Stock Market Liquidity

012716Apple is one of history’s largest corporation. Unlike other high flying stocks, Apple earns a  discernible profit and has always traded at a reasonable price earnings multiple. Today Apple lost 6.5% of its value in one day. That should sound like a lot, but these kinds of price movements are standard in today’s financial markets. In an efficient market. this kind of thing normally occurs perhaps once over a years time and not in one of the Dow Jones Industrial components. The fact is that stock markets around the world are train wrecks waiting to occur.

What does liquidity mean? You might think that it means only a lot of money available to trade with. For a specific market, liquidity means that an asset can be bought or sold instantly without having much impact on the price. In liquid markets investors have a way of anticipating earnings in advance so there is not a huge impact when news is announced.

This post is not about the prospects for Apple stock over the coming days. The fact is that stocks don’t act like this in legitimate markets and this is a huge warming sign for the market overall. It is a sign of instability and extreme danger.

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About Fantasy Free Economics

James Quillian is an independent scholar,free market economist, teacher of natural law, teacher and originator of the Fantasy Free approach to economics. James Quillian does not believe lies. Contact: news@quillian.net
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