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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: Ilaine who wrote (6076)	7/19/2001 11:32:18 PM
From: TobagoJack	Read Replies (1) \| Respond to of 74559

Hi CB, <<Ms. B lost money on the deal, but do we say her $200 paper value was destroyed? Objectively speaking, her money didn't go to money heaven, she paid $100 to Mr. A, and the $200 never existed.>> Unless Ms B got a home equity loan based on her home equity and NAV health, and used the proceeds to buy ABC stock and an imported Japanese SUV, and ABC went down immediately after purchase, the Japanese spend the margin on gold covered chocolate ... etc, yes, in some sense, to the world as a whole, value was not lost, but taking individuals as discrete entities, and assign different propensity to spend to each, aggregate these discrete entities to clearly identifiable economic sub-systems, value was lost. Ms B, with the propensity to buy SUV once every so many years, buys no more, and may now lose her home to the bank, and take Maurice's advice and work until 95. In the aggregate, the bank may not collect enough on its portfolio of mortgages given the general level of equity embedded in homes, ... stiffing the mortgage backed security holder, thus raising interest rate generally, adding to the friction of commerce ... Well, it is a story, any way. Chugs, Jay

To: Ilaine who wrote (6076)	7/19/2001 11:40:54 PM
From: Mark Adams	Read Replies (1) \| Respond to of 74559

I remember this discussion from CFZ from some time ago. That it requires a doubletake on your part suggests to me that you will be less likely to fall into a trap- that being the current price of a stock has any relation to it's value. Yes, for the players involved it was merely a transfer of wealth. And market cap is a bit of a fiction in some respects. But consider all the other shareholders, who are looking at their statements based on the last trade. This is how we are taught to keep score. Larry Ellison (from a comment today) now needs to find a way to live on a mere 300 million, based on the most recent marginal trade of Oracle stock and the size of his holdings. Side note: with equities, the size of the pie isn't fixed if management is doing it's job and building enterprise value. Management can destroy wealth too, by allocating resources in a manner that precludes a fair return on investment (if any return). This is the basis for Heinz belief that the excess of recent years resulted in wealth destruction- capital was spent in a way that precludes a fair return on investment, hence was destroyed. I was reading in Gary Schillings latest on Deflation today, that people don't consider that the refrigerator they pay more in nominal dollars today actually costs less than what they paid in the early seventies, considering inflation and improvements in efficiency (lifecycle costs). They use the short hand, it cost $474 then and $575 now- it costs more now. Maybe our brains like to do short hand on these types of things. After all, it has to parallel process 1000's of inputs simultaneously, and can't get wrapped up in the real value of a going concern with a saber tooth tiger bearing down.