More on Perceived Wealth

Filed under: Economy — Peter Asher at 8:32 pm on Friday, January 16, 2009

Allocation of Capital

Circa 1999/2000 a question was asked: “Do stock markets always allocate capital wisely?

How about first asking the question? What capital is being allocated other than that which is invested in IPO’s?

Other then the above, all stock market activity is as follows.

“A record breaking amount of discretionary income has detoured through the equity markets. Specifically, the earners of that income, instead of “saving” it or spending it on consumption or production capitalization, have decided to reimburse an owner of shares in a company. Then the seller of those shares makes the decision to consume, capitalize or spend. Ergo, money “flows through” the stock market rather then being “in” it.

—” money does not flow into “working capital.” What is lost on the multitude who think they are “Investing in a company’ is that “capital investment is only generated by the original issue of the shares and everything after that (99.99% of stock trading) is an after-market of reimbursement. While some insiders selling into the hands of the foolish public are officers of corporations holding large share positions, the majority of distribution is from speculators that are more connected and wiser than John Q. But all of this is money changing hands for the possession of corporate shares at , in most cases, prices bearing no resemblance to the intrinsic value of the ownership. —“stock shares are another one of the major currencies. —- spending stock market profits is, in effect, spending some of the investment money of the guy you sold it to. He doesn’t have it any more. It’s not “in the Market.” What is “in the Market” is what he gets when he sells it. So, in a sense, stock securities are a global currency like dollars, francs, marks and yen,” The stock market has become a ‘Money exchange’ and has become the new “Opiate of the masses.” Empirically, I would define it as “A betting pool wherein people trade equities in a competition for each other’s money.

Written 16/Jan on in answer to comments that were questioning these observations.

One more time on “Zero Sum.” Regardless of what is done with the capital, the market, at the moment of a transaction being executed, transfers purchasing power from one person to another (Minus the commission BTW) ALL that changes is what the new owner of the funds chooses to do with it. No new purchasing power has been created and the new owner of the funds was DEPENDENT on the ability and desire of the former owner of the funds to transfer them. If there are NO owners of funds willing and able to transfer them than those shares at that moment have no value! What I consider to be the SIGNIFICANCE of this is that a lot of planned expenditure is based on this technical DOUBLE ENTRY: that being that one party has the funds and the other party also perceives that he has them.

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