Hi, John. Thanks for the post. OK, let me paraphrase what you are saying to see if I understand you - you are talking about paper gains. To continue with the Lucent example, my dentist bought Lucent when AT&T spun it off, I think he said he bought it for $40 and it has split twice since then, so if Lucent was trading at $100, his shares had appreciated twenty times. Something like that. So when Lucent dropped to, what is it now, $63, he didn't lose anything, really.
In that regard, he isn't any different than his neighbor who bought a house, say, in 1950, and paid off the mortgage, and it's now worth five times what he bought it for, because the market value of the house fluctuates with the housing market. And, we all know that market values of assets fluctuate. That's probably rule number one.
But, that's not what puzzles me. If you follow the thread back, I was responding to a post from Joseph G., which was actually to the thread, as it turned out, except unfortunately he picked me to post to, about how the recent downturn in the market has "destroyed wealth." Expressed in those terms, the writer is describing the current economy not as a difference in degree, that's a difference in kind, a difference in quality, not quantity.
Is it truly different now, is wealth destroyed?
Or is it merely, the boom and bust of the business cycle, demand leads to production, which leads to overproduction, which leads to oversupply, which leads to decrease in demand, which leads to decrease in supply, which leads to demand, etc., etc., etc., so that right now there are just too many factories and too much inventory, and that's where we are in the cycle, and it's business as usual?
My tiny-brained hypothesis has to do with the multiplier effect of money, that M2 or M3 slows down, either as the result of deliberate action by central banks, or something else, not sure what, and that is where the money goes, but it is just too slippery of a concept for me to grasp, I only took micro and macro economics in college and am having a tough time learning it on my own.
Anyway, re: Lucent, I am a Media General cable customer, and I just bought a new Compaq computer which happens to have a cable modem connector, so I asked a customer service rep at Media General when they would have cable internet, and she said later this year. And Bell Atlantic is supposed to roll out DSL internet later this year. Well, I wish I really understood telecommunication equipment, I keep trying but I don't, but I think that isn't good news for Lucent, so I sold it at $78. It's easy for me to understand that Lucent's future earnings are going to be less than anticipated, and it's easy for me to understand that the market value of Lucent is based on projected earnings, at least in theory.
Sincerely,
CobaltBlue
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