Did the bottom just drop out of the market?

Should've been said: "Trillions of dollars of FAKE wealth did evaporate...

 

For the first time in a long time, Ebay's new listings of F cars overflowed onto a second page this morning. That's a lot of cars looking for new owners ... seems every other dealer is now a Ferrari dealer.

 

In today's world you could not be more wrong. It's all about paper wealth!

 

If a Ferrari 250 is priced $50 million one day, and $10 mil the next, that doesn't mean 80% of the car vanished.

 

Unless you are exchanging goods for goods,labor for labor.

Please explain with a sound basis of fact & logic, how one is paid other than with "paper wealth".

I guarantee you possibly have rarely exchanged goods for goods & labor for labor.

The days of working on your neighbor's roof in exchange for a pig are centuries long forgotten.

 

If what your saying is really true there would not be trillions of dollars in gold bricks in the Federal reserve bank in N.Y.C. Why bother storing gold when it's all about paper wealth?

 

One more thing on that subject. There is an old expression that says" Those that own the gold make the rules" I have never heard the expression that says " Those that own paper wealth make the rules"

 

I saw last year's 4K TV on sale for 50% off at best buy, does that mean they give me half of a TV?
analogy does not compute. try again.

 

whether an item is worth something doesn't change how something else with valued. Paper wealth and gold wealth can coexist.
I can have a bar of gold and $50,000 in microsoft stock. should I not "bother storing gold when it's all about paper wealth?".
Most of us here have our money in stock rather than precious metal. the stock market devaluation affects our wealth to a very real degree.

 

The billionaires suffer big losses in the market,
just not enough to dampen their spirits for $10M+ cars.

Say someone has 2B and looses 10% of it ($200M). This will not in any way dissuade them from putting $10M into a car if they want the car (less than 0.5% of net worth).

 

Are we supposed to take that seriously?

 

It's only worth what sombody is willing to pay.

 

At the end of the day I think that is the only thing that matters.

 

I think you misunderstood what I posted.

Microsoft is not fake or virtual wealth. It exists. The stock market is just an auction, one day Microsoft stock is worth $50 one day it can be $45 with NO underlying change in the actual business(wealth).

Say I buy 1 share of Microsoft for $100, now all shares of microsoft are said to be worth $100. Suppose you had bough at $50, now you check your account and it shows a last sale price of $100. Your networth doubled on paper because of a purchase I did. In reality nothing happened but existing wealth shifted from 1 party to another. Your paper wealth doubled simply because I purchased shares at 2x what you paid from someone else. The trade had nothing to do with you, yet on "paper" you doubled.

Next day there is a "crash", meaning someone offered $25 for the shares I paid $100 for. You check your account and it's now down 50%. Your paper wealth "evaporated", but in reality Microsoft is still there. The stock market is a secondary auction where people buy stock as a form of savings. The sellers of the stock are third parties that can be totally unrelated to the corporation being traded.

Take a Ferrari 250. 1 sells at an auction for $40million. So now all units are worth $40 million. Except if suddenly 10 units came for sale at the same time, would they fetch 40 million each? The answer is probably not. Paper valuations based on the last sales price do not mean anything in reality. What matters is the bid price when you want to sell.

 

Yes.

Ferrari 250 *is* the wealth.

The price is just a ratio.

One day its 25million dollars : 1 Ferrari 250

Another day its 40 million dollars : 1 Ferrari 250

Then its 5 million dollars : 1 Ferrari 250.

No new wealth was created or destroyed, only transferred.

When stocks lose their market cap, all that occurred is a price ratio change.

New wealth can only be created when previously stored labor(capital) combines with present labor(intellectua,physical) to add surplus value.

Wealth is destroyed when stored labor is poorly miss-allocated and consumed while creating no new value.

Buying and selling stocks amongst third parties is a zero sum game. When you buy stock on the NYSE you are not investing. The company does not get your capital to create new surplus value. The stock market is a secondary market where existing wealth changes hands. No different than a classic car market. Existing wealth is shuffling around.

 

From what you describe it sounds more like gambling than Investing. If what you are saying is true than millions of people have been hoodwinked into believing they are investing into the stock market when in reality they are just gambling.

 

That's exactly what it is..

 

We have a BINGO !

 

If that is the case why do so many people have their retirement savings in the stock market?

 

Good companies are still producing cash flows and are paying them out via dividends. A stock is a claim on the future cashflows of a firm.

Some people choose to save in company stock, others save classic cars, other save in liabilities of a bank(dollars).

The word investing has been totally massacred.

Here is a pretty good explanation about it:

The Stock Market isn?t Where you Get Rich | Pragmatic Capitalism

 

Investor and maybe investment advisor do not understand that the markets are just one big gambling hall. Only by drawing in more cash has the thing increased in value

 

Not that accurate a characterization.

Your wealth does change as the value of the object changes, not the object itself. It is the ability to convert one object into other objects that matters.

Currency is a bridge between the value of objects so that you have a common measure / scorecard and don't need to physically exchange the objects themselves. This makes it easier trade products indirectly.

The value of a company does not necessarily change second to second. However, the common or agreed upon value does change second to second as new information is discovered. You pay today mostly not for what the company "owns" now but rather how much it can earn, in the future.

The secondary market matters because it generally reflects the cost at which the company can raise funds at any given time, if it chose to do so. The notion of someone "investing" by buying shares on the secondary market is accurate as they are acquiring an existing stake of a business, much like if a silent partner in a small business offered to sell you their own stake OR (in the case of primary offerings) if an existing partner in the business offered to sell you a "new" stake in the business, and was going to use your new money to buy some machinery.

When stocks (or, more accurately, the underlying companies) lose value, significant wealth is destroyed in the sense that people now estimate the company cannot produce the earnings they previously anticipated (or the risk of those earnings not being produced has gone up). When you get down to basics, it means that the productive assets the company employs (people or machinery or intellectual property) can no longer be "exchanged" for other products at as beneficial a ratio as previously assumed.

If someone had a 250 GTO and its value declined to $1 and was previously $30mm, and assuming that other goods did not all decline in value in the exact same way, then yes, tremendous wealth was destroyed. If that was their basis of wealth, they would have gone from very wealthy, to not wealthy at all. The fact they have a now worthless GTO does not mean they are still "wealthy".

To make this even more clear, lets say there was an invention that made energy absolutely, completely free, easy to store, and easy to convert between forms and uses. People who were previously wealthy because they owned vast quantities of oil would not longer have wealth. The "oil" or product is NOT the wealth, but rather its exchangeable value. In this scenario, wealth is clearly and completely destroyed, but the oil still remains and exists.

Now, in terms of the concept of wealth shuffling around for classic cars. It is an interesting notion but not entirely correct (though it does raise some complexities where I may agree with you on...) What is happening is that people are ascribing more value to the cars as they rise in price. It may appear that there is no change in the wealth since the cars remain the same, but in an open / non controlled market, what it actually signifies is that people do view the value of the cars as greater than before (again, need to consider inflation and the price of other goods, since it is all relative). Despite the cars not changing what they can do, they are indeed considered more valuable and so wealth is created despite nothing inherently productive going on.

That is the problem with non-productive assets and assessing value. I have a lot to say about that but I think I've typed enough...

 

No, inherently this is not the case, but to many who don't really know what they're doing, sure.

Even many who think they know what they're doing, do not.

The Shanghai market has a relatively (enormous) share of pure speculators / gamblers in it. The collector car market now looks very similar, with a large number of participants chasing their own tails and tails around them.

Markets are only as informed and rational as their participants.

 

If someone had a Ferrari 250 that they paid $30 million for, and a year later could only sell it for $1million, "tremendous wealth" was not destroyed.

All that occurred was 1 party transferred wealth to another. Wealth destruction in this example would only occur if the Ferrari 250 was physically destroyed.

The value for a Ferrari 250 may change but the underlying fact that it is still a Ferrari 250 does not. The car does not magically turn itself into more wealth just because it is valued higher in money terms. If you believe that then you must also believe in magic. New value is only created through the application of human labor to existing capital.

The disconnection between money and wealth has perverted everything around us. The classic car market is a prime example where people are now hoarding cars that were meant to be enjoyed for the purpose of multiplying their money(from a non productive activity).


People do not understand that money is merely a medium of exchange, it is not wealth in and of itself. The belief that money itself is wealth is what has led to these debt crisis, as people believe money is suppose to breed more money through deluded ideas like compound interest. Human labor is the only source of wealth in this world(excluding natural wealth).

 

'Tis a correction. It was 4 years overdue.

The fact that it took that long for a correction would be a signal to me that after a good month or so of profit taking, we're off to the races again.