The economy is booming, and in America.
The stock market has been mostly booming for almost 40 years.
But the stock market goes, so goes the wealth
and the health of the American economy
what the market is telling us is that we are on the road to.
In the skyrocketing stock market and that benefits everyone
who stock market has gained almost $3 trillion
in value since the election.
But if you add up all the goods and services bought
and sold in the United States, the actual economy that number
isn't growing as quickly as it used to wages have hardly
budged in decades, and the average American
families net worth still hasn't recovered
from the Great Recession.
So what exactly is the stock market measuring.
The barometer of America's prosperity
by what I did.
The Nasdaq finally hit 5 and investors are salivating is
this this global economic expansion here now in historic
character stock by that it's a fundamentally
cycle.
To understand what the stock markets are
measuring it helps to imagine a very simple
business like eliminate Stan. Jill is killing it.
But I'm thinking bigger I tried to get a loan but the that it
was too risky a rich investors were
by Jill has another option, she can go public giving anyone
who wants to the chance to invest
in her business.
There's something called an initial public offering,
or IPO investors pay a certain amount, say
a dollar to own a small part
where share of Jill's business Jill sells
a bunch of shares and I grow my lemonade empire
right Jill can put that money towards opening new
eliminate stance, which means more profits joke
can put some of those profits towards
developing new products.
She can also give some of that money back
to her investors, these are called dividends.
She doesn't have to do this, but it does help get people
excited about her company and more likely
to buy her stock like Sam he was sick
on IPO day but he thinks is the smartest girl
in the whole world and I know this lemonade stand
thing is going to be huge.
So he offers to buy some shares
from one of the original investors
for twice what she paid for them.
He's thinking just keeps this up.
I can sell these shares the more later on,
that's the stock market.
It's people buying and selling tiny pieces
of companies based on how much they think those
pieces will be worth in the future,
except in real life. It's happening.
Thousands of times a second all over the world.
Their stock markets everywhere but the New York stock exchange
is the big Kahuna.
It's been around since 1792 win 24
stockbrokers put on their finest short pants
and top hats and got together
under a button would tree on Wall Street
in New York City today.
It's where shares in big traditional companies
like IBM and GE are traded.
The Nasdaq is the cooler younger brother.
It was born in 1971 and doesn't have
a physical location all the trading happens
electronically.
That's where you find tech companies like Apple
and Facebook.
So in America if you want to know
how the stock market is doing.
You want to know how both these exchanges are
doing, that's where indexes come in,
they take a whole bunch of share prices
and transform them into one clean number.
The S&P 500 tracks 500 of the largest companies
on both exchanges, while the Dow is
a lot more exclusive, it only follows
the 30 companies it considers the most important in 2015 it
booted out AT&T and replaced it with Apple.
The Dow and the S&P are big American
indexes but other countries have their own indexes to measure
their stock markets.
The German stock index Dax relatives of C-100 forthcoming
Nikkei index closed in the Shanghai index today.
Many of the world's.
Biggest companies are publicly traded, but that wasn't always
the case.
One guy and it was almost always a guy used to call all
the shots.
Big corporations of the 1900s, most of them at that time had
a single shareholder like Andrew Carnegie.
Vanderbilt.
Rockefeller.
They really exercised very tight control over these businesses.
This all began to change in the beginning
of the 20th century, we start to see
the rise of companies like General Motors
and General Electric and RCA.
Companies discovered what Jill discovered
that if you allow the public to buy shares you can
grow a lot faster shareholders want to make money,
so if the CEO makes a really bad decision they'll
start selling their shares which will drive the price down.
The opposite is also true.
The possibility of a future payout encourages
people to invest in risky new ideas,
that's the whole idea of the stock market
as a force for good it drives companies to make good
decisions.
So they have more money to give back
to shareholders and more money
to grow and create jobs and that's good for everybody.
By the middle of the 20th century,
the American public corporation was proving itself one of
the most effective and powerful
and beneficial organizations in the world.
There is a sense of growing prosperity
and the telephone company is a grateful participant.
In the decades after World War II,
the stock market helped create the heyday of shared American
prosperity.
It's a new era begins speak the system more democratic
increase the flow of capital
for the financing of business.
The corporation really was supposed to be a vehicle
for providing investment opportunities not just
to the very, very wealthy, but to average Americans it's
generating superior returns for investors what you think we
ought to invest honey millions of secure, well paid jobs is
producing innovative products that are around the globe,
executives and directors viewed themselves as stewards
or trustees of great public institutions
that were supposed to serve not just shareholders
but also bondholders suppliers employees the community.
Buick has provided a stomping ground
for the cowboy and divers centers
and Buicks general manager Ivan Wales drops in.
The DuPont company modern chemistry and modern industry
join hands in serving our modern America.
These public corporations helped build the American middle
class.
And for people who knew how to play it right trading
their stocks could.
Build a fortune like this guy, been working on the.
{laugh} folk music is just as hobby mostly he's
the billionaire investor.
Warren Buffett, the biggest Wall Street titan
of them all, 'cause most famous investor
investor Warren Buffett is worth 84 million.
Buffett is famous for a particular investment
style.
Value investing careful analysis of companies looking at their
balance sheet, looking at their business.
But if you don't have time to do that here.
A tip from the man himself by an S&P 500 low cost index.
An index fund puts a little bit
of your money in all companies in the index,
basically you're hitching your wagon to the stock market.
The other option is to give your money
to professional investors who for a fee.
Try to beat the stock market.
Buffett once about a hedge fund
a million dollars that over 10 years.
An index fund would make more money, and he won,
picking stocks.
Is a hard game.
But there's one popular strategy this guy John Maynard Keynes.
You can remember him by his epic mustache he came
up with it.
Keynes was one of the most influential
economists of the 20th century, and he noticed that newspapers
would do this thing.
They would have a full page
of the newspaper dedicated to photos of pretty faces
and you are supposed to pick the 6 prettiest faces
and mark them down in rank order
and mail them in to the newspaper.
The newspaper would rank all the faces based on how many
votes they got and the winner was
the person who's choices matched the crowd.
Let's think about that contest.
Do I really just pick what seemed to me
the prettiest faces no I should pick what other people think are
the prettiest faces that's kind
of what happens in the stock market.
It's not the real value of companies that drive their
stock prices.
It's the most popular story people believe
about those companies sometimes the stories are backed up
by facts. Chipotle stock has plunged more than a 3rd.
This comes after several outbreaks, including E coli,
salmonella and norovirus were linked to the chain.
And emissions scandal rocking Volkswagen is sending its stock
into a free fall, but sometimes the stories are.
Internet companies are the hottest and most profitable
investments in a generation.
They've driven the value
into the stratosphere Lycos excite.
Yahoo those internet stocks continue their meteoric.
The narrative in the 1990s was internet
companies are going to dominate these companies
shouldn't be trying to make profits.
That's a good story, which is partly right.
We do have, companies like Amazon, Google.
The problem is that nobody had any way
to calibrate this story how high should the market be.
Is it a boom without end has
the economy changed for good.
You know, something's wrong when everyone's talking
about something like this, it's a bubble.
It's like a snowballing effect it keeps getting higher
and higher. It can't go on forever.
The.
com honeymoon is coming to a close in many parts
of the world ,. -coms have become.
bomb 300, 000 tech jobs are now gone described is nothing short
of breathtaking appoints drop never before seen on the US
market. It left traders and investors shell-shocked.
When stock market bubbles burst, it
doesn't just hurt investors it reeks havoc
on the whole economy.
Millions of people can lose their jobs companies go
under and pensions get pummeled.
But even when the stock market is
up and investors are making money that could hurt
the economy too.
We are heading toward the most acute shortages
of energy since world war 2.
Motorists who began lining up before dawn and hopes
of getting enough gasoline to take them
through the day you mad about the way prices have risen
and they discouraged and disgusted
with the whole thing there was a general.
Sense of concern that something had gone wrong
in the American economy, and eventually
the finger gun pointed at the way our large public
corporations were operating in being run.
Meet the chief finger pointer Milton Friedman
and economists so famous.
He was invited onto popular talk shows
to help explain his philosophy.
Did you ever have a moment of doubt
about capitalism and whether greed.
A good idea to run on tell, is there some society.
You know that doesn't run on greed.
Remember the wheel Friedman was not a fan.
He thought it should have exactly one spoke shareholders
in 1970 he published a blockbuster op ed
the famous editorial that ran in the New York Times
in which he said that because corporations were
owned by their shareholders.
The only obligation of business was
to make profits Gordon Gecko character
in the movie Wall Street epitomizes Friedman's philosophy
you all the car that's right you
and you are all being royally screwed
over by these bureaucrats greed,
for lack of a better word, is good and corporations took
his advice.
And they start tying the top executives pay
to share price performance.
Well if 80% of the CEO's pay is based
on what the share price is going to do next year, he or she is
going to do their best to make sure
that share price goes up, even if the consequences might
be harmful to employees to customers to society to
the environment, or even to the corporation itself
in the long term.
CEOs put more money towards things that would increase
the stock prices in the short term,
like cutting costs or buying back a bunch
of their own shares to decrease
the supply and artificially bump up the price.
Between 2007 in 2016.
That's how companies in the S&P 500 spent more
than half their earnings.
Another 39% went to their shareholders
as dividends, which didn't leave much left
to raise wages or expand or develop new
products, things that are good
for the economy and the long term.
If you have a long-term view
that you know 100 years from now I still want
to be a company may be making something different,
but I still want to be here.
So the choices that you make
in terms of investments in people and capital are
different than if you want to, you know, make
an investment and generate a return
within 24 months.
In 2012 the wasabi paper company was making investments
to switch its factories for making printing
and writing paper to making tissue paper
but then a hedge fund bought up a bunch of shares and push
the company to cut costs instead.
Their argument would be we don't need to do that, but I'd
rather see you do is increase the dividend as management we
disagreed with that we offered
concessions.
You know, we take a cut in pay just to leave
the doors open.
Plus paper says it plans to close the Brokaw mill
by March the 30.
Leaving about 450 people without work, the news is
devastating.
Not just to the workers who will lose their jobs,
but to the community of Brokaw
where the paper company got its start.
December 7 will never forget that you know it's when Pearl
harbor was but it's the day it was burying my father
and it's the day I lost my job.
Then the next day I came to work and it was just
a mad house you know people just crying and you know why you
know and it was a shock.
My concern is we've evolved to this much shorter term view
on shareholder rights versus a longer term view
on stakeholder responsibilities.
This is a trend that's been going on
for a while and has gotten even more
powerful and important it's seriously threatening
the ability of our corporations
to pursue the kinds of projects
that lead to long-term corporate sustainability and economic
growth.
Laying off workers, closing factories keeping wages
low.
These are things that are bad
for the economy overall but can be great
for a company's short term profits.
And that's with the stock market cares
about.
The stock market got off to an impressive start
the stock market set another record day
for the record books and Wall.
The US economy charges ahead and so to the bulls
on Wall Street is a big day on Wall Street
the P 500 has reached out to a new all-time high
and as the stock.