Last time we tackled Value as sustainable Prices based on product Features, shown in Value Space. There, 2 Valued Features, horizontal dimensions 1 & 2, drive Value, which determines Price, vertical dimension 3.
We earlier depicted Demand with a horizontal Quantity dimension 4 and the same Price dimension 3.
Last week we showed how the Antarctic claims of Argentina and Australia meet at the South Pole, their air spaces abutting the Earth’s axis. If we call the South Pole “0,” every point away from it is positive.
As Value Spaces and Demand Planes share a common Price Axis, they abut one another as do the Argentinian and Australian claims.
It follows Value and Demand form 4D systems, such as that for electric cars below. Every point in Value Space has a matching one on the Demand Plane. Look at the green lines running to the isolated point in Value Space, connecting to its opposing Demand Plane point.
The diagram shows the Law of Value and Demand:
- Product Features determine Value
- Value determines Price
- Price determines Quantity sold
- Quantity sold is a feature
Value and Demand form linked, dual states.
How do we handle more valued features? Please see the next post for the answer.
#prices#demand#4Dsystems#marketanalysis
Many Features Can Determine Value
Last time we looked at how 3 features revealed value in stocks. But, stockholders do not limit themselves to some fixed number of features in their collection buying decisions.
Here, the market considers at least 4 features simultaneously. It entertains 1) book value per share on one horizontal axis, 2) market capitalization on the other, and then, if it sets 3) EPS to 20 and 4) stock volume to 10 million, it produces the surface at left. If it resets the stock volume to 1 million, it shifts that surface upward. [This analysis excludes Amazon.]
Stocks support higher prices with higher earnings and book values per share. But prices climb as market capitalization goes up and volume falls. Accounting for opposing forces is crucial to market analysis.
This S&P 500 study only examines stock parameters. As the world reacts to COVID-19, we see the impact of global market factors. Stocks fall with uncertainty.
In markets such as the S&P 500, with a sufficient number of entrants, several measures of demand come into view. The slopes of 2 important demand curves start to converge with enough market participants. See the next post for a discussion of their differences and similarities.
#stockmarket #equities #markets #trading #stocks
Features Determine Value
In every market, buyers determine Value, the sustainable prices for products based on their features. This phenomenon is never more evident than in stock markets.
Consider the S&P 500 from one day in July 2019, as shown below. After filtering out those stocks with negative figures for book values, earnings per share, and returns on assets, we have 411 stocks left.
At left, the plane running through the data reveals how the market rewards market capitalization (showing larger companies draw larger prices) and book value per share (how the market rewards a measure of safety if the company were to dissolve), given earnings per share (EPS) of $2. We could imagine stockholders consider EPS as part of their Value calculation as well, and if we increase it from $2 to $20, as shown at right, we see how the market rewards that feature.
Book value per share, market cap, and earnings per share (with P-values of 0.58%, 1.88E-67, and, 1.17E-11, respectively, where P-values measure the chance a variable contribution is due to chance) are parts of an equation with more contributors to Value as a part of it.
What else might add Value? Check in to the next post for some answers.
#prices#stocks#value#sustainable#market
Value, Demand, and 4D States
Last time we tackled Value as sustainable Prices based on product Features, shown in Value Space. There, 2 Valued Features, horizontal dimensions 1 & 2, drive Value, which determines Price, vertical dimension 3.
We earlier depicted Demand with a horizontal Quantity dimension 4 and the same Price dimension 3.
Last week we showed how the Antarctic claims of Argentina and Australia meet at the South Pole, their air spaces abutting the Earth’s axis. If we call the South Pole “0,” every point away from it is positive.
As Value Spaces and Demand Planes share a common Price Axis, they abut one another as do the Argentinian and Australian claims.
It follows Value and Demand form 4D systems, such as that for electric cars below. Every point in Value Space has a matching one on the Demand Plane. Look at the green lines running to the isolated point in Value Space, connecting to its opposing Demand Plane point.
The diagram shows the Law of Value and Demand:
Value and Demand form linked, dual states.
How do we handle more valued features? Please see the next post for the answer.
#prices#demand#4Dsystems#marketanalysis
What Holds Up Prices?
Price formation often seems steeped in mystery. “Seeing what the market will bear” is a mantra for many, but why would we want to leave prices to chance if we could avoid it?
What supported the prices for 2013 electric cars? As shown below, we could make a statistically significant (9.3E-09) estimate of prices using a surface running through the 18 electric car models (as green spheres) that made up the market that year. That surface reflects that after buyers paid about $6,500 to enter the market, the Price went up $102 for every horsepower and $172 for every added mile of range (P-Values, 0.00038, 4.19E-07, respectively). Models priced above the surface may be overpriced, those below may be under-priced, or some other significant Features may be at work.
The diagram & the market math behind it demonstrates the first 2 adages of the Law of Value and Demand, which are:
The green region is Value Space. How does it relate to Demand? Read the next post for an answer.
#prices#value
The Demand For Money
Well, that’s an odd title, I’ll grant you that.
Really, what we’re addressing here is the demand for fiat currency.
Recall in previous posts we found Demand Frontiers for multiple markets. Sometimes these curves have breaks. Such is the case for fiat currencies. As shown in the diagram, this market has an Upper Demand Frontier and an Outer Demand Frontier.
Upper Demand Frontiers emphasize the price-limiting boundary for a market, while Outer Demand Frontiers focus on the quantity-limiting ability of a market to absorb the product. These boundaries help countries’ central banks to figure out how many currency units to issue.
What maintains the price of any currency? Please look at the next post for the first of two answers.
#demand #prices #currency #demandforecasting
Something In Common
I posed these questions last time:
Which two countries are these? Argentina and Australia.
Where do they touch? Yes, this is a trick question. Nothing touches Australia. However, both Australia and Argentina have claims on Antarctica. They touch at the South Pole. The Earth’s axis marks the common line that divides their respective air spaces (https://lnkd.in/gAnDGaw).
Why does it matter?
We call the South Pole 90° south latitude. But what if we called it “0”? If we called it “0,” then every point moving away from it would be positive. That’s because geography is never negative. If we started at the South Pole and walked one step into the Argentinian claim, we could say we moved into positive Argentinian space, but we wouldn’t say we were in negative Australian space. If we turned around, retraced our step onto the South Pole, and then took another step into the Australian claim, we would be in positive Australian space and not in any other.
This seemingly odd construct proves useful. Look at upcoming posts to see why.
A Change Of Perspective
Modern economics gets inspiration from thermodynamics, constantly looking for the equilibriums such systems demonstrate.
Multidimensional Economics has a different point of origin.
Consider the maps below and the three questions that follow.
Which two countries are these?
Where do they touch?
Why does it matter?
Look to the next post for the answers.
#demandforecasting #prices
Why Find Demand Frontiers?
In the last few posts, we’ve been examining Demand Frontiers. You might ask, “What is the point of doing that?”
Well, let’s look.
Recall in the last post, we found the Demand Frontier moved little in 20 years. In 2016, the Demand Frontier had an equation describing the line running from the upper left to the lower right in the diagram below. Because the programs forming this line clustered closely about it, the standard deviation of the line is relatively low: $25.5 million.
The United States Air Force proposes to build 100 B-21 bombers at a “projected average procurement unit cost of $550 million per plane in FY2010 (https://lnkd.in/g4Rkx2R or $610M per plane in 2016 dollars. What are their chances of making that number of planes at that price, given the standard deviation of the Demand Frontier?
As shown below, the B-21 Target is nine standard deviations over the predicted limiting price ($380M) for the B-21. Examined by another metric, the historical maximum percentage deviation over the Demand Frontier was 17.8%. The B-21 program proposes to exceed it by 60.5%.
What was the procurement history of other programs that tried to exceed the Demand Frontier? We will find out next time.
#demand #demandforecasting
Demand Frontiers Change – But Some Not By Much
Markets change. Demand Frontiers depict the limits of markets to absorb products based on their prices to the quantities purchased. While some markets change rapidly (cell phones, flatscreen televisions, computers, etc.), others, especially at their limits, are slow to respond.
The market for fighters and bombers is such a market.
At its Demand Frontier, this market has changed little in 20 years. The constant over that period changed less than 2.5%, and the slope less than 1.0%. (Note: The F-35A, shown in a previous post, once corrected for its revised 2016 values, fell off of the Frontier).
If a market’s Demand Frontier is stable over decades, what are the chances of vastly exceeding it? Tune in to the next post for the answer.
#demand #demandforecasting #prices
Demand Frontiers
The circles in the last post represent the outermost quantity-price points for the bomber market. We call the line of best fit through them the Demand Frontier.
Demand Frontiers form for all mature markets. They move as the products that form them change their quantities sold or prices.
What does this Demand Frontier reveal about the upcoming B-21 Bomber? (Answer in next post)