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continued....
Jorgenson says no — the amount of wealth in the world "simply decreases in a situation like this." And he cautions against assuming that your investment losses mean a gain for someone else — like wealthy stock speculators who try to make money by betting that the market will drop.
"Those folks in general have been losing their shirts at a prodigious rate," he said. "They took a big risk and now they`re suffering from the consequences."
"Of course, they had a great life, as long as it lasted."
source: CNBC...
In reply to:
All that money you`ve lost — where did it go?
Posted by :
my_money
Trillions in stock market value — gone. Trillions in retirement savings — gone. A huge chunk of the money you paid for your house, the money you`re saving for college, the money your boss needs to make payroll — gone, gone, gone.
Whether you`re a stock broker or Joe Six-pack, if you have a 401(k), a mutual fund or a college savings plan, tumbling stock markets and sagging home prices mean you`ve lost a whole lot of the money that was right there on your account statements just a few months ago.
But if you no longer have that money, who does? The fat cats on Wall Street? Some oil baron in Saudi Arabia? The government of China?
Or is it just — gone?
If you`re looking to track down your missing money — figure out who has it now, maybe ask to have it back — you might be disappointed to learn that is was never really money in the first place.
Robert Shiller, an economist at Yale, puts it bluntly: The notion that you lose a pile of money whenever the stock market tanks is a "fallacy." He says the price of a stock has never been the same thing as money — it`s simply the "best guess" of what the stock is worth.
"It`s in people`s minds," Shiller explains. "We`re just recording a measure of what people think the stock market is worth. What the people who are willing to trade today — who are very, very few people — are actually trading at. So we`re just extrapolating that and thinking, well, maybe that`s what everyone thinks it`s worth."
Shiller uses the example of an appraiser who values a house at $350,000, a week after saying it was worth $400,000.
"In a sense, $50,000 just disappeared when he said that," he said. "But it`s all in the mind."
Though something, of course, is disappearing as markets and real estate values tumble. Even if a share of stock you own isn`t a wad of bills in your wallet, even if the value of your home isn`t something you can redeem at will, surely you can lose potential money — that is, the money that would be yours to spend if you sold your house or emptied out your mutual funds right now.
And if you`re a few months away from retirement, or hoping to sell your house and buy a smaller one to help pay for your kid`s college tuition, this "potential money" is something you`re counting on to get by. For people who need cash and need it now, this is as real as money gets, whether or not it meets the technical definition of the word.
Still, you run into trouble when you think of that potential money as being the same thing as the cash in your purse or your checking account.
"That`s a big mistake," says Dale Jorgenson, an economics professor at Harvard.
There`s a key distinction here: While the money in your pocket is unlikely to just vanish into thin air, the money you could have had, if only you`d sold your house or drained your stock-heavy mutual funds a year ago, most certainly can.
"You can`t enjoy the benefits of your 401(k) if it`s disappeared," Jorgenson explains. "If you had it all in financial stocks and they`ve all gone down by 80 percent — sorry! That is a permanent loss because those folks aren`t coming back. We`re gonna have a huge shrinkage in the financial sector."
There was a time when nobody had to wonder what happened to the money they used to have. Until paper money was developed in China around the ninth century, money was something solid that had actual value — like a gold coin that was worth whatever that amount of gold was worth, according to Douglas Mudd, curator of the American Numismatic Association`s Money Museum in Denver.
Back then, if the money you once had was suddenly gone, there was a simple reason — you spent it, someone stole it, you dropped it in a field somewhere, or maybe a tornado or some other disaster struck wherever you last put it down.
But these days, a lot of things that have monetary value can`t be held in your hand.
If you choose, you can pour most of your money into stocks and track their value in real time on a computer screen, confident that you`ll get good money for them when you decide to sell. And you won`t be alone — staring at millions of computer screens are other investors who share your confidence that the value of their portfolios will hold up.
But that collective confidence, Jorgenson says, is gone. And when confidence is drained out of a financial system, a lot of investors will decide to sell at any price, and a big chunk of that money you thought your investments were worth simply goes away.
If you once thought your investment portfolio was as good as a suitcase full of twenties, you might suddenly suspect that it`s not.
In the process, of course, you`re losing wealth. But does that mean someone else must be gaining it? Does the world have some fixed amount of wealth that shifts between people, nations and institutions with the ebb and flow of the economy?
source: CNBC (to be continued) 
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Trillions in stock market value — gone. Trillions in retirement savings — gone. A huge chunk of the money you paid for your house, the money you`re saving for college, the money your boss needs to make payroll — gone, gone, gone.
Whether you`re a stock broker or Joe Six-pack, if you have a 401(k), a mutual fund or a college savings plan, tumbling stock markets and sagging home prices mean you`ve lost a whole lot of the money that was right there on your account statements just a few months ago.
But if you no longer have that money, who does? The fat cats on Wall Street? Some oil baron in Saudi Arabia? The government of China?
Or is it just — gone?
If you`re looking to track down your missing money — figure out who has it now, maybe ask to have it back — you might be disappointed to learn that is was never really money in the first place.
Robert Shiller, an economist at Yale, puts it bluntly: The notion that you lose a pile of money whenever the stock market tanks is a "fallacy." He says the price of a stock has never been the same thing as money — it`s simply the "best guess" of what the stock is worth.
"It`s in people`s minds," Shiller explains. "We`re just recording a measure of what people think the stock market is worth. What the people who are willing to trade today — who are very, very few people — are actually trading at. So we`re just extrapolating that and thinking, well, maybe that`s what everyone thinks it`s worth."
Shiller uses the example of an appraiser who values a house at $350,000, a week after saying it was worth $400,000.
"In a sense, $50,000 just disappeared when he said that," he said. "But it`s all in the mind."
Though something, of course, is disappearing as markets and real estate values tumble. Even if a share of stock you own isn`t a wad of bills in your wallet, even if the value of your home isn`t something you can redeem at will, surely you can lose potential money — that is, the money that would be yours to spend if you sold your house or emptied out your mutual funds right now.
And if you`re a few months away from retirement, or hoping to sell your house and buy a smaller one to help pay for your kid`s college tuition, this "potential money" is something you`re counting on to get by. For people who need cash and need it now, this is as real as money gets, whether or not it meets the technical definition of the word.
Still, you run into trouble when you think of that potential money as being the same thing as the cash in your purse or your checking account.
"That`s a big mistake," says Dale Jorgenson, an economics professor at Harvard.
There`s a key distinction here: While the money in your pocket is unlikely to just vanish into thin air, the money you could have had, if only you`d sold your house or drained your stock-heavy mutual funds a year ago, most certainly can.
"You can`t enjoy the benefits of your 401(k) if it`s disappeared," Jorgenson explains. "If you had it all in financial stocks and they`ve all gone down by 80 percent — sorry! That is a permanent loss because those folks aren`t coming back. We`re gonna have a huge shrinkage in the financial sector."
There was a time when nobody had to wonder what happened to the money they used to have. Until paper money was developed in China around the ninth century, money was something solid that had actual value — like a gold coin that was worth whatever that amount of gold was worth, according to Douglas Mudd, curator of the American Numismatic Association`s Money Museum in Denver.
Back then, if the money you once had was suddenly gone, there was a simple reason — you spent it, someone stole it, you dropped it in a field somewhere, or maybe a tornado or some other disaster struck wherever you last put it down.
But these days, a lot of things that have monetary value can`t be held in your hand.
If you choose, you can pour most of your money into stocks and track their value in real time on a computer screen, confident that you`ll get good money for them when you decide to sell. And you won`t be alone — staring at millions of computer screens are other investors who share your confidence that the value of their portfolios will hold up.
But that collective confidence, Jorgenson says, is gone. And when confidence is drained out of a financial system, a lot of investors will decide to sell at any price, and a big chunk of that money you thought your investments were worth simply goes away.
If you once thought your investment portfolio was as good as a suitcase full of twenties, you might suddenly suspect that it`s not.
In the process, of course, you`re losing wealth. But does that mean someone else must be gaining it? Does the world have some fixed amount of wealth that shifts between people, nations and institutions with the ebb and flow of the economy?
source: CNBC (to be continued)...
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Are we there yet? This is the key question and it relates to finding the bottom of the market.
In many ways it`s a pointless question. Even if we could identify the turning point in the market with a high level of certainty, there are very few people with the courage to enter at these low points.
The more important thing to look for are the features that will help to identify, first, the end of the market fall and second, the development of a market recovery. These two events may be separated by a few months, or by many months.
There are two important features that identify climax selling. The first is the rapid acceleration in the speed of the market fall. Like a Stuka dive-bomber, the market first rolls over slowly and then plunges in a vertical dive. This is fear at work.
The second feature is a massive increase in volume. This is panic. Ordinary people are desperate to get out of the market. Generally the funds and institutions got out of the long-side of the market many months ago. The selling in January and February was dominated by institutions and funds. The current panic selling is thousands of small orders from retail investors desperate to get out of the market.
During the bear market collapse, volumes decline. Fewer people want to buy stock so volatility increases because small trades have a disproportionate impact in a shallow market.
This selling climax shakes out all the weak hands in the market. It kills the margin speculators. It wipes out those who have finally lost patience. It removes the speculative money in the market because people think the risk is too great. This is also called capitulation. Everybody gives up – and it influences the thinking of a generation. My parents, who lived through the depression, could never entirely shake the idea that the market was a dangerous place.
The activity in the Dow Jones Industrial Average and other global markets shows an acceleration of downwards momentum. The massive increase in volume has not yet developed and this suggests the market bottom is not yet established. There is a high probability that markets will see a selling climax in the next 3 to 5 days.
But here is the important difference. The recovery rally after climax selling is temporary. It is part of a longer-term consolidation pattern that may last months, or even a year, and make more new lows before a new sustainable uptrend can develop. The potential shape of the recovery is shown in the chart. The bull market rebound rally follows a temporary selloff. A bear market rebound rally follows climax selling. It is a relief really, but it is not part of a sustainable trend change.
After a bear market, volumes remain low. When you lose trillions of dollars it takes a long time for spare change to start rattling around the economy again. Spare change drives the bull market because money is available for speculation.
In the immediate bear market recovery period the market is dominated by professionals. Finance industry professionals are already being laid off. The least effective are the first to be let go. Only the best will survive the employment washout in the industry and these will be the ones defining the behavior of the consolidation and recovery market.
When you trade in these market conditions you are most likely trading against these professional survivors. Education, not money, is the most important premium after the bear market.
source: CNBC...
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ICICI Bank leads gainers from Sensex pack - Battered Bankex bounces back.
Reliance Infrastructure, Sterlite Industries, Reliance Communications and HDFC Bank are among the other major gainers from the Sensex pack. Small-cap, mid-cap indices underperform Sensex
The BSE Sensex was up 761.26 points, or 7.23%, to 11,289.11.
ICICI Bank galloped 17.58% to Rs 428.10 after the private sector bank’s chief executive K.V. Kamath reiterated that deposits with the bank are safe, and that the bank had a cushion to take domestic and overseas shocks. The stock was the biggest gainer from the 30-share Sensex pack.
Kamath today, 13 October 2008 told a television channel that the bank remains well capitalized and that its capital adequacy remains 150% of normal requirement. The bank currently holds Rs 90,000 crore of government securities and its global subsidiaries have $2.5 billion in cash. The bank’s balance sheet was adequately cushioned, Kamath said.
Reliance Infrastructure spurted 16.34% to Rs 599.50. It was the second biggest gainer from the Sensex pack.
Sterlite Industries surged 16.03% to Rs 318.20. It was the third biggest gainer from the Sensex pack. On 24 September 2008, its board decided to scrap a restructuring scheme.
Reliance Communications moved up 12.47% to Rs 267. It was the fourth biggest gainer from the Sensex pack.
HDFC Bank gained 11.53% to Rs 1167. It was the fifth biggest gainer from the Sensex pack. Most of the banking stocks recovered from last week’s heavy fall boosted by finance minister P Chidambaram\`s statement that the government was working on more measures to infuse liquidity in the banking system and increase the confidence of depositors and investors. -CM
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BSE Info Tech Index Up Nearly 10 Pct; Moser Baer Up 19.7 Pct, Satyam Computers Gains 11.4 Pct...
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Everything about the financial crisis need not be depressing. People are finding humour in the middle of the stocks meltdown, although punters who have burnt their fingers and much more would find it rude.
Mobile phones are abuzz with funny SMSs doing the rounds about the financial storm and the stocks crash.
Consider this SMS that goes: "Markets are set to regain 20,000 mark... (But only if) Sensex, Nikkei and Hang Seng are put together at 5,000 points each, NYSE Composite at 1,000 points, Dow Jones Industrial Average at 3,500 and Nasdaq at 500 points."
In the real world, Sensex is still above 10,000-point mark, but has nearly halved from its record high level seen early this year, DJIA has dipped to near 8,450, Nikkei is trading near its 20-year low at over 8,000 points.
There are also jokes online like "Black Mondays used to be a once-in-a-lifetime event. Now they are coming along more regularly than Delhi Metro trains."
Another SMS doing the rounds says: "Respected Sensex Sir passed away on October 10, 2008 after not keeping well for nine months. The last rituals would be conducted at Lehman Brothers` place."
Another talks about the companies` balance sheets: "Assets are written on the left and liabilities on the right side. But, there is nothing left on the right and nothing is right on the left."
The market value of all the listed companies in India has nearly halved to about Rs 36.5 trillion from the level seen about nine months ago on January 10, the date when Sensex had scaled its record high of 21,206.77 points.
Another joke doing the rounds says that Raj Thackeray is ready to allow non-Mumbaikars to stay in the city, but it would be mandatory for them to invest in the stock market.
There are also some other jokes with political flavour: "Bankrupt allowed to return to their native place without ticket, says Railway Minister Lalu Prasad; Bankrupt to be given imported wheat free on ration: Agriculture Minister Sharad Pawar; Stock market losses to be treated as tax deducted at source: Finance Minister P Chidambaram."
There are also SMSs like "blockbuster Saare Zameen Par (everyone bites dust) enters into 10th straight month at BSE and NSE multiplexes."
Another one says: "When the Sensex was at 21,000, the stock of a single real estate company was ruling close to Rs 1,500. Today, you can get entire sector for the same price and with Lehman Brothers having invested in the sector, further bargain is expected."
About global developments also, humour abounds about the crisis and one such joke has gone to the extent of Iceland being auctioned on eBay at a starting price of 99 pence.
Some British papers have reported even British Prime Minister Gordon Brown trying his hand at such humours. While giving a speech in London, he quipped on hearing a mobile phone ring, "I don`t know if another bank has fallen."
Taking a dig at government`s rescue packages, one says: "All sports stadiums in USA currently named for banks, insurance companies, or financial institutions will have to be renamed "Federal Reserve Park."
There are also some definition SMSs: Markets are the places where two types of people meet up in the morning: those with experience and those with money. Towards the end of the day, they exchange their assets and go home.
One defines a bear market as a phase when investor mistakes himself for a financial genius and a bear market as a period when kids get no allowance, wife gets no jewellery and the husband shoots himself on the trading floor.
One more on bull-bear theory says: There used to be bulls and bears in the market, now every one is a plain old ass.
Another one defines P/E ratio as the percentage of investors wetting their pants as the market keeps crashing.
"The market may be bad, but I slept like a baby last night. I woke up every hour and cried," talks about the plight of investors, while one comes in form of a tip: October is one of the peculiarly dangerous months to invest in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.
Then a conversation has been visualised like this in one SMS: How many stockbrokers does it take to change a light bulb? Answer is two -- One to take out the bulb and drop it, and the other to try and sell it before it crashes.
-TOI
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FDI Inflow Will Be In Excess Of $35 Bln This Year...
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Do rate cuts like CRR & liquidity infusion have positive impact on IT,Tech sector to that extent? IT sector up 7.5% 2nd to banking. Well I know that rate cuts surely have positive impact on Banks & thereby in future bank\`s probability of lending rate cut rises so Autos & realty sector to some extent consumer,CG,Oil & gas, telecomm, & power.
It clearly indicate that investments are still done irrespective of fundamentals. & I think we are going to suffer somewhere in long term future....
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TCS shares soars 15%
Pyramid Saimira shares soar 19%
Axis Bank surges 11% on strong Q2...
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Key European markets rise; CAC-40 up 5.6%; DAX gains 5.9%...
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NIFTY future now 3500 call givent at 3410
courtesy stoxandmore...
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Tata Teleservices has started restructuring its capital by writing off
51.41 bln rupees in losses and unabsorbed depreciation. (Mint)
...
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* India, US sign civilian nuclear technology pact (CNN)
* Subbarao says RBI ready to take swift action to inject liquidity (CNN)
* Subbarao says India may escape worst consequences of global crisis (CNN)
* RBI asks mutual funds to give details of CD investments (CNN)
* Govt sets up panel to study liquidity situation; report in a week (CNN)
* Govt set to ask SEBI to ban short selling (ToI)
* Commerce Minister Nath for at least 1.5% cut in interest rates (ToI)
...
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FE Editorial : Monday mantraMon, Oct 13 02:38 AM
No Monday market will be watched as closely as today`s. India`spolicymakers will be watched too. They have done well so far. But volatile times induce error. So let`s note that one of the most remarkable facts this crisis has shown is that the global stock market can absorb a trillion dollar loss in one day while the global banking system cannot absorb the same loss over two years. This is demonstration of the importance of a market-dominated financial system. A large banking system is a strategic vulnerability, particularly after taking into account the toxic interplay between banking and politics which can lead to loan waivers, loans to cronies, bailouts, resource pre-emption by the government, directed credit and PSU banks. A market dominated financial system is safer in that the worlds of finance and politics are much more likely to be kept apart.
In Russia, Indonesia, Ukraine, Hungary, Pakistan, etc., the stock markets have closed down for some period of time in this crisis. Regulators in the US and the UK lost their nerve, and did some silly things on short selling, which were reversed in a few days. In India, the fundamental attributes of a sound market have been satisfied. In the worst of pain—on Friday evening—there were both buyers and sellers on the screen. On Friday, the top three derivatives at NSE were Nifty (Rs 34,000 crore), rupee-dollar (Rs 976 crore) and ICICI Bank (Rs 947 crore). At closing time on Friday, on the near month ICICI Bank futures, there were buyers at the top five prices for 6,825 shares and sellers at the top five prices for exactly the same amount. There was no payments crisis, despite substantial price fluctuations. The market was working as it should: providing a venue for both positive and negative views to be expressed, and solving out for an equilibrium price. The policy establishment in India has fared well in this crisis. Knee jerk proposals for banning short selling have been rejected; RBI responded with alacrity by cutting CRR; Sebi plodded onwards with structural reforms by rescinding the mistakes about PNs made in October 2007. Last week was a trial by fire, and India`s exchanges, and the economic policy leadership, has come out looking good by international standards. Now the immediate task lies in rapidly solving the liquidity squeeze by setting up a proper operating framework for monetary policy, and undertaking fundamental reforms of the FII framework.
v.krishnamoorthy
Folsom/USA...
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The credit-fuelled party is over and, for many Britons, that means the mother of all hangovers.
After a decade of binging on borrowed money and dining out on debt, consumers are now paying a heavy price.
According to the debt charity Credit Action, one person is declared bankrupt or insolvent every five minutes in the UK.
Every day, 104 properties are repossessed and the average household debt is Ł9,500 (excluding mortgages).
According to Roger Bootle, the managing director of Capital Economics, the way banks lend money has changed forever.
He said: "The financial landscape will never be the same again. We`ve passed through a major event which is on a par of much of what occurred in the 1920s and 30s leading up to the Great Depression.
"We`ve been through a period when the financial markets went bonkers and remarkably central banks and governments allowed them to and many of us were caught up in this."
The number of people seeking debt help from Citizens Advice has increased by more than a third in the last 12 months.
Most people do not realise how much debt they are in. Even those who know they are in trouble, are often reluctant to seek help. Advisors stress that ignoring debt is the worst thing people can do.
Alex MacDermott, policy officer at Citizens Advice, said: "Come and get advice as early as possible. There are lots of ways we can help. We can make sure you`re getting all your benefits and tax credits.
"There is something like Ł9.9 billion of means-tested benefits which went unclaimed last year so there`s certainly a lot of money that people are missing out on.
"We would then look at prioritising your debts, so we`d look at making your mortgage payments, your council tax, your fuel payments a top priority to make sure you don`t get cut off or evicted from your property. Then we`d look at rescheduling any other debts out of what`s left over."
By Sara Merchant
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Poll
Udayan's Market Outlook
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Nifty likely to go back 3700-3800 level | |
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| Udayan Mukherjee, Stocks Editor, TV18 | ||
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