Thursday, July 23, 2009

Where is the money?

Some of this may seem moot now, what with Goldman making oodles (the WSJ counsels us to not 'hate' them for it - I say, yes, it's more evidence of near-zero) and with the increasing levels of the equity markets though they are still below the 2007 peak. But, we need to look at money in its various senses and existences. Even the Pope knows of its importance.

The post is precipitated by Marilyn's answer in the Sunday Parade to a subject that had been handled earlier by Investopedia.
  • Marilyn: Where did the stock money go? -- if she were not so smart, I would worry about her being disingenuous. Sounds more like she has been taken in by those who want to perpetuate what is essentially the big pocket picking scheme.
  • When Stock Prices Drop, Where's The Money? -- no doubt, these guys are into financial engineering which seems to always move toward pocket picking. But, then, so too does government action seem to run this way. The little guys cannot seem to get a break. (italics added on 8/2/2009 - see Remarks, same date)
Both viewpoints are a little misleading. Why? Several reasons described below.

For one, they do not consider nuances of 'intrinsic' as it applies to value that have been thrown out as not necessary (gaming can be partly to blame). Let's call it Okkam for convenience of the favored. Then, there are some temporal issues that are not addressed. First, a little background is necessary.

What we have is a bunch of people passing along the same few bucks. We can take any number as the basis though the Fed tries to really pin this down. Remember that the Fed can print as many virtual bucks as it want in the fiat situation within which we find ourselves.

These bucks pass at a high rate of speed to where some illusion rises that makes us think that there is more than those basic bucks. Ah, yes, delusion at its best. The illusion is, in part, due to the leveraging notions that have gotten out of hand, but, too, it relates to the casino effect (ca-pital-sino) that has grown to underlay things monetary.

A proper audit (to be defined), from time to time, would allow us to see just how few bucks there really are. We do not have to have the shaky times like we're seeing now where real people get hurt in order to do this audit. Of course, we do know that some of those who are richer (by definition of some, smarter) find themselves in a bind, too.

Now another way that the two articles are misleading is that they do not consider the leech effect. As well, through time monies go into the pockets of the several along the way who sold for more than they bought in the past. Some of it definitely would be in the pockets of those running the game. So, you see, there is a temporal issue that seems to be missing.

Today, the markets are up sharply. Of course, the interest rate is low, but who is lending for speculative buying? Supposedly, liquidity is still not what it was. Some say we're heading to a 15,000 DJIA (who is to know?).

There is definitely more to consider here, as we go along, than just a simple metaphor.


03/06/2014 -- An update of this theme.

03/03/2010 -- Applies to the debate about MM and equity/debt.

08/27/2009 -- I need to add that the explanations by these two emphasizes the multiplier effect of a fiat currency scheme. However, as the arguments against marking to market tell us, the additional effect is not, by necessity, ponzi or just hot air. (links pending)

08/10/2009 -- As promised, FEDaerated is here.

08/02/2009 -- Wait! More exposures: "computers, some housed right next to the machines that drive marketplaces like the New York Stock Exchange, enable high-frequency traders to transmit millions of orders at lightning speed and, their detractors contend, reap billions at everyone else's expense." To anyone who isn't at Goldman Sachs or the like, does that appeal to you as the way that we ought to be handling our beans?

So, is this what financial engineering is all about? Sounds more like leeching. We'll look further as part of an econoblog. Where is the money indeed?

07/31/2009 -- Let's see, 5,000 got over $1M for services rendered. Well, that's probably a sign of being a best-and-brightest, at least to certain eyes; it's called rolling-in-the-dough.

Now, this can be used to illustrate how the game it to fill the pockets of a small set to an exorbitant amount. Does the game need to be that way? Hell no. We'll look at that some more.

07/30/2009 -- Note, everyone, the run up of the DOW lately. I'll agree that a lot of this may be fictitious capital, that is, gained through gaming means. Yet, the movement is real. So, where does the money go when equity tanks? It moves to another look, morphs, if you will (money, no better shape changer exists).

07/29/2009 -- The use of intrinsic will need some discussion, as we don't have to go to the level of t-issues. Rather, there is a broader notion that gets lost in the finance's watered-down abstraction. This theme will be central to the new econoblog (leaning toward FEDaerated).


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