Doug,
When share prices go down, overall, wealth goes down
Share prices are not wealth. They are just that: prices. Shares themselves are wealth, because they certify you to be the owner of the company.
Money is primarily a medium of exchange, secondary a temporary storage (between transactions).
It is simpler to think of a subway ride being $1.50, QCOM share being $45, a cell phone being $160, one hour of your labor being worth say $40, rather than calculating that a cell phone is 4 hours of your labor, Qcom share is worth 30 subway rides.
But when Qcom goes to $60 in next hour, no new wealth will be created. Only the ratios change. You will be able to trade it for 40 subway rides, you will have to work 1.5 hour to get one share.
Another way of looking at it is that non-financial assets just became less expensive.
When financial assets go down in price, prices of non-financial assets go up in relation to them. This may not be reflect in dollar terms, since subway ride is still $1.50, but ratios shifted.
Saying that stock prices going up is good is one sided view. It is from the point of view of potential stock seller. It is bad for a subway train conductor who is about to buy shares in his retirement account.
Joe |
