One question

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I am orf to gay Pari … so will leave you with one question –

The people of the world have this (amount $73trillion) on their asset-side

The one question is –

1. How much do you think they paid for these assets~?

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  • CSArichardo

    Asset (market value of stocks) = Book Value (what I paid for the stocks) + Capital Gain (how much they have gone up or down in price since I purchased them)

    • amoeba

      Ackshirley, I fink Nick woz gettin at summat else.

      But if we take your first example, then of the 73 Trillion in assets at current market value, how much was actually paid to buy them and how much was capital gain?

      This is not a question that has an answer that can be arrived at.

      Take an extreme example like Zuckerberg. He paid fuck all for his equity in Farcebook, but it is now valued at 60 Billion. (He also gets paid 1 USD per annun, I wonder if he receives it in cash).

      • CSArichardo

        Like any asset it can be made up of a combination of actual cash, borrowed money and the price increase (capital gain) at the individual/corporate level.

        By selling the asset you convert any loan portion and any capital gain portion into cash…

        …… thus it’s called cashing out !??

    • I don’t think `book value` is (what I paid for the stocks).

      As to the rest of it … I’m sure you’re right (I didn’t understand a word).

      • CSArichardo

        Market value of stock = what you paid for it + your current capital gain (increase/decrease in price)

        = cash you used + money you borrowed + your current capital gain

        Banks lend the money to you so that you can buy into the stock market

        • Axionication3

          Market value of stock (market cap)= number of shares x share price.
          Market cap – assets (all classes)= intangible assets (aka goodwill).

          Short term (low interest) borrowing to rapidly gamble on an increase in the ‘goodwill’ component is probably a good move.
          Long term borrowing on said would be a fools game (the game of the pension funds).

          • Axionication3

            And as Nick points out, the pension ‘entries’ need to be entered somewhere for a decent projected return.
            To the Stock Market they go.

          • CSArichardo

            You are looking from a different perspective. Sort of non transactional. I am looking at it from the perspective of how a share evolves and can get valued that high. The day to day process of trading in the stock market.

            1. Like any asset at the time you buy it you use actual cash and borrowed money.
            2. As you hold the asset it might gain in value, termed a capital gain.
            3. When sell the asset you are cashing out ! You convert any loan portion and any capital gain portion into cash!
            4. The buyer then uses cash and borrowed money and the cycle continues.

            The capital gain cannot be realized until someone borrows some money to buy the stock from you !!!??? The same works using a house as the asset.

            • Axionication3

              Money is credit.
              Value has no tangible basis.

              (It’s all stories. Like Hansel and Gretel)

              • CSArichardo

                I guess if I used the word “cash” for most it really means a deposit (credit) when we talk money.

                “gets valued that high” could have been replaced by “is being sold/traded at a higher price” even though if everyone decided to sell the price would naturally drop.

                Not a story ? More like a game !!

  • lifeisfutile

    Well I’m imagining a lot less than the current market value, with the amount lower the further back in time you go. Obviously the par value of the shares would most likely be a lower bound.

    I suppose what you are really getting it is that we have massive inflation within equities at present, and if all those companies went into liquidation (hypothetically), then there wouldn’t be enough cash (bank digits) to pay out their current market value.

    However, equities are just valued based on what the market thinks the shares are worth, which is just a product of the future estimate earnings on those shares. So if worldwide growth is predicted, then of course there is going to be a lot of potential value in those shares. I’d imagine it is the same with any asset class. The value is just the discounting sum of future earnings.

    • lifeisfutile

      And yes, I think it is all a giant ponzi scheme – that is how capitalism and bank lending works!

      • amoeba

        It is all fine until somebody starts running for the exit…….

        • Ah … now that. There is always that.

    • amoeba

      There is one helluva lot of discounted future earnings in 73 Trillion.

      The whole heap is also dependent on the forecasted interest rates, which provide the basic no risk return. If Yellen tightened the screws quickly I do think anybody knows what will happen. Although Black Rock probably have run a zillion simulations and are ready to move very quickly.

      • I think your `move very quickly` is about all that can be said about the whole silly thing.

        When you have made some profit … you can set a `stop loss` at the amount you would be happy to get out at, if things turn to shit … so, really, all you have to do is nudge up your `stop loss` level as you follow the market up.

        When you think about it, as an individual, like that … there is nothing to fear.

        • amoeba

          If it was only so easy.

          If the stock market fell off a cliff, even with a stoploss order there is still no guarantee the stocks can be sold at that price.

          The buyers may have evaporated and turned into shorters…..

          • I see that the stock-market is not your specialized subject.
            No worries … It is not mine either.

            • amoeba

              If we are talking about stop-loss orders, then say the price is at 10 and you put a stop loss with the broker at 8.

              If the price falls at market opening to 6 on company bad news, your broker will sell at 6. The trigger to sell has fired, but the best he can do is 6 where there are adequate buyers.

              Clearly most of the time the markets are not so disorderly.

              • Clearly the markets are very rarely so disorderly … and with stop-losses set a 10% down … there shouldn’t be a problem.

                But the thing I was more getting at … is that the above is right for every individual. It feels so safe and snug.
                I think it is one of the things that keeps the market up.

                (it would be pension people left to hold-the-bag … because they have to be invested)

                If there is a nigger-in-this-woodpile … it may be the ETF world.

                • amoeba

                  The niggas are in the Central Banks.

                  If they raise interest rates to a level where the peeps can once again achieve inflation beating returns on government bonds and term deposits they could switch out of stiocks en-masse.

                  A lot of money is being moved from actively managed ETF’ss to low cost indexed funds such as Vanguard. Bogle reckons that this won’t become a problem until 75% of the market is invested in them, and we are a long way from there.

                  Stop-loss orders can still be placed on ETF’s.

                  It is all very well to place a stop-loss at 10% coming off a price. But when do you pull the trigger to buy in again?

                  • Again … it doesn’t matter when you `buy in again` … the point is that people feel safe behind their stop losses.

                    The concept of an `actively-managed ETF` sounds like a bit of a joke~!?

                    I think `the world` has swung away from `getting inflation beating returns` on bonds.
                    I think they are doing trickier shit with them now … and probably always will from here-on-in.

                    • amoeba

                      As long as the peeps feel safe.

                      You may be confusing index funds, which comprise a fixed index of stocks, and managed ETF’s, which usually have some focus like property, China or finance, the stocks in the fund being actively managed to provide record breaking returns (but only for the fund managers).

                    • Whatever.

    • Axionication 3

      Lump the difference under ‘good Will’ He is a fine fellow this Will.