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Gold/Mining/Energy : Gold Price Monitor
GDXJ 98.59-2.8%Nov 13 4:00 PM EST
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To: lorne who wrote (66919)4/3/2001 1:39:58 PM
From: Don Lloyd   of 116759
 
lorne -

...In the last day or so some one posted the amount of wealth
that has been wiped off the books since this market drop began it was in the trillions and trillions of dollars.
Question-- in what way do these losses affect the new supply of dollars being added to world money supply?

In no way at all. Every dollar spent to buy a stock is exactly offset by someone else's receiving that dollar to sell it. Money is a catalyst for a stock transaction, and is neither created or destroyed in the process.

Stock is a partial ownership in a company and a claim on the company's assets and future cash flows. If someone foolishly sells 100 shares for a penny or buys 100 shares for a million dollars, a stock price transaction record is established but the stock claim of ownership is unaffected, only having changed hands. The price of the last stock transaction is only significant to the extent that it influences the price of future transactions.

Assigning meaning to stock and stock market capitalization levels is meaningless unless there exist sufficient buyers at the current stock price level to acquire the entire amount of outstanding stock, which is , of course, what happens in an acquisition. Since the peak price of a stock occurs when not even a further hundred shares can be sold on the market, using this price to assign the total capitalization value of a company is absurd.

Regards, Don
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