Multiplier Effect
Jiu-Jitsu Comes to the Stock Market
Jan Kregel, director of research at the Levy Economics Institute, director of the Levy Institute master's program in economic theory and policy, and head of the Institute's Monetary Policy and Financial Structure program
See also
GameStop Squeeze Was Helped By 34 Year Old YouTubing CFA Who Turned $50,000 Into $48 Million
Tyler Durden
23 comments:
That 34 yr old CFA did not turn his 50,000 into 48 mil until he sells the stock. Right now it’s just like saying “some guy told me my house is worth 10 million”. Until an actual buyer with 10 million transfers to your account you just have a big number on a piece of paper you can’t do anything with.
Funny thing is if he actually tried to sell ALL his stock to realize the gain it would become worth a lot less, a LOT less. He’d be lucky to be worth 250k likely
Don’t tell Bernie... he thinks we can get munnie from this guy so we can have clean water....
I doubt it Matt
Bernie knows the difference between an asset that has a fair price and one that is out of touch with fundamentals. GameStop ran up over 1000%. There is no way that reflects anything fundamental about the new value of company. They don’t have any new product or a new previously inaccessible customer base to support that increase in share price
There are people who do have a stock portfolio that they could sell off for much nearer the listed share price and their wealth is much more realizable. Those are the people Bernie is after.
I would have to see details of any type of wealth tax plan to comment intelligently but since it is pretty easy to hide income I think it’s worth looking for other ways cut the power of the super wealthy besides higher income taxes
It's a zero sum game. A transaction tax has been proposed. Good luck with that!
Depends on what you mean by “it’s” . Stock price rises are not a zero sum game. When the value of the stock market rises there isnt an equal fall in value somewhere else. Thus if a small group of people are the beneficiaries of high stock prices and are “wealthier” because of it some of that wealth can be taxed away and that money can be used elsewhere. I’m not commenting on the quality of the idea of a wealth tax only on the fact that most certainly it is not a zero sum game
Depends on what you mean by “it’s” . Stock price rises are not a zero sum game. When the value of the stock market rises there isnt an equal fall in value somewhere else. Thus if a small group of people are the beneficiaries of high stock prices and are “wealthier” because of it some of that wealth can be taxed away and that money can be used elsewhere. I’m not commenting on the quality of the idea of a wealth tax only on the fact that most certainly it is not a zero sum game
Stock price rises don't create money. It does suck money into that zero sum market.
Stock prices most definitely create money but Its certainly correct to say the money available to use is not equivalent to the full market price for everyone in the market. My 401 k had an option where you could lock in your portfolio value at any time and annuitize it and the annuity was fixed. Even if the market dropped, once you locked in your annuity you were guaranteed a monthly income for a determined term ( 30 years I think) I know everyone’s plan did not have that option.
What would happen if everyone who held a 401k decided to lock in their portfolio value at the same time?
Stocks are like chips in a casino. To get in the game, you have to buy these worthless chips. You exchange money for chips. If you are a winner, you have more chips when you leave. But if you have more chips, one or more other gamblers have less chips. Even the house can't put more chips into circulation than the money exchanged for them over the course of time.
Stock market activity can be compared to gambling. It consumes electricity and is unproductive. The economy benefits when businesses receive the capital they need, but there are other methods of financing them. Such as bonds, loans, or venture capital. Admittedly, it is tempting to go the stock route since you are getting free money. Paying dividends is optional, and if your stock goes bust, you're not on the hook as you would be with normal creditors.
“What would happen if everyone who held a 401k decided to lock in their portfolio value at the same time?”
That’s not the way it works you can’t do that until you are age 65 or so and becomes mandatory iirc 70.5 years.... can’t do it without significant penalties...
So only that older cohort is going to be doing that while younger workers are continuing to save and invest...
So you have young working people who are saving (this is who the morons on the left like Bernie and AOC call “the poor!”) and older people who have saved and invested their whole lives taking distributions (this is who the morons on the left like Bernie and AOC call “the rich!”) ....
Would work perfectly fine except you have morons like Bernie and AOC in there fucking it all up...
About 55-60% of American report owning equities.
Savings are distributed toward the top, too.
https://spendmenot.com/blog/american-savings-statistics/
Roughly, the lower 50% of Americans are relatively poor by US standards, although almost all American's are relatively "rich" by global standards.
Admittedly, it is tempting to go the stock route since you are getting free money.
Well, not exactly free. Owners are exchanging equity for financing. That is a cost.
Stock prices most definitely create money
More accurate to say that fluctuating stock prices result in changes in value instead of money? No munnie is actually created in the process. The change in value is not realized until sale, at which time existing munnie is exchanged, even when margin is used for the purchase. That is to say, price fluctuation neither adds to nor subtracts from the money supply by itself.
https://www.investopedia.com/ask/answers/12/why-do-some-companies-pay-a-dividend.asp
Of all the different types of creditors, this appears to be the most toothless instrument.
“Savings are distributed toward the top, too.”
You’re saying “the people who have the money have the money!”
This is a useless statement... kindergarten level of understanding...
In Canada, if you put money into an RRSP, you get a tax credit.
If you're poor and unable to save, you don't get that credit.
Is that not regressive?
“Savings are distributed toward the top, too.” You’re saying “the people who have the money have the money!” This is a useless statement... kindergarten level of understanding...
Uh, I provided a link immediately following with the figures.
Did I need to explain that to you for you to understand it? If the answer is yes, that is, you did not get you were to refer to the following link, then I will alert you to it in future comments, e.g, by adding, "See following link."
Peter
Obviously if enough people halted trading at once that would be a disaster. What my 401k allowed did not involve halting trading but in fact permitted and encouraged usual trading activity. They just said “if your account is valued at 1.5 mil on the date you freeze it you are guaranteed to never have your account fall below that level but it can continue to grow”. I didn’t exercise that option because I was in the process of changing cities and wanted to move my account to another broker. The whole thing sounded fishy and I certainly understood that was not something that could be done on a universal scale.... but the point remains that a stock portfolio can generate new income for you and that income simply emerges as a result of stock prices rising, not a strict zero sum dynamic. I agree in general it’s helpful to look at the overall secondary markets as zero sum but in conditions of sustained steady growth of prices some of those gains, mediated through the financial system, can result in new income that is not coming entirely from someone else’s spending.
Btw, I did think of a way in which that guy in the story could realize the full value of his stock play, but it would take the help of thousands or millions of others. If he’d arranged to have 48000 people put 1000 dollars each ( or 480,000 do 100 each.... or ...)into an entity that would promise to buy his shares of stock at the price it was at the end of trading and if those 48000 people were okay with possibly, more likely probably, losing well over 50% of their “investment” down the road he could have his 48,000,000.
The dynamics of the initial run up, due to the presence of big time short sellers, had the big losers actually financing much of the run up but to actually fully realize his new found wealth he’d have to find people willing to just essentially give him money for very likely no possible gain to themselves. Not likely...... unless he throws in some empty promise to build walls or inspect elections in Pennsylvania
Greg, what activities is your 401k involved in?
You make it sound as if all earnings are from trading.
What about the actual investment?
Greg you can get Equity indexed Annuities with downside protection from mutual insurance companies.. I think you can roll ERISA balances into them too..,
So you can stay in eg S&P 500 and if it goes up in a year 15% you might get perhaps 10% but if it goes down 15% in a year you stay even...
ofc there are details and limitations, commissions ...etc... read the fine print..., there are options out there outside of the 401k when you retire...
Peter
It was like every other 401k in terms of what it was involved in. A line of mutual funds, individual stocks, bonds, bond funds, REIT funds..... the standard stuff. Could trade as much or as little as you wish
I think Matt is likely right about how they did that “value guarantee” program. Like I said I did not take part in it as I knew I was changing jobs eventually and wanted it to be easy to roll over so I did not explore exactly how that program worked. The precious 2 companies my group had held our 401k with did not have such a plan
You are getting an income stream from investments in the real economy. Standard stuff ~ less risky ~ lower return.
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