Important economics lesson here boys and girls!
What does it mean to "invest?"
Well, if you're leftist it means to take other people's money and piss it away on worthless social programs, typically headed up by connected cronies in the non-profit world. For example we "invest" in our children in the schools, but they don't learn anything and are ranked near Mexico in terms of standardized test scores. We "invest" in communities by building (Mark Dayton's favorite) "community centers." they don't do anything but provide a place for bums and poor people to stay warm during winter or have social workers baby sit other people's kids during summer. In every case, the people who "invested" the money never see a dime of return because...well...the truth is those REALLY AREN'T INVESTMENTS!
You see, an investment has to have some kind of rate of return. Something where you take the money, you INVEST it in something, and that something provides you MORE than what you invested over the course of its life. If you use this (reality based) definition, you would think this would apply to the stock market. Your 401k's, your IRA's, your mutual funds! Those are all REAL investments, right?
Oh, you sad, sad goodie, two-shoes, obedient suburbanite conservative SWPL people.
So sorry, it is not.
You see, the INITIAL trade, the VERY FIRST TIME a brand new stock is sold on the stock market, that is INDEED an investment. We call this "initial" first time sale an "IPO" or "initial public offering." This is when a company is looking for investors to finance it. The company decides to sell some shares in its equity and various institutions, banks, hedge funds and other financial firms pony up the billions of dollars to get in on this "IPO."
The proceeds from these IPO's then go to the company which in turn then TRULY AND REALLY invests it. They buy assets, they buy equipment, the hire people, they build plants. They and their original financiers make the REAL investment. But what happens after that?
How do you good obedient 401k Clergy people "invest" if the large financial institutions did all the "real" investing already?
Well, the answer is - you don't.
You see, for a brief moment in time you may accidentally and indirectly hold some original IPO shares through a mutual fund, but over time (quite rapidly actually) those original IPO purchasers do something with those shares they bought directly from the company.
They sell them.
To who? You, them, each other.
Anybody who will pay them more than what they paid for it.
Once that happens those shares are no longer actual "investments." They are merely speculation.
This has two ramifications.
1. This means the entirety of the US retirement planning system is based on speculation. It's not about "investing in a new company" or "investing in an upstart." The vast majority of retirement dollars are based on the hope that a savvy analyst or mutual fund manager has found a 10% pricing error in a stock that allows him/her to purchase it and ride that 10% increase up before selling it (and charging you 3% managerial fees). Of course this says nothing about how now that the share of stock is so far removed from the company that it's economic variables that account for the majority of price swings, and so with QE-291 and artificially low rates prompting companies to leverage up and buy back their shares, OH, and let's not forget you 401k mindless zombies throwing trillions into the market every couple years, the stock market has skyrocketed when there's been no real underlying reason for it to.
2. The stock market and economic growth no longer have anything to do with one another.
I love it when liberals desperately point to the stock market as if it is some barometer of economic growth, standards of living, or well being in the country. Nearly everyone under 35 is under/unemployed, we've lost real, fulltime times on a nominal and adjusted for inflation basis, economic growth is lethargy, but hey hotdiggitydoooo! Dat der stock market broke 17,000! Obama's a genius!
In there's any explanation why the stock market is NOT the economy, it's that the ONLY economic growth to come from the stock market came from those IPO's. After that money was invested, there was NOT A CENT MORE of economic growth due to the sale of those stocks. Thus, any price increases (once again) have absolutely no bearing on any new investment going into the real economy.
Now, I know, I know. I'm just a party pooper.
I was a party pooper before the Asian currency crisis.
I was a party pooper before the Dotcom crash.
I was a party pooper before the housing bubble
And I was a party pooper before the education bubble.
My question is simply this.
For all of you who got angry at people who said stocks were overvalued in 1999, that housing was overvalued in 2006, and that liberal arts degrees were worthless in 2009 (and there most certainly were VICIOUSLY and FURIOUSLY angry people I had to contend with back then) were the subsequent crashes and economic recessions worth it? Would you have preferred to have the crashes over me and people like me trying to tell you the truth? Or would you have preferred to avoid those recessions and collapses by maybe opening up your thick skulls to entertain something that wasn't bread and circus bullshit spoon-fed to you by politicians, bankers, Oprah, media and all the other "feel good, everything is awesome" establishment types?
Wait wait wait.
"This time it's different!?"
Enjoy that freaking decline.
For more of Aaron's cheerful tirades, consider visiting his Youtube channel