~ stock trading

The stock market is very much a balloon market, because it contains so much air (presumed equity). For example, consider a small stock market with just ten companies. Each company has sold 10,000 shares to the public, and each company's stock is currently listed at $10.00 per share. Since stocks usually sell in lots of one hundred shares, each lot is worth $1,000.00. Each company's total shares are worth $100,000.00; making the total value of all ten companies stocks to be $1,000,000.00. If one trader comes into this market and offers $11.00 per share to purchase one hundred shares of Company-A stock, then he or she has paid a total of $1,100.00, but has only increased the real equity of that one lot of one hundred shares by $100.00. The market, however, reports that all 10,000 shares of that company's stock are up and valued at $11.00 per share. One hundred dollars has created $10,000.00 in presumed equity, for this one company's ten thousand shares of stock. All of that increased value is a fraud, because the original $100.00 in additional value went to the seller, and is in no way further associated with Stock-A. Now consider that if the seller of stock in Company-A takes the $1,100.00 and invests it in one hundred shares of Company-B, another $10,000.00 in air is created. Continue this from B to C, C to D, etc. until the seller of Company-J's stock winds up with the $1,100.00 and is out of the market. All ten companies' stock has gone up ten percent and the $100.00 in additional equity has exited the market. One hundred dollars has created $100,000.00 in paper equity in just ten trades and is out of this market, as is all money invested in stocks, it is always outside the market, the seller has the money, but no stock. Obviously, the real stock markets are much larger, with millions upon millions of stock trades daily. This unreal and presumed equity can certainly be taken out of the market in a similar manner, since so much of what is reported as equity gains is only air.

All stock purchases are transacted by bringing money from outside the market to trade with those who own stocks and would be willing to leave the market, becoming non-owners, if they are paid their price. The sellers exit the market, even if only temporarily, with the money that was never in the market. Trading your current surplus labor for stocks will only net you a gain if in the future someone else is willing to trade you more surplus labor for the right to own your stocks. Your money is not in the stock, bond, or commodity markets; it is in the pocket of the person that sold you stocks, bonds, or commodities. Both today and in the future, the un-inflated value of stocks is the fire-sale value of equity in buildings and equipment and resources that are not collateral for loans and bonds. Everything else is a mirage, appearing as inflated equity created by too much surplus wealth being exchanged (gambled) for control of corporations and their future profits. This "air" in the market is why price changes can be so volatile; small changes up or down on small amounts of a company's stock are leveraged to effect all of its stock by and because of investor ignorance.

Let me digress a moment to another discussion of money, in the realm of buying and selling as done in the stock market. All money available to purchase any asset is pocket money, in the context of liquidity. It is not invested in stocks and bonds, or real estate, or gems and precious metals, or stamps and rare coins. Money simply moves from one pocket to another (from one bank account to another), in trade for assets or consumption of goods. Those who purchase stocks and bonds, or real estate, etc., take money out of their pockets to effect a purchase, while those who sell stocks and bonds, or real estate, etc., put money into their pockets to effect a sale of those goods. The key to the future value of any commodity, or stock, or piece of land bears directly on the amount (and trade value) of pocket money available at any given future time. These markets are devoid of any value other than future demand to own stocks, bonds, commodities and real estate; and that demand will depend on the mount of pocket money available for investment or speculation. The money is always outside the markets because it only moves from one pocket to another, wherein the last pocket always belongs to someone who is NOT IN THE MARKET.

While investment in the stock market is considered to be a capital investment in our productive economy, it very seldom is. If you are able to purchase new stock directly from a corporation that will use that money to expand their productive capacity, then you are investing capital in our economy. But when a stock is sold the second, third and so on... times, the new owner is not investing in that corporation. The vast majority of stock trades are done between one investor-speculator and another, trading places between would-be owners and those who would rather not be owners. As far as our productive economy is concerned, these dollars serve no useful purpose. They create no jobs, build no factories, nor do they feed or shelter anyone, except stockbrokers and speculators. The taxes paid on gains are offset by the deductions taken on losses. Brokers and the people that keep these markets going are all on capital welfare. They facilitate these gamblers in transferring money and stocks, and charge a fee to do so. But unless they are helping a corporation issue new stock, they are just recording the economically irrelevant bets of their customers. Stockbrokers and Bookmakers (that manage bets on horses, or sporting events, or whatever) are the same animals in twin professions.

Many baby-boomers are being encouraged to invest in personal savings accounts like IRA's to benefit their uncertain retirement. And many of these IRA's are invested in the stock market, bringing additional dollars to the New York style gambling industry. This money is simply inflating stock prices and giving the illusion of equity growth. Remember, money put into an IRA or 401K, to buy stocks and bonds, is going into the pockets of the sellers. To reap your reward as a seller when you need retirement money, you are betting there will be more buyers in the future willing to pay more to own your stocks and bonds than was the case when you purchased. Such reasoning is how pyramid schemes operate. The boomers are buying into a pyramid scheme that is shrinking at its base (without exception, all pyramid schemes fail); the following generation will be too small in population and earning capacity to bid up prices and produce a profit for the boomers to retire on. The generations following the Boomers are going to have their income taxed heavily to pay the Social Security and Medicare for the Boomers and thereby will not have the pocket money to buy into IRA's and 401K's; causing those markets to fall catastrophically in value and bankrupt many Boomers.

Consider also that most 401K plans are not invested in industrial stocks and bonds; rather they are only speculating on the profitability of a mutual fund company, i.e., the stock you own and will need to sell at a higher price to have retirement income is your investment firm's stock, and no other. Since your fund managers must buy and sell stocks and bonds, etc. to make a profit, similar to all other mutual funds, you can only come out a winner if other 401K speculators come out losers. The Boomers will either suffer losses that will destroy the value of their retirement investments, or they may be forced to keep their capital tied up in owning stocks and bonds and only receive relatively small dividends, without ever being able to recover and spend their invested capital.

The game of win or lose goes like this. If investor-A buys some stock costing one hundred dollars per share and it rises in value to one hundred ten dollars per share, at which time investor-A sells to investor-B; investor-A has made ten dollars per share profit. If this stock continues to rise to one hundred twenty dollars per share and investor-B sells to investor-C, then investor-B has also made ten dollars per share profit. If this stock falls back to one hundred dollars per share and investor-C sells this stock, then investor-C has suffered a loss exactly equal to the previous gains. Similarly, if this stock had dropped for investor-A & -B but rises for investor-C, the initial losses would equal the final gain. For every gain their will ultimately be an equivalent loss, and for every loss their will be an equivalent gain, the books are always balanced. Brokerage fees, taxes and inflation operate to guarantee that in the long run, less money leaves these markets as investor profits than comes into them as gambling wagers. Over time those who profit from these markets do so only by losses incurred by others. Periodic panics and crashes in these markets balance the books by creating the losses that equal the year over year gains for the years between such panics and crashes.

The featuring by the news media, over the years, of catastrophic losses by certain international banks, or certain brokerage firms, or individual investors, shows the general ignorance of how these gambles work. If we heard news of a poker game wherein three players lost $50,000 each, but a fourth player won $150,000, we would not dwell on the losers and the tragic consequences of their losses, without mentioning the winner. More likely, we would focus on the winner and attempt to associate ourselves with such winners, and generally ignore the losers. In the financial markets losses may be tragic to one person or corporation, but on the principle that gains equal losses, both are irrelevant to the market and to the economy. If governments, market directors or investor-speculators alter their market strategies based on someone's losses, they are forgetting someone else's gains, implying that they do not understand these markets and ought not to be in them. Reporting gains and losses in any of the markets is a camouflage of fraud to keep unwary investors in the game. These markets are a zero net sum, so gains and losses are irrelevant for society overall. But since these con-games require continuous inflow of surplus wealth to support brokers and investment bankers, there is an industry of reporting and describing activity in these markets that operates on a foundation of collusion of ignorance and obfuscation of facts. In this ever-changing world investing is nearly dead, so happy speculating.