last night.
Then as the sun was setting in Tokyo, it was rising across Europe and then it rose in the British Isles.
And the London market opened. FTSC is 100 big, big stocks on the London exchange.
And we can see that they were in a pretty...the pre-market, the African market and pre-market had set up an opening pop.
You see how it started up above the axis. And then it just kind of...it petered down a little bit and held.
And then it had a drop, stable, a pop, and then stable. And then it had one more pop and then it stabilized.
I think they're closed now for the day. Yeah. Yeah, they're closed now.
Because as the sun went down in Tokyo and rose in London,
the sun went down in London and it rose on the East Coast of the United States.
And our markets opened up, woke up and they opened up. And that's what you saw in the first thing.
And when the sun sets on our world, on our part of the planet, it will wake up again in Tokyo.
And the clock will start all over again. The wheel of time moves on.
This is how our world works. So if this is the kind of world that you kind of like,
where there's always some place that's alive and kicking and greed is always somewhere living its dream,
well, this is the life for you.
Now I'm going to show you a couple of stocks.
Anyone know a stock that went bananas today? Hear anything about?
Well, let's Netflix and chill. NFX. Wow. Fine. Don't laugh.
Look, this is a tough business and you're a tough crowd.
Okay. Now Netflix, I want you to notice something before I call it off.
NFLX has four letters. That's a NASDAQ stop. One, two or three that we had probably in the New York Stock Exchange stop.
That's how you tell. So this Netflix, even though it's a ginormous company,
it was a small company and it just stayed on the NASDAQ. It never promoted, it never applied to get on the NISD.
Now that's interesting because on the NASDAQ you'll also see MMXT.
Microsoft is a NASDAQ stop. AMCN. Amazon.
So you've got these, all these like thousands and thousands of little dwarfs, A-O, A-O, is off to work.
And then you've got these, they're actually playing in the same field as the NASDAQ.
So you've got to appreciate sometimes the NASDAQ is being moved by these giants instead of the aggravation of all the tiny companies.
But one way or the other, we're going to look at Netflix. I'm not going to do all of Netflix, but I'm going to start out with Netflix.
Just to show you a few things.
Okay, now, what happened today was that a company will estimate what its earnings are going to be before and before.
And the markets will absorb that information. Netflix said, we'll be up a little bit. We think we're going to have pretty good earnings.
We should have decent earnings. And so the markets said, okay, we'll take that into account and we'll surprise ourselves with that.
And then the trading went on. And then, well, for the last night or this morning, Netflix said,
oh, our earnings came in and they were much better than we had thought they would be.
And so the markets went coo-coo bananas. Positive information. And that just pushed itself as the prices went absolutely bonkers.
Buy, buy, buy. No one's selling. Buy, buy, buy. Price pushing up. Demand increases. Price increases.
Commentarily, there it was. Look at that. See that almost 12 percent?
That is, technically, that is incredible. That is a large price increase.
I mean, I'm joyful when I have a quarter percent, half percent increase in a soft price.
But here we had one that shot up by 12 percent. It actually went up a little more than that.
One thing you'll see is that oftentimes when the price pushes way up, new information,
there will be a point where you will have this whole profit taking.
You know, some of those who bought in, let it go up, they'll say, eh, it's gone up enough, I'm going to sell out.
You know, it's like my scratch. And so sometimes you'll see it go up like that and then you'll see a little dip.
And that's what happened here. As you can see, see that the spike had already, see that at the opening bell,
it was up through the roof. You see it? Right there at the opening. Let me show you.
Right there. That was when ding, ding, ding happened, just the price suddenly flashed to a higher level
because of all that demand, those stock orders that had been put in overnight and in the pre-market,
they were filled in the first seconds or minutes and it caused the price to just pop.
Look yesterday. See how the price yesterday, the previous close was $492.
And then when the bell opened, it was instantly at $537.75
because of all those orders that had been put in overnight and before the bell in the morning.
And it kept going up for probably a half an hour, it looks like there, because orders were being filled,
more people were buying as they heard the news. And then once, now that that news had passed,
look, it just drifted. Do you see that? It was pushed, a force pushed it up,
and once that information was absorbed very rapidly, then they were waiting for the next meal.
The next meal came, so it just kind of drifted. Got a little bit of profit taking along the way there.
The bears, yeah, well, I'm going to sell and all this kind of stuff, but you know, that happens.
Now, a couple of things here. I'm going to use the mouse to show you what's going on with this.
First of all, see this bid and ask. The bid is, and you can't really take Netflix too seriously on this,
don't trade on Netflix information because it's delayed and some of the delays are worse than others and all that.
But it's still illustrative here for this one, at least the data is clean.
Look at this. The bid is $549.80 right now. The ask is $549.92. Now, what does that mean?
This. The bid is what you can sell a share of Netflix at. The ask is what you will pay to buy a share.
You think, well, that's a ripoff. No, it's not. That difference is called the bid ask spread.
That's how the brokers make their money. That's how we make our scratch.
My teaching assistant here, he goes out and he buys a share of Netflix at $549.92.
Minutes later, his significant other comes into the room and says to him, you did what with almost $600?
Whack! Sell it. Okay, yes, evil master. And what happens? He sells it at $549.80.
He lost some money because he sold it and he'll have to sell it at the bid. He bought it at the ask. He sells it at the bid.
That's how the markets work. So see this price up here? This is actually just kind of like an illustration.
The action is actually in the real world of our trading is in the bid and ask and the spread.
You notice that as soon as you buy a share of stock, you're in the hole. You're in the hole in this case, 12 cents, right?
Just instantly because you bought it at the high price and unless this price goes on, the bid goes up, you're stuck.
Now that bid ask spread, this is actually for the price of that stock, like $550, that's actually a very tight bid ask spread.
I mean, if it's a wide bid ask spread, that's generally an indication that there's not a lot of trading in a stock.
The more trading that happens in a stock, the tighter the bid ask spread gets.
I mean, think about logic. If I am making my money on the bid ask spread, if I've got a lot of orders that I can play for the bid ask spread, I don't have to make as much on each order.
So the bid ask spread can be tight. But if there's a thin trading volume, the bid ask, so I've got to make my scratch on maybe 10 trades in a day on a stock,
then that spread will be wider so that I can make more, even if it's only 10, I can make some money even if it's only 10 trades that happen that day.
So a tight bid ask spread is generally an indication that there's significant activity. Go ahead.
So what is the times 1300 and times 1400 next to the ask in bid?
Sizes of the orders on the little stock.
So that's how many shares you have to do?
It's in thousands.
Yeah, you've got to have good questions. And I'll talk more about that.
But like I said, you really can't trust those numbers on Yahoo because they're delayed.
So I mean, I've seen ones where it was just appalling to me.
The bid was above the ask.
And I thought that can't happen that there would be an arbitrage play there because I could buy shares and then I could instantly sell them at a higher price.
That can't happen.
And it's, of course, because their quotation service is delayed by minutes, sometimes by more than minutes on it.
But now let me take it down a little bit further here.
Now, you see the days right here. See this? The days range from 530 707 to 560 2050.
This is the day's chart.
So that 560 250, that would probably be that peak right there.
You see it? That would be where it hit its high for the day.
And then the low was 530 7.
That would probably be the opening. That was where it was at its lowest today.
So now another one that's going to be useful to us is the 52 week range.
How far around has it swung over the past 52 weeks?
So I'm going to go to the 52 week chart, one year chart.
OK, so Netflix had its low of 285 33.
That would be that trough. See that trough, the bottom of that trough right there?
That would be the low for the last year.
Now, the high, of course, is where we are right now.
If I'd shown you this last week, the high would probably have been that last peak before this one.
But there you are.
Now, volume.
Now, we're not finished with the day yet.
This is how many shares have traded today, so far.
And it'll probably be a larger number than this by the time it's over.
This is how many shares traded on the average day over the last 52 weeks.
You notice a little difference there?
This is high volume day.
There's just so many shares.
This is typically a stock that would trade about 4.2 million shares in a day.
We're not finished with the day yet. We've already hit 22.5 million.
So it's a really exciting day.
And you can even see, let me do this one day.
See those bars? Those are the volume bars.
You see how all the volume happened here at the beginning of the day?
That was those orders clearing.
You see them? See those bars right down there?
Matter of fact, I can...
Oh, I'm just testing here.
Yeah, full screen.
Oh, really?
There you go.
Am I on crack?
There it is.
Shut up.
Here we go. Look.
Do you see?
Yeah, you're going to put that stupid little window...
Never mind. I'm making a fool of myself.
You see how the volume was all there?
See that volume and how the volume was on the demand side, pushing the price up?
And then once the excitement was over, the volume just sort of pissed back down.
There was a little spike of volume there that caused that.
You see it right there?
Someone probably woke up and said, Whoa, Netflix is up. Buy some.
Yeah, something like that.
Okay, that's fine.
Now, let me take you down here.
Market cap.
The market cap is the market assessment of the total value of the ownership of Netflix.
I'll teach you more about this.
Now, remember this. I think I mentioned this.
I say the same things over and over again, one lecture to another to another.
I just keep layering it and using the terminology.
I don't expect you to remember, memorize things the first time I say them.
Because I want to say them again, and I'll get a little more technical each time.
But the technical of this, and you don't need to know this yet,
is the market cap is the number of shares of the stock that are outstanding times the price per share.
This is the market's assessment of total shareholders' equity.
Now, let me show you something here.
You don't need to write this down yet.
I'm going to take you over here.
I did the wrong one here.
I'm going to take you over here to the SEC.
I'm going to look up Netflix.
And I'm going to look at their financial statements.
That's the Securities and Exchange Commission.
I'll look at their last 10K.
They've got a 10K coming out any day now.
I can, as a matter of fact, I can even, if it's a public company,
I can download all of its financial statements in an Excel file.
This is a primary source.
This is what you use for research, for term papers, Edgar File.
Because if the company says something that is false, and it's filing to the SEC,
then the officers and directors can be fined insanely high, and they can also be put in jail.
So this is high quality information.
Now, I'm going to look at the balance sheet.
Let's see what the accountants say the total shareholders' equity is.
Oh, the accountants say that it's $20.777 billion.
The market says that it's $240.99 billion.
You see a little difference there?
Those are the same number, except that the accountants are telling the historical, using historical data.
The markets are looking at the future, because that's where we have to trade for the future.
And if you buy a share of stock, let's try this.
You decide that you want to buy a share of Netflix stock, madam.
Are you going to buy it from the accountant, or are you going to buy it from a trader?
Yes.
So it doesn't matter if you believe the accountants.
The trader is going to be the one that hits you up for the bill.
That's why the accounting data doesn't matter to us.
It can't, because we have to live in the world where our money is going somewhere or coming from somewhere,
and that would be the market, not from financial statements prepared according to generally accepted accounting principles consistently applied.
So we keep that in mind at all times.
A few more things, and I'll get into this more later, but I want to take you over, okay, take you over, what's a good company?
If you say Netflix, I will eat you.
Okay, let me, now, I'm going to say where I am right now.
I can't get used, Kellogg is now called Kellenova.
Did you know that?
Kellenova Frosted Flakes, they're great.
See that tight bid ask spread? Look at that, isn't that pretty?
A lot of trading volume on it, not as much as it's usually been.
See this number beta? That's a measure, that is our measure of finance of risk.
And I'll teach you all about beta, but know this for now.
A beta of 1.00 would be the risk of a theoretical portfolio of every stock and bond in the world.
It's the market portfolio.
So every stock we measure against beta.
Stock, a beta of one is the market portfolio.
We see that this one is well below one, which means that it is only about 41% as volatile as the market.
It's a safe stock.
A stock above one would be a risky stock relative to the world portfolio.
So in this case, I see that Kellogg is.41.
Of course, it's a safe stock.
It sells basics.
It's always going to be there.
You're always going to have your cereal in the morning.
You're pastries.
It's going to be a safe investment.
But that means it's also going to be a low expected return investment.
The lower the risk, the lower the return that you should expect.
The higher the risk, the higher the expected return.
Now see that PDE ratio?
That's actually also a measure, but it's a measure of undervaluation or overvaluation
as explained in the textbook.
You see if the price to earnings is low, PE will be low, undervalued.
If the price is too high, P over E, price over earnings, will be way high.
That would mean that it's overvalued.
In this case, I see that Kellogg is somewhat undervalued.
It's a low risk stock, and it might be something worth considering to buy
because it looks like it's got some upward price movement.
What's the number I use?
30.
30 would be about where the price is about intrinsic value.
Now some will say 25.
Some will say 40.
I say about 30 from my years of experience.
Let me take you over to the one that I mentioned before,
that company that is run by he of the cloven hoof, Tesla.
A market that was in a hurricane, or not a hurricane, but a really positive bear.
Where do you see the beta?
This isn't risky.
This is risky AF.
Look at the price earnings ratio.
It's not high.
It's high as F, just like Musk himself most of the time.
He of the baked head.
Look, no dividend.
So as the stock price goes down, you don't recover anything with a dividend check.
It doesn't take a rocket scientist to realize that this is not a good investment.
This is an investment, and if you hear all the market news,
the bankers are trying to get out from underage, the brokerage houses are scared to death to do it
because it could cause a collapse of the price, and then their houses would fold.
But there is no question about it that it is way overvalued,
and it is a risky investment if ever there were one.
It's an inappropriate investment for anyone who is not on meth.
And I'm not opinionating.
Yes, I am, but my opinions are right.
Where the hell was I?
Okay.
Let me take you off this board here for a little bit.
In finance, you already heard me do this before.
Markets.
We can divide markets into this kind of market or that kind of market.
Now, you heard me talking about financial markets versus securities markets.
That's one.
But we have other ways that we can divide up the markets as well.
Let me find my marker here to get this one done.
We can have securities versus financial markets.
Securities or financial markets versus commodity.
But there are other ones too.
Money, and I said this one before, versus capital.
Money is short-term.
Capital is long-term funds.
So a company that borrows $10 million for three months,
we call that commercial paper, that comes from money markets.
Investors in money markets are very different animals from long-term investors,
capital investors.
A corporation that has a bunch of money that it doesn't need to use for a few months
is very likely to participate in this money market,
lending money short-term to another company.
Capital markets, if a company issues a 30-year bond, borrows $100 million,
oh yeah, that comes from those investors that want a place for their money for a very long time.
Stocks come from capital markets because a company theoretically kind of like lives forever.
Now, another one that is important is spot versus futures.
Now, actually, the book is wrong on this.
Futures are actually one very special kind of a much broader market called a forward market.
You, sir, are a Colombian coffee bean grower.
I own a chain of coffee houses in Chicagoland.
Now, I can, when I need more coffee beans, I can buy them at spot, whatever the price is.
But I could make an agreement with you, in six months, I shall buy 5,000 pounds of coffee from you
at a price of $4 a pound.
That would be a forward price.
It's not happening now.
Madam, do you buy gasoline?
You're buying it at spot.
But when you get a full-time career job at an incredible salary,
that's a forward contract because you're going to be guaranteed $60,000, $70,000, $80,000
for a period of time forward.
So that's a forward market.
When a cereal maker buys grain like corn,
it makes arrangements for a forward price from grain brokers well in the future from where it is now.
It doesn't buy corn on the spot market.
It buys it forward.
So it knows what price it'll have, get, it'll have to pay, and it will know when it's going to be delivered.
Another one, primary versus secondary.
You will probably never buy stock in the primary market.
The primary market is where a company sells its stock in an IPO or in a seasoned offering.
That is bought by investment bankers.
And then they pump the price up and sell it to us suckers.
When we buy and sell stocks on these trading platforms, those are secondary market transactions.
There's just one buyer selling to one, a buyer from some seller or vice versa.
It's not a primary transaction.
The company doesn't see a penny of that.
That is the only time a company sees a penny.
It's when it sells the issue, as we call it, in the primary market.
And that almost always will be bought immediately under guarantee at a forward price from the company,
the investment banking syndicate.
And then they'll pump it up and then you'll buy it after they have made a lot of money pumping it up.
We'll get into more of this next week, but that's all I have for you today.
I thank you.