Clown-Free Zone... sorry, no clowns allowed Message Board

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Pastimes : Clown-Free Zone... sorry, no clowns allowed

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To: Mark Adams who wrote (107046)	6/8/2001 12:03:04 AM
From: pater tenebrarum	Read Replies (1) of 436258

Mark, this comment by trimtabs needs to be clarified. i was at first stunned...asking myself, how can this be? why are they counting it as CONSUMPTION when someone sells his stocks? luckily i didn't have to think it through myself, as Mike Alexander provided the answer: <<Capital gains proceeds from sale of stock or other assets are not counted as income. A negative savings rate occurs when expenditures are less than income. Thus if one is currently spending all of one's earned income (including interest and dividends) and then sells an asset and spends some of the gain they are considered to have dissaved, even though their cash flow might be positive overall. The reason capital gains aren't counted is that your capital gain ultimately comes from some other investors savings. Its a trasnfer payment, you are spending their savings. A secular bear market illustrates this concept best. Fresh cash (i.e. past savings) used to buy the NASDAQ stocks at higher prices last year was transfered to sellers. If these buyers sell their stocks today they will be left with much less savings. If the sellers spent their profits last year, these savings are now gone. This shows how negative savings can be facilitated by the wealth transfer mechanism of the stock market. The point to remember is those who did the saving aren't the same people who did the spending. Few people are spending their "own" savings, it's somebody else's. Thus from the point of view of the spender they aren't dissaving at all since they have more money after the expenditure than they did before. But from the point of view of the buyer they have less money than they did before. The net effect is the total pool of savings has declined.>>

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