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To: Ilaine who wrote (402)	2/15/2002 7:34:25 PM
From: Don Lloyd	Read Replies (1) \| Respond to of 443

CB - Give me a final warning before you cast it in stone. It looks really good on first reading, but it's stirring up some additional things to think about, and I want to think about it for a bit. for example - "...If, on the other hand, Buyer A purchased a share of stock from Seller A for $1, and the stock's price soared to $100, and then crashed back down to $1, at which point Buyer A sold the share to Buyer B for $1, Buyer A has $1, has lost nothing and has broken even (less brokerage fees.) The $99 that Buyer A thinks he has lost never actually existed. Experienced stock traders say that the money has gone to "money heaven."..." At the time that everyone thinks the stock is worth $100, it can be used as collateral for a margin loan, with catastrophic results. I know you reference this later, but it seems to fit right here as well. Regards, Don

To: Ilaine who wrote (402)	2/16/2002 3:39:13 PM
From: GraceZ	Read Replies (1) \| Respond to of 443

I tend to agree with Don, that if you are going to talk about money that was "lost" you need to talk about money that was "created" by borrowing to buy stock. It was this created money or leverage which disappeared and accelerated the bust side of the boom. The reason it disappeared is because the loans weren't paid back when the underlying assets deflated and banks went under. Loans are assets in of themselves. Those assets vaporized the same way equity and bonds are vaporizing right now with all the bankruptcies. What turned what would have been just the bust side of a boom into a depression was the tightening of the money supply at the exact moment when it should have been loosened. The Fed loosened eventually but not before they made the error of tightening first. By that time an entire generation had sworn off borrowing for any reason, productive or speculative. Even borrowing for productive reasons is a speculation. It involves unusual risk and reward. Main Entry: spec·u·la·tion Pronunciation: "spe-ky&-'lA-sh&n Function: noun Date: 14th century : an act or instance of speculating : as a : assumption of unusual business risk in hopes of obtaining commensurate gain b : a transaction involving such speculation The source for investing in productive assets should come from savings. In terms of a company, excess cash flow. In a sense when a company goes public and does an offering it is savings that they are tapping, the public's savings. The public is willing to give up their savings for use by the company because they trust that the company will use its own savings or excess cashflow in the future to build the business up further and the equity value will rise along with the value of the business. At least this is the way it is suppose to work. The public got into trouble when the actual return of the stock market was way above the cost of borrowing money. It was this cheap money that created the boom in the market and it was the borrowed money that disappeared.

To: Ilaine who wrote (402)	2/16/2002 4:13:36 PM
From: Don Lloyd	Read Replies (1) \| Respond to of 443

CB - ...Even when a share of stock is sold at a loss, no money was ever "lost." The money was simply transferred from one account to another.... Is this really true? What if the purchase money was borrowed from a fractional reserve bank and cannot be repaid? The bank then has to eat the loss and suffer a reduction in its reserves. This then results in a multiple decrease in the outstanding loans possible in the next time period. This decrease in the outstanding credit level is a real reduction in the broad money supply. I don't know if this is true or not. If it weren't so confusing, banks would never have been allowed to get away with it. -g- Regards, Don

To: Ilaine who wrote (402)	2/16/2002 4:49:08 PM
From: Don Lloyd	Read Replies (3) \| Respond to of 443

CB - ...If Buyer A purchased a share of stock from Seller A for $100, and then sold it to Buyer B for $1, he has $1, has lost $99 on the series of transactions, but Seller A is $100 to the good. If, on the other hand, Buyer A purchased a share of stock from Seller A for $1, and the stock's price soared to $100, and then crashed back down to $1, at which point Buyer A sold the share to Buyer B for $1, Buyer A has $1, has lost nothing and has broken even (less brokerage fees.) The $99 that Buyer A thinks he has lost never actually existed. Experienced stock traders say that the money has gone to "money heaven." The fallacy of the belief that one's stock is worth today's market price can be simply demonstrated by trying to sell it at that price. The more shares that are offered for sale in the stock market, the faster the price declines. When millions of people are trying to dump billions of shares of stock at the same time, there simply are not enough buyers. This is called the "sell to whom?" phenomenon. Without buyers, the price collapses.... I wanted to bring out a couple of approaches in demonstrating the unreality of market capitalization. 1. Assume a stock with 100 million shares with a last trade of $50 and therefore a market cap of $5B. There's no theoretical reason that the price of the stock can't be run up to $100 by just 50 sequential trades each $1 higher than the last of a single lot of 100 shares. So the increase in value of 1 ppm of the existing shares of $5K causes an increase in overall market cap of $5B. 2. If you have a high priced stock that you want to sell, you put it up for auction 100 shares at a time. You can sell the first 100 shares to the highest bidder, but the second 100 shares are going to have to be sold to the second highest bidder, etc. While some of the bids may occur at the same level, the more stock you try to sell, the more you are going to have to dig down into the pool of bidders. It is clear that the sales price of the first 100 shares can be a gross exaggeration of the value of your holdings. Regards, Don

To: Ilaine who wrote (402)	2/20/2002 5:14:15 PM
From: Mike M2	Respond to of 443

CB, you ignore the impact on those who simply held their stocks while prices tanked. Once you understand this you will come to appreciate the power of TL & EV. mike

To: Ilaine who wrote (402)	2/20/2002 5:22:28 PM
From: Mike M2	Respond to of 443

CB, a good illustration of this concept is to look at the numbers of shares traded and the $ value during the 87 crash and the resulting market value loss. It should be easy to find. I have seen the figures before and it really illustrates my point. mike

To: Ilaine who wrote (402)	2/20/2002 5:50:19 PM
From: Mike M2	Respond to of 443

CB, on Monday Oct 19, 1987 608 million shares traded wiping out $ 500 BILLION in paper wealth. I can't find the dollar value traded that day but I do recall a figure of $52 billion - I didn't want to post it at first but now that number seems reasonable 608 million times $ 85 per share comes out to approx. $54 Billion . This estimated $54 billion in sales destroyed ten times that amount $500 in paper wealth. Prices are set at the margin. Do underestimate the power of TL & EV -g- ho ho ho Mike