Monday, November 24, 2008
Is the Stock Market Losing Money or Points?
Monday, November 24, 2008 | 
Posted by
Chris Waner
Much talk is circulating in the press and on the Hill about the trillions of dollars lost in the stock market. However, this statement is not entirely accurate. I don't mean to belittle in any way the depletion of funds in peoples' portfolios, retirement accounts, etc. Indeed, the money, which many Americans were counting on is gone. But to say that it is a dollar loss is misleading and casts the stock market in a light that it simply can't live up to.The truth is that the stock market is almost always a moderate to high risk investment--a gamble, and losses are the tail's side of the coin. The question is not so much whether investors are losing, it's what are they losing?
If we are really losing money--losing cash, then where is all the money going?
The money isn't going to greedy CEOs or your broker; it's not sitting in someone else's account somewhere. Nor has it been returned to the Fed. So where is it?
The fact of the matter is that the profits investors thought they had were imaginary. As long as investor's profits were in stocks, the profit could not be adequately measured in dollars, but, rather, only in the ability to sell the stock--nothing more than the willingness of someone else to buy the stock at the going rate in dollars at a fleeting moment in time. Further, tangible dollars are not lost until the stock value drops below the initial inflation adjusted purchase price.
Historically, the market has performed very well. Maybe too well, and therein lies the problem. Years of shabby financial decisions by the Federal Government has flooded the market with pseudo-capital, which has driven prices to unsustainable levels. The market is pulling back in order to correct the fallacious investment. It is likely to overshoot on the low end as well before settling to a true market rate, and even then only if the government will get out of the way.
Labels:
Economics
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1 comments:
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