“Fiat Stock”: Taking Stock Of The Stock Market (May 16, 2011)

. . .

?          “Let me get this right.  Once the stock is initially offered, typically to a few connected individuals and institutions on the Inside, the company does not receive any of the money from any subsequent stock sales?”

!           “Right.  The shares are bets by individuals and institutions.  The holder of the stock may receive some dividends that are taxed as ordinary income.  However, the holder of the stock is gambling on the market decreeing that the stock is worth more because the company is somehow worth more.  Some individuals and institutions on the Inside get information called ‘inside information’ that allows them to buy the stock before those on the Outside learn that something happened earlier that makes the stock more valuable now.  The holder of the stock is counting on a pension fund or endowment or widow or other Outsider being there to buy the stock at a higher price.”

?          “To get the dividends?”

!           “At least a dividend is something.  The big score is to sell the stock at a higher price to someone who did not have the ‘inside information’.”

?          “But what is the stock really worth?”

!           “Who knows.  The government and the Fed could double the supply of money/money electrons and give the stuff to those on the Inside to spend.  Then the aggregate stock prices would roughly double.  That is particularly true today when there really are no other viable competing investments.”

?          “But what is the stock really worth?”

!           “Does it really matter.  You’re on the Outside.  Don’t ask too many questions.  Play along.  Just because it is your future does not mean that it is not a game.  The key is knowing when to hold ‘em and when to fold ‘em.”

?          “While you only have ‘outside information’ to guide your gamble?  And then if you actually win anything, you convert the stock into ‘fiat money’?”

!           “Or convert it into ‘fiat gold’ or ‘fiat silver.’  It’s that simple.”

?          “But what is it really worth?”

. . .

Bumper stickers of the week:

Trust Me

Have Faith

George Mitchell Resigns ; Middle East Hopeless

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