Stock Market: Economic Engine or Rich People Roulette?

[Tyler Durden]

Poll question: Stock Market: Economic Engine or Rich People Roulette?

Correct me if I'm wrong, but isn't this how it works?

The Initial Product Offering sells shares in a company, which represent a portion of the company's actual assets. Unless there is an additional offering, or some sort of engineered buy back of shares, the company has had its last to do with the actual stock, other than making it look good through doing well.

So the "Stock Market," contrary to whatever conventional capitalist wisdom would have you believe, is nothing but a giant "Paper Chase," which, thanks to our obsession with "instant gratification" only messes with company finances, due to fixation on how the company did this week as opposed to the long term.

Well?

[bryant69]

1. ALl economic systems are games we play with ourself

The nature of the beast.

Why do we let green paper have value?

What's the alternative?

Bryant
Check it out --> http://politicalcomment.blogspot.com

[unblock]

2. way too simplistic

it is true that ipos and subsequent direct offerings are how companies actuall sell a portion of ownership to raise capital.

however, the price they can get at ipo is STRONGLY influenced by the presence of a highly liquid secondary market. if you couldn't sell your shares of google at any time at a plausible market price, you wouldn't likely tie up your fortunes in it. google was able to raise the capital that it got, at the price it got, because of the ongoing ability to trade their shares.

furthermore, the company does have a continuing relationship to its shareholders in the form of dividends, distributions, possible takeovers, fiduciary obligations, reporting obligations, shareholders legal rights, and voting rights.

people have the ability to ignore the underlying business and TREAT the stock market as one giant casino (think day-trading) but that doesn't mean it fundamentally IS a casino.

[TahitiNut]

6. "We’re living in a world of fools breaking us down ..."

It begs the question of whether the market price of a share of stock is really based on some probability of future earnings of the underlying enterprise or the probability that a seller can find a 'greater fool' to buy that share of stock. The standard argument is that the willingness of someone to buy is itself based on some expectation of future earnings. I'm dubious.

The whole question of inherent value vs. monetary price in any market must include an examination of the supply and demand factors of both investment capital and investment vehicles - in this case, common stock and bonds. When too much money chases too few goods, we have the familiar phenomenon called 'inflation.' The bond market is far, far less subject to inflationary forces due to both the concrete upside cap on future expectations and the fact that inflation in the bond market is self-correcting (after all, the return is in inflated/deflated dollars).

For the last 25 years we've seen what could be characterized as a national economic policy that's predominantly driven by the inflationary appetites of the stock market and the creation of ever-increasing amounts of investment dollars (feeding the beast) along with increasingly inventive and manipulative ways of translating the 'funny money' of the market (e.g. "market capitalization") into burdens borne by labor. With the advent of Reagan/Bush we saw an order of magnitude increase in mergers, acquisitions, and reorganizations - especially those incorporating an "exchange of stock" or other conversions of "market cap" to an actual balance sheet entry (i.e. "real dollars). State and Federal pension funds, Roths, Keoughs, 401Ks, and a host of other 'shells' have flooded the stock market with dollars and created an national dependency on the market heretofore unknown in the History of Man.

Rich get richer - This trend in our society has created ever-increasing amounts of investment dollars. It's the rich and affluent who, when they receive more money, invest a greater share in the market than in housing, food, clothing, medical care, etc. This is an inflationary force (hysteresis effect) in the stock market.
Poor get poorer - The downward pressure on wages (greater ownership 'share' of the wealth created by labor) creates a labor motivation driven by the baser drives (i.e. survival) in Maslov's Hierarchy of Needs. The average worker in an S&P500 company only receives about 1/3rd of the value of their labor in compensation. Tax policies favor unearned income, further excerbating the terror-driven labor force.

The entire raison d'etre of the Bushoilini obsession with "Social Security reform" is driven by the appetites of the ownership elite - flooding the equities markets with a bolus of public (working class) dollars. It's become a vast and malignant Ponzi scheme, imho.

[Neil Lisst]

3. Roulette? No, more like a neverending crap game.

The stock market does not represent true value, but perceived value. Right now, it's got a lot of air in it, IMO, based primarily upon the public debt and the private debt.

The stock market can do well while average american does not do well, and that is happening now.

[TahitiNut]

15. Rather than "perceived value" it's the value of perceptions.

It's also the value of perceptions that drives the narcotics industry - shoot up and get those perceptions flying!

[Yupster]

4. Whenever the company wants to raise more money

to build a new factory or something, one of the ways it can do that is to sell additional shares of stock. That will cause the current shareholders' ownership to be diluted though as instead of owning one millionth of the company you may now own only one 1.2 millionth of the company. To do this the company wants the share price to be high so they can raise the money they want without having to sell too many more shares.

This is why the share price of a company is so importan, espaecially a company losing money. If a company loses money year after year it sells more shares each year to stay in business. However, when the share price gets down to $ 1 a share, you just can't issue enough shares to make you the money you need to keep going. Sirius Radio announced last week its losses this quarter were just as bad as it was a year ago. It's bleeding money badly and with a share price down to $ 5 a share, it makes you start to wonder.

Another reason a company cares what its share price is selling at is that the way a company is taken over is by another company or even a person buying 51 % of its shares. Companies don't want one person owning a large percentage of their shares because that person can then have a great influence on policy. The lower the share price, the more likely one person or group will be able to take them over. Just as an example, American Express recently spun off its financial planning business into a new company, Ameriprise Financial. The share price of that new company is very important as many brokerage firms would love to take it and its 10,000 brokers over. To keep its independance, the cmpany's stock will have to hold its value.

Also, the company's will often pay dividends which is a continuing relationship with the company and its shareholders.

Hope that helps explaining some relationships a company has with its stock price after IPO.

[TahitiNut]

19. Another way to do it is BORROW - issue bonds.

It's fascinating to me that bonds are avoided and stock is issued. The hypothetical 'value' of either one is based on expectations of economic viability (e.g. profits and growth), but people opt for the potentially unending parasitism on labor rather than the pay-off-limited parasitism. I suppose it's no too surprising that private bonds are eschewed in a market overflowing with government debt instruments. That deficit-spending sure has a salubrious effect on the stock market. :eyes:

[KharmaTrain]

5. If It Was Roulette, There'd Be A Lot Poorer People In This Country

Any decent financial planner will say that anyone who is just invested in the market deserves to lose it all. It is a gamble, but it also, when done right, investing in the market also helps in stimulating the economy or helping an industry get financing and grow where it might not have otherwise. The internet(s) is a good example. It was the market that brought in the billions that led to the rapid growth of computer size, speed and the expansion of the internet while bringing the price down. Stock IPOs made capital available that made a lot of small companies prosper and everyone benefits.

Replace Stock Market with Real Estate and you could hold the same arguement. It's more a reflection on people's selfishness and greed when people abuse the markets and turn it into their own gambling casinos. But then those people deserve to lose everything they have. Smart investors look long term.

[alfred e bush]

8. investors

lazy focks...with money

[madrchsod]

7. they are playing with our money

and our lives

[JPZenger]

9. Constant pumping of stocks on message boards

It is not just rich people gambling on stocks. It is irritating to read many of the message boards on //messages.yahoo.com for individual stocks. See the message board for XMSR for example, for XM satellite radio.

So many amateurs have bought stocks on margin with too little money down, and are going down the toilet when a stock suddenly loses 40% of its value. Other people have put money down to bet that the stock goes down. So the message boards are full of unconvincing posts by these gamblers trying to convince the rank and file investors that the stock is going down the toilet, or that it is about to triple in price. Few of these posts actually contain any information that would convince anyone.

They actually think this will affect the market - which is mainly driven by mutual funds and institutional investors.

[Clarkie1]

10. Stocks have value. The stock market is egalitarian and democratic.

When you own a stock, you own part of a company. The beauty of the stock markey is it allows nearly anyone too own "the engines of capitalism."

That is very Democratic. :-)

[TahitiNut]

13. Wanna buy a bridge?

:silly:

[Tyler Durden]

16. "Wanna get off, got to get off, off of this Merry-go-Round..."

LOVE Dione Warwick's voice.

True statement, though in our context.

[Clarkie1]

17. Do you want to have a serious discussion or a juvenile one?

The stock market is not a "crap shoot" unless one makes it a crap shoot (for instance, but putting all of one's money in one particular company, particularly a company one knows nothing about.)

My rule is no more than 4% of total assets in any individual stock. That diversifies the risk.

Getting back to the original question, yes stocks DO have value. The stock owners OWN the company.

[TahitiNut]

21. The naivete and simple-mindedness of what you've posted ...

... indicates a far more "juvenile" perspective than nearly any other in this thread. Try reading (and comprehending) my post #6 above. You're merely regurgitating the Disneyland 'reality' of the stock market - ignoring the far more pervasive corruptions of the system. You ignored it and posted a cartoon. Talk about "juvenile"!!?!

[Tyler Durden]

22. When one "BELIEVES,"

Then to accept that the "BELIEF" may not be based in reality shakes one's world to the core.

Those who "BELIEVE" in the Market are "PLAYING" the Market, therefore they cannot be wrong, as that would be counterproductive.

Grandma and Grandpa losing their ass in the Savings and Loan debacle or ENRON: THAT is the nature of the MARKET.

[TahitiNut]

23. Yep. Drug addicts are rarely "scared straight."

The "ownership society" is seductive. After all, the illusion of benefitting from the labors of others is what entrenched the slavery society. It's easy to be seduced if there's some delusion (like skin color) that "protects" one from getting the short end of the stick.

It's not advanced ethics to hypothesize "what if everyone did it?" After all, is any system truly just if it does not offer the benefits equitably to ALL? The "ownership society" is bsed on some presumption of who's the 'owner' and who's the 'owned'. When the labors of many are exploited to enrich the few, that's about as far from "justice' as we can get.

It's banana republicanism, impure and simple.

[Tyler Durden]

14. One word: ENRON.

Your game is rigged. I refuse to play.

The "Engines of Capitalism" are an enless series of Marianas Islands and Chinese Mainland Sweatshops, and by participating in "The Market," you are enabling them to continue.

[rman]

20. To some it's more democratic then to others - depends on how much capital

you have.
That's not democratic.

[Tyler Durden]

11. The "Market" would tell you "...EVERYONE can win..."

Which is the worst kind of specious bullshit that ever existed, or as Vonnegut would say, "Mind Poison" waiting for fertile ground.

I've asked this question before (and no "John Nash SHOULDAWOULDACOULDA," please): How many managers are there at McDonalds? and the answer is essentially the same as the number of classes that win at "the Market": ONE.

The rest of us get ENRON, Lincoln Savings and Loan, and United Air Lines; that is, BUBKISS.

[TahitiNut]

12. That's Ponzi's promise, too.

It's a fraud. :shrug:

[rman]

18. "...it makes a profit from currency itself, instead of ...

"The trade of the petty usurer is hated with most reason: it makes a profit from currency itself, instead of making it from the process which currency was meant to serve. Their common characteristic is obviously their sordid avarice.
- Aristotle

Difference between then and now is that the usurers are no longer petty.

[applegrove]

24. The issue isn't the stock market. The issue is how that wealth is

distributed.