Stock market and social security

Stock market and social security

1. Winner's gain is from loser's.

A farmer planted a seed. He sold the fruit The farmer created a wealth.
A worker produced a car. He sold the car. He creates a wealth.

Investor A bought one hundred shares at 1.00/share. The company got one hundred dollars to pay rent, wage and material. Then the stock market rose to peak. Investor A sold the share at 1.10/share to investor B. A got 110 dollars. He made a 10% profit. But was that 10 dollars created? No. it was B's loss. When B bought the stock from A, he became a potential loser. What he bought was only a piece of paper. He couldn't cash the stock with the company which issued it. What B can do is hoping some one else to take over the potential loss.

Situation 1. If the stock is Enron, then when it went bankruptcy, B's stock worth nothing. Here Company got 100 dollars. A got 10 dollars. B is the loser. He lost 110 dollars. Winners' money is from loser's. It's evidenct.

Situation 2. If the stock is HP, then in trough, the share price may fall to 0.90/share. B sold it to C. B lost 20 dollars. C paid 90 dollars for 100 shares. C sold the stock in peak 2 at 1.20/share to D. Now D becomes a potential loser. If nobody has the will to buy his paper, then the stock worth zero. Now let's see, company got 100 dollars. A sold stock at 1.10/share. he made 10 dollars. B bought at 1.10/share, sold at 0.90/share. B lost 20 dollars. C bought at 0.90/share and sold at 1.20/share. C won 30 dollars. 10(A) + 30(C) + 100 (company) = 20(B loss) + 120 (D's potential loss)

The eqation: Winner's gain(profit) + Capital gain (Company issue the stock) = Losers' loss (loss) + Potential loss (Amount paid by the latest stock holder)

You can see there is no wealth created. How much winner got is how much loser and potential loser lost. And it doesn't include administration fee. (it's about 2 trillion in 10 years period, Re: San Jose Mercury News, 12/17/04) So when Bush say you may get better income in stock market, there must be some people bear the loss for the winner's gain. Whom do you think will be the loser and winner?

(I omit the dividend here. it's samething like interest paid by bank.)

2. Stock is no other than a piece of paper

The value of stock market is supported by continue coming of investment fund. One thing you should know the people who hold the stock is no other then hold a piece of paper. That's a bubble. When no money came, then the bubble will break up.

When you deposit 100 dollars in the bank, you are guaranteed to get that deposit back, plus interest.

When you buy one hundred dollars of shares of a company, you are told you probably get some dividend sometime if business is good. The dividend is not guaranteed. And you can not cash the stock with the company. Because they have spent it to pay rent, wage and equipment already. If you liquidate the company, most time you may get a negative asset. e.g. if it's Microsoft, what they left for you is a program of Windows. UA may have some airplanes. But they always come with a huge debt. What kind of asset do Kodak and McDonald have for the stock they issued? What you hold finally could be a piece of paper. What you hope is someone else would buy that paper from you to take over your potential loss. When people put all their retirement fund in stock market, they are sitting on a big bubble. All they hold is a bunch of paper. One day when people wake up and refuse to behave like a fool, then there will be a collapse of stock market.

What Bush does is to persuade people put their retirement fund into the market to take over the hot potatoes.