(no subject)

[which_chick]

Well, the bailout did not pass the House of Representatives. My personal Representative, Mr. Bill Shuster, voted agin it. Good show, Bill! The markets, as I'm sure everyone is aware, tanked in response to the nonpassing of the Super Important Rescue Bill of Inflationary Bailing-Out. Good for them. Let them tank some more, say I. However, excessive tanking of the stock market may spur our currently cooler heads in DC to ill-advised action. That would not be good.

Comments

[gwangi.livejournal.com]

Some day, I really need to learn why it is that it's so terrible when the stock market goes down. Doesn't that just mean that you can buy stuff for way cheaper than you could before? And isn't buying cheap stuff good?

[gwangi.livejournal.com]

...although I suppose it does probably suck for anybody who's already got stock. Never mind.

[gwangi.livejournal.com]

Although I do think that those people would be a lot happier if they looked at buying stock in the same way that they look at buying anything else. If I buy a thousand bucks worth of google stock (...which is, what, like three shares or so?), I have a thousand less in my bank account. If it returns stuff, great. But shouldn't I look at it exactly like I just bought a thousand bucks worth of coffee, or party balloons, or expensive prostitutes? At the end of the day, I'm a thousand bucks poorer. In the one case, I might get something back. In the second case(s), I get something fleeting. In either case, I'm out that money.

Instead, it seems like people are counting on returns on their stocks, even though when they advertise on TV, there's always that disclaimer about investing involving risk. Do people not understand what "risk" means? I just don't get it.

[which-chick.livejournal.com]

Declines in the stock market are widely reported. People pay attention to them. Many people believe that the stock market provides an accurate and fair value for shares of the companies traded therein. Certainly, the stock market provides A market where you can buy shares of GM (lord alone knows why) or sell shares of Goldman Sachs to other parties at a public and agreed-upon price. Whether or not that price has any fucking thing at all to do with the worth of the company whose stock it is, well, that's another problem entirely. I suppose it's old-fashioned of me to expect that stock prices bear any rational relationship to earnings or dividends or anything silly like that.

Now, when the market goes down from whatever it was today to whatever it ended at at the end of the day today, people who own stocks suffer paper losses unless they actually bought or sold anything during the day. Let's do an example. I like examples.

One of the stocks that I hold in my Roth IRA is SPY, a Standard and Poor's 500 Depository Receipts. It matches the value of the S&P 500, dollar for dollar. Some huge percentage of my Roth IRA is invested in this thing though I don't have a current dollar value because TD Waterhouse (my broker) merged with some other shithole (Ameritrade, iirc) and I haven't gotten the fucking online thing set up again because I only do things once a year with my IRA. Let's call it 30K, which is ballpark correct in that it's the right order of magnitude and the correct opening digit. Now, this morning, we'll pretend that I had $30,000 in my IRA in SPY. SPY opened at $119.18 this morning. It closed at 111.38. Doing the math, the value of my investment of 30K (this morning) is now worth $28036.58 as of market close. So, without doing anything actually visible with my stock stuff, I dropped just about two grand today on one item in my portfolio and I didn't even get to bet on any greyhounds! ZOMG! (Now, this is an unrealized loss. Any loss or gain I achieve on a stock does not materialize as a real, taxable event until I sell the stock and realize my loss or gain. In the unlikely event that I have gained, those would be subject to Capital Gains Tax.) Many people (I am not particularly one of them) take the daily ups and downs of the stock market very seriously and sweat the details even though they have unrealized gains or losses. Personally, I think this is stupid.

[which-chick.livejournal.com]

Of course, some of them have good cause to be more concerned.

I would be more concerned about the values of my stocks if I was trading on margin. Trading on margin means that you use stocks as collateral to borrow Play Money from your stock broker for you to go play with on the market. (The stock broker makes money on this deal because he or she gets a cut in brokerage fees every time you buy or sell stuff. There are also interest charges on the borrowed money over and above that.) Thing is, if the value of your collateral stocks drops below the agreed-upon minimum percentage of the amount you have borrowed, you could suffer a Margin Call. A Margin Call is where your broker gets you on the phone and demands more money or more stocks or something to cover the money you're out pissing away on the stock market. Your broker may also be allowed to sell your shit in order to cover the margin call if you're not right there to be helpful. Trading on margin is not something I suggest or practice. However, it exists and it is not illegal.

I'd also be more concerned about the market if I were exposed on naked shorts. Shorting a stock is basically betting that it will go down later. This is also legal. A naked short (mostly legal) is when you promise some buyer that you can provide 100 shares of Tanking Stock (TS) at $20 per share for the month after next. You don't actually HAVE 100 shares of TS when you make this deal (that's why you're "naked"), but you figure with a name like "Tanking Stock" you'll be able to buy it up cheap in a month, like $10 per share, and make Big Buck$ selling it to your guy at $20 per share when the contract comes due. However, in the interim, Tanking Stock comes out with a great new way to revive expired natural gas wells. Their stock soars to the stratosphere and it's trading at $100 a share when you gotta give your buyer his shares. Crap. So, you buy them shares and deliver them to your buyer who is going to pay you a whopping $20 a share, even though it costs you your firstborn child. Naked shorts are also a "Don't try this at home" game that is not illegal even though it sounds like it should be. They got some new rules on it in 2005 but people still do it, some of them quite successfully.

I might also be more concerned if I were someone nearing retirement and I had the bulk of my retirement in the stock market (like the government has been telling people to do), like, say, if I had been born from 1946-1964 (I mean Boomers, and not the cute asian ones on BSG). Then I'd be concerned about significant market movement because I'd be depending on those investments to get me through the assisted-living and ass-wiping years of late retirement as well as the Active Senior (TM -- sounds like a life stage of cat food, doesn't it?) years of early retirement. What is a 2K loss to me as a not-yet-forty could easily balloon to a big loss for a nearing-retirement Boomer. One roughout guide says that savings for a 55 year old should be 8.5 x income. Let's say our guy makes 50K a year, so he'd have so 425,000 saved up for his retirement today. Let's also pretend that he's invested in "The Stock Market". Given those specs, today, he lost 8.77% of his investment. That's 37272.50, gone, in one day. Think he's feeling poorer yet? That's more than I make in a year, y'know.

It's unrealized losses, yes, and now you and I can see that. However, we have a lot longer of a timeline to wait for the market to recover than Mr. 55 Year Old Boomer does. It took the stock market 22 years to recover from the assorted disasters of 1929 and 1930-32. (It can be argued that the market never "recovered" because they kept swapping nonperforming stocks out and putting in "better" ones. Like, y'know, we just delisted AIG and put in Kraft Foods on the Dow to make the DOW look better. Like that.) If things keep on this way, Mr. Boomer will be 77 by the time the market recovers. While he's waiting, he'll have had to scrimp and save on the interim years -- instead of living off the fat of the land, he'll be nibbling scant kernels of his seed corn and hoping like hell he can hang on long enough to see the market recover. I don't think he's going to be as sanguine as I am about all of this...

[carv1982.livejournal.com]

Great essay! Mr. Boomer should have shifted his investments over to bonds (which are doing great right now) ;-)

[cousinsue.livejournal.com]

The European Union chastised us for not passing the Bailout?

[cousinsue.livejournal.com]

hee hee

Naked shorts.