Where is the US economy headed?

@au1929,

That's correct; but the price of stock has to have some relationship to the equity and earning potential of the company. Did you know that most speculators lose money?

http://www.tkfutures.com/download/I%20am%20sick%20of%20losing%20money%20in%20options.pdf

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@cicerone imposter,

There is also this:

Quote:

economy
All that money you’ve lost " where did it go?01 Dec

This is the first article I’ve seen that mirrors one of our primary assertions in our book, “The Losing Game: Why You Can’t Beat Wall Street.” The money that you’ve “lost” was never there to begin with…it’s all perceived value.

Link to the original article HERE:

By ERIC CARVIN, Associated Press Writer Sat Oct 11, 12:41 PM ET
NEW YORK - Trillions in stock market value " gone. Trillions in retirement savings " gone. A huge chunk of the money you paid for your house, the money you’re saving for college, the money your boss needs to make payroll " gone, gone, gone.

Whether you’re a stock broker or Joe Six-pack, if you have a 401(k), a mutual fund or a college savings plan, tumbling stock markets and sagging home prices mean you’ve lost a whole lot of the money that was right there on your account statements just a few months ago.

But if you no longer have that money, who does? The fat cats on Wall Street? Some oil baron in Saudi Arabia? The government of China?

Or is it just " gone?

If you’re looking to track down your missing money " figure out who has it now, maybe ask to have it back " you might be disappointed to learn that is was never really money in the first place.
Robert Shiller, an economist at Yale, puts it bluntly: The notion that you lose a pile of money whenever the stock market tanks is a “fallacy.” He says the price of a stock has never been the same thing as money " it’s simply the “best guess” of what the stock is worth.

I agree with Robert Shiller; "the best guess" for all who had 401ks, IRAs, and home equity as their retirement plan lost at least 30 to 50% from one year ago. It was never backed up with "cash."

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@cicerone imposter,

If the stock market tanks, and I sell my stock or mutual funds holding stock, I have in fact lost a pile of money, contrary to what some Yale economist claims. Numbers of shares don't mean a hill of beans, its what the shares will bring on the market. If I own a car that turns out to be a lemon, I have in fact lost a pile of money as well, because when I want to trade the car in, it may not be worth a dime. But I can drive the car at least until I want to trade it or have to trade it. In contrast, shares of stock are worthless to me, except for what I can sell them for, perhaps somebody should tell the Yale economist that?

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@okie,

Where does he say anything about "how much shares of stock will bring on the market?" Do you know how to read?

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@cicerone imposter,

I'm not sure what your point is, or his point, ci, but the same thing applies to property. Its not the same as cash, no, but watch alot of people lose their shirts when the real estate market tanks. Cash is not much different than stock, it seems to me, it is a note which varies in value until such time that you redeem it for something of worth to you. A share of stock is not much different is it?

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@okie,

okie, You really don't know what you are talking about. I tire of your ignorance.

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@cicerone imposter,

ci, I'm not sure what the point of your argument is, but if I am correct, you are citing the point that the value of the stock was a fictitious number, not backed by money, it was all speculation. Okay, I have read the same thing. But I am simply pointing out that almost everything is the same, including property, an ounce of gold, an antique, and in fact - money itself, which is merely a note. Nothing is worth anything, except for what you can trade it for, and so I think a share of stock is the same thing, thus if the perceived value drops like a rock, the holder of that stock has in fact lost a pile of money. Same thing with property, if property values drop precipitously, the owner in fact has lost a pile of money. If the value of money or promissary notes drop, we will in fact all lose a pile of money.

Some things fluctuate more in value than other things, precious metals, grain, livestock, shares of stock, whatever, but as this stuff is bought and sold every day on a continuous basis, if the prices drop, somebody has lost their shirt.

Call me dumb, but I think the Yale economist was arguing a rather dumb point.

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@okie,

That's because you missed the whole point. It's not what you presume it to be as indicated by your response.

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@cicerone imposter,

Well, I went back and read the last couple of pages, and it seems you agree with me, then agree with Shiller, the Yale economist. Starting with this post:

au1929 wrote:

Much of the money or wealth coming from wall street is based on the manipulation of money. When a stock is bought for say $10 and sold at $15 the profit is as you say a manipulation of money not real value added.

Then you said:

cicerone imposter wrote:

That's correct; but the price of stock has to have some relationship to the equity and earning potential of the company. Did you know that most speculators lose money?

Then you quote Shiller:
"Robert Shiller, an economist at Yale, puts it bluntly: The notion that you lose a pile of money whenever the stock market tanks is a “fallacy.” He says the price of a stock has never been the same thing as money " it’s simply the “best guess” of what the stock is worth. "

I agree with your previous post, ci, that the value of a stock, when it goes up, generally indicates the company is worth more, due to a number of possibilites, they are making a higher profit, they have developed more technology, they have discovered something valuable, they have built something that is very profitable, or they have become more efficient, there are a whole host of possibilities so that the company has indeed increased in value, not a manipulation of money as au1929 said. So if the stock market tanks, it probably means that the companies are now not as profitable, they are perhaps losing ground to competition, maybe oil reserves are declining if they are an oil company, or perhaps their feedstocks to a manufacturing or processing plant are more expensive, a whole host of possibilities. So I am merely pointing out that I think Shiller is wrong when he says the notion of losing a pile of money when the market tanks is a logical fallacy. I think it is not a fallacy, it is a reality.

I admit that some action of the market is due to manipulation and emotional factors of investors, but eventually, the overall price of the market will indeed be captive to real world factors, the approximate value of the stock, as determined by the value of the companies, not merely speculation or manipulation. Short term fluctuations of course include speculation, but over time, real world factors will determine the approximate price of a share of stock in a company.

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@okie,

okie, Or it could be only that demand has dropped out of the bottom like now. The variables are impossible to follow and keep on top of, because it's always in flux. Who would have known just 12-months ago that most of the big banks and finance companies would be on the threshold of bankruptcy? Most people didn't even know what derivatives were, but most banks and finance companies were trading those like hot pancakes, and showing "profit" on their books. It was all a shell game. All those cash trading in derivatives just disappeared, and banks ran out of cash where they couldn't even meet daily cash requirements.

"The price of a stock has never been the same thing as money" is the key and the simple fact. It's only the perceived value of the stock.

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@cicerone imposter,

There's an interesting article in today's San Jose Merc about Home Prices and Foreclosures. Our ZIP code in Santa Clara County had one of the smallest decline at 12% in prices with foreclosures one of the lowest in the county at about 2 of every 1,000. Some ZIP codes in our county lost close to 58% with foreclosure rates at 68 per 1,000.

At least we knew where to buy our home in the early 70s.

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@cicerone imposter,

Quote:

At least we knew where to buy our home in the early 70s

Location, Location, Location, the three most important factors in real estate. In 04 when looking to buy I toyed with the idea of going after the most home for the money, but now I am so glad that I went for location. I picked an up and coming new subdivision near a lot of new retail just off the interstate, and thus we have had very few foreclosures and only a relatively slight decline in values.

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Regardless of the health of the banks and all the stimulous the gov't can and will provide the economy will continue to flounder. The only remedy is "Jobs,Jobs,Jobs. The rest is simply window dressing.

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@au1929,

au, I disagree; without banks, our economy will not survive. Credit is the backbone of any economy, and without it consumers and businesses will not be able to survive.

However, I agree with you that what is needed are jobs, jobs, and more jobs, but that will not be an easy task while our economy continues to lose over half million jobs every month. Trying to reverse this trend will not be easy or short term.

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@au1929,

Quote:

Regardless of the health of the banks and all the stimulous the gov't can and will provide the economy will continue to flounder. The only remedy is "Jobs,Jobs,Jobs. The rest is simply window dressing

Wrong, the remedy is a return of confidence, which can not happen till the obvious flaws in the "system" are fixed. Jobs financed with debt will provide income, which will be saved for the rainy day that most now expect. Saving is wise from an individual well being point of view, and can be good for the collective, but since the current economic system is built up the demand for growth and ever increasing consumption it is not good for our system. The result will be another crash a few years down the road, no matter how much debt is created in the attempt to prop up consumption, one that will be far worse than this one has been.

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@hawkeye10,

Agreed,the flaws in our economic system are sorely in need of update. However, without jobs for Joe sixpack the economy will not return to health.
On the other hand in my opinion consumer based economies in the long run are doomed to failure.

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@au1929,

Quote:

Agreed,the flaws in our economic system are sorely in need of update. However, without jobs for Joe sixpack the economy will not return to health.
On the other hand in my opinion consumer based economies in the long run are doomed to failure.

Joe sixpack needs to be supported with either a job or a government check, to do otherwise is immoral and would ferment revolution that would take down to political world order. It is out of self preservation that governments spend this money, and it is not clear to me that the US way of making jobs is better than the Europeans way of sending a check. Neither method of supporting joe sixpack has a lick to do with fixing the problems that need to be fixed before we can progress, however. Obama has insisted upon running the support for joe through private enterprise, and I have seen figure that indicate that up to 40% of the money will be skimmed off before joe ever gets it, so the Obama plan has deep flaws.

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@hawkeye10,

I agree with you assessment to a degree; my only criticism is that Obama is trying to do everything all at once rather than attacking the primary problem; jobs. Job creation is essential for our economy to get back into maintenance mode. That's the only way our governments will have tax revenue.

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@cicerone imposter,

Quote:

By LOUISE STORY
Published: April 25, 2009
The rest of the nation may be getting back to basics, but on Wall Street, paychecks still come with a golden promise. Workers at the largest financial institutions are on track to earn as much money this year as they did before the financial crisis began, because of the strong start of the year for bank profits.

http://www.nytimes.com/2009/04/26/business/26pay.html?_r=1&hp

CI, at the end of the day what we have is convincing evidence that the problems have not been fixed, that the lessons have not been learned. I am putting all my money in liquid and government guaranteed accounts, I want to be able to move if either inflation or deflation takes hold. I am firmly convinced that just as was the case during the last Great Depression this is going to be two cliff event. The failure of the housing markets leading to the failure of the derivative market and thus the gutting of the banks was the first cliff. The next will be either the failure of the dollar or a wave of national government bankruptcies....I think. It is difficult to predict where in the global economy the break will happen, but it is very clear that the system is not up to the task of dealing with the current tension.

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@hawkeye10,

You have that spot on! They're a bunch of numbskulls who fails to understand that paying high salaries to people who produce nothing but increase value where none exists such as derivatives, they have lost all sense of constraint and equity. We're again back at square one, and our government will continue to bailout the same banks that got us into trouble in the first round.

History does repeat itself.

3 Replies

Where is the US economy headed?

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