Stock market and social security

Stock market and social security

1. Winner's gain is from loser's.

A farmer planted a seed. He sold the fruit The famer created a wealth.
A worker produced a car. He sold the car. He creates a wealth.

Investor A bought one hundred shares at 1.00/share. The company got one hundred dollars to pay rent, wage and material. Then the stock market rose to peak. Investor A sold the share at 1.10/share to investor B. A got 110 dollars. He made a 10% profit. But was that 10 dollars created? No. it was B's loss. When B bought the stock from A, he became a potential loser. What he bought was only a piece of paper. He couldn't cash the stock with the company which issued it. What B can do is hoping some one else to take over the potential loss.

Situation 1. If the stock is Enron, then when it went bankruptcy, B's stock worth nothing. Here Company got 100 dollars. A got 10 dollars. B is the loser. He lost 110 dollars. Winners' money is from loser's. It's evidenct.

Situation 2. If the stock is HP, then in trough, the share price may fall to 0.90/share. B sold it to C. B lost 20 dollars. C paid 90 dollars for 100 shares. C sold the stock in peak 2 at 1.20/share to D. Now D becomes a potential loser. If nobody has the will to buy his paper, then the stock worth zero. Now let's see, company got 100 dollars. A sold stock at 1.10/share. he made 10 dollars. B bought at 1.10/share, sold at 0.90/share. B lost 20 dollars. C bought at 0.90/share and sold at 1.20/share. C won 30 dollars. 10(A) + 30(C) + 100 (company) = 20(B loss) + 120 (D's potential loss)

The eqation: Winner's gain(profit) + Capital gain (Company issue the stock) = Losers' loss (loss) + Potential loss (Amount paid by the latest stock holder)

You can see there is no wealth created. How much winner got is how much loser and potential loser lost. And it doesn't include administration fee. (it's about 2 trillion in 10 years period, Re: San Jose Mercury News, 12/17/04) So when Bush say you may get better income in stock market, there must be some people bear the loss for the winner's gain. Whom do you think will be the loser and winner?

(I omit the dividend here. it's similar to interest paid by bank.)

Well, lets see first they garnish wages to (profit) provide for retirement social security. They transfer those funds to meet their needs then when they can't repay.
So now they want you to invest in stocks? What happens if it crashes? Well to protect your vested interest provide guarentees (by controling the market) overseeing it. Right?

quote:

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But a day after he made overhauling Social Security the centerpiece of his State of the Union address,
Mr. Bush ran into a brick wall of opposition from Democrats in Washington and skepticism even from influential members of his own party in Congress, leaving him facing perhaps the toughest and highest-stakes legislative battle of his presidency.
Mr. Bush made some gestures to bipartisanship as he traveled to Montana and North Dakota on the first day of a two-day, five-state swing intended to impress on voters and members of Congress a need for action this year on Social Security. But he showed no signs of backing down, even as he prepared to plunge into another partisan battle next week, over his call for a new effort to hold down government spending and cut or eliminate scores of domestic programs.
"I've heard all of the complaints - and you'll hear a lot more - how this is going to ruin Social Security," he said at his first stop, in Fargo, N.D. "Forget it, its going to make it stronger."
At a later stop here he said, "This is doable. It's just going to take some political will."

---

http://www.gainesville.com/apps/pbcs.dll/article?AID=/20050204/ZNYT02/50
2040311

2. Stock is no other than a piece of paper

The value of stock market is supported by continue coming of investment fund. One thing you should know the people who hold the stock is no other then hold a piece of paper. That's a bubble. When no money came, then the bubble will break up.

When you deposit 100 dollars in the bank, you are guaranteed to get that deposit back, plus interest.

When you buy one hundred dollars of shares of a company, you are told you probably get some dividend sometime if business is good. The dividend is not guaranteed. And you can not cash the stock with the company. Because they have spent it to pay rent, wage and equipment already. If you liquidate the company, most time you may get a negative asset. e.g. if it's Microsoft, what they left for you is a program of Windows. UA may have some airplanes. But they always come with a huge debt. What kind of asset do Kodak and McDonald have for the stock they issued? What you hold finally could be a piece of paper. What you hope is someone else would buy that paper from you to take over your potential loss. When people put all their retirement fund in stock market, they are sitting on a big bubble. All they hold is a bunch of paper. One day when people wake up and refuse to behave like a fool, then there will be a collapse of stock market.

What Bush does is to persuade people put their retirement fund into the market to take over the hot potatoes.

http://okcitykid.bravejournal.com/entry/11073

Good resource - lays it out real well

3. The stock price depends on the amount of investment fund.

If monthly trade stock is 100 shares, ($1.00 each) the investment fund in that month is $110, then the share price will be 1.10 each, it's a 10% rising market. If there is only $90 fund go into the market, then the price will be $0.90 each. A falling of 10%.

More fund is needed to support a growing up market.
For decades, the index of US stock market went upwards. It created a fake phenominon that if you invest in long term, (e.g. 40 years) you got a good return. That's the justification someone like Bush used.

But if you know the above principle(a rising market depends on increasing investment fund) you must know that it was built up artificially. The US stock market growing up at public's pension fund. At first, Different pension fund push up the stock market. Then financial group created mutual fund in 1970s(?) which put your savings into the stock market. When it was not enough they invented "IRA" in 1980s which push another amount of retirement fund into the stock market. Further more, in 1990s, government allowed 401(k) to access the stock market. Wave after wave, Americans' retirement money were pushed into that gambling market. It became a big bubble.

But money was harvested by company and winners already. What public held are only a bunch of papers. When people want to cash their 40 years long savings, (they think they have a bunch of treasures, but that's only a paper value) Who has the ability to take over that big bubble? It needs a lot of new investment fund to support it.

That's why when government exhausted your money by "pension fund investment", "IRA", "401(k)" the last exit is your social security

Ross Perot warned us of today.

Where the Hell is He?

4. The reverse point

As I have said, a growing up stock market must be supported by increasing investment fund. A $100 market grew up 10% in first year with $110 investment.Next year, to support a $110 market growing another 10% up, you need $121 new investment fund. And $133 for the third year..... To blow a ballon bigger, you need more air.

That's what happened in past 40 years. It's a process of how babyboomers cast their retirement fund into the stock market. It's a process how babyboomers exchanged their treasure(retirement fund) with papers (stock shares). When I said potential losers hold a bunch of papers, I mean the stock paper may lose value any time. (Unlike the certificate of CD which banks guarantee to cash or Grand deed of a house that you have a house, no one has obligation to cash your stock certificate, the only interest(dividend) was often cancelled in the name of re-investment by company)

Now it goes to a reverse point. The first generation of babyboomers reach their retirement age, they will not put money in pension fund any more, instead they will cash the stock in their portfolio for their retirement spending. If the market was originally at 10% growing up step, ($100 stock with $110 new investment fund) now it will be a staggering market or a recess market. The new investment fund becomes 105,(due to less retirement fund) the stock for sale becomes $105 (more old people cash their portfolio), then the stock market stagerring with no growing up. Or a recess, $100 new investment fund with $110 selling stock. Market will fall at 10% rate. (depends on retirement rate)

The World War 2 ended in 1945. The first generation of babyboomers were born in 1946. If the legal retirement age was 63, 1946 + 63 = 2009, then starts from 2009, same problem face to Social Security will face to stock market. Less working people contribute to pension fund, more old people to cash portfolio. A long term growing up stock market will become a long term recess market. The fairy tale will break up.

That's why Bush set the date of his privitization of S.S. in 2008. To save the stock market from collapsing. And deliver the bubble at the cost of young people's retirement fund.

So what I think your saying is that the stock will crash if we don't privatize, but this will cost the retirement of the young?

Yes.

7. The point is they need fund to save stock market (6/20/05)

In my illustration equation in message 6: (based on fact that the return of average investor was 3.7%, and average return of S&P was 13.2% each year)

37 (average investors gain in 10 years) + 95 (special interest group gain in 10 years) + 100 (capital gain of S&P company) = 232 (price paid by potential loser after 10 years)

to maintain a high return rate in stock market, special interest group needs more and more fund. In that equation, it's the amount 232 paid by potential losers. Next year, to maintain a 13.2% grow up rate, they need 262 new fund from potential losers. So far it works well becasue they successfully guided the pension fund, then IRA, then 401(k) into the market. But once those who invested in stock market with their pension fund want to cash their portfolio who has that big money to take over the stock papers? They turn on to your social security.

2018 is the year when paid S.S. tax will be less than the benefit paid to retirees. That's 13 years away. 2042 is the insolvent year for S.S. That's 37 years away. Why Bush is so eager on this issue? Because the stock market will have problem in 2009. That's 4 years away. Bush's privatization plan is not to save Social Security, (on the contrary, it endangers S.S.. See message 5. Bush's privatization plan will endanger S.S. further (5/22/05)) It is to save the stock market. The sacrifice is young people's retirement fund.

Back to my equation, when potential loser paid 232 for a stock paper, the money has gone to the winners' profit gain and company's capital gain already. When potential loser wants to cash his stock paper, who has the money to take it over?

That's why Bush and his accessaries bang the drum to propaganda on "high return in stock market" (it's a gimmick, see message 6. Average investor in stock market) to lure people to invest their money into the stock market to take over the hot potato.

Bush's plan is opposed by majority people. But he tries to play with tricks. whatever the new plan he proposed, one thing is for sure: 1. He needs money(fund). 2. The money is from Social Security fund. 3. And that fund will be put into the stock market to save it from collapsing.

So that's how the 401k plan saved us? But Ross Pereo said it wouldn't last, it was just temporary, that must have been what he was talking about.

I wish we would have made him president. We wouldn't be in this mess today.

The stock market is going to have to crash, because it's too big, it's time to start over and have a deflation. That's way it supposed to work anyways, because you just can't keep having inflation.

I think I understand it.

401(k) didn't save us. It only delay the crisis and make it bigger.

In a simple story to make it easy to understand.
O (original capitalist) invested $100 in stock market. In 1980s he successfully persuade P and I (Pension fund and IRA) to enter the market to buy his stock with $200. When P and I want to sell their stock and to make money on it, they must find a buyer richer then them. It's K(401k) In 1994, government successfully guided K into the market. K bought the stock by $400. After 15 years, K want to sell the stock to make some money, who has $800 to buy it? Only S.S. has that much money. That's why Bush desperately tries to privatize S.S. fund.

We saw in recent decades stock market grow up at 10% rate. It's a process more and more fund guided into the stock market. It's also a process money were changed into paper. Retirement fund ballonized. Once S.S. want to cash its stock, who has that much money to take over the hot potato? Then there will be an ecnomic tsunami. Bush doesn't care. It's something years away. What he wants is to transfer crisis from one hand to another despite the crisis ballon becomes bigger and bigger. The victim will be those young generation whose S.S. fund privatized.

8. The game is who will be the potential loser (7/19/05)

First of all. People should recognize the difference of average return of stock market and average return of stock investors?

The Dalbar research gave you the result: In latest 20 years, 1985 to 2004, (2005 not finished yet).

Average investor's yearly return: 3.7%. (ordinary people)
Average S&P 500 index yearly return: 13.2% (stock price gain)

Get clear the idea of "average investor" and what happened to the difference between 3.7% and 13.2%.

Nobody deny the high return of stock market, only it belongs to special interest group not ordinary people.

I emphysize the average investor's return: 3.7%. Because S.S. is about the interest for ordinary people - the average tax payer, not for the special interest group. And my equation tells where the money went.

37 (average investors gain in 10 years) + 95 (special interest group gain in 10 years) + 100 (capital gain of S&P company) = 232 (price paid by potential loser after 10 years)

This is how Bush and his S.S. war room show to people:
132 (total profit made in 10 years) + 100 (capital gain of S&P company) = 232 (price paid by potential loser after 10 years)

They mix average investor with special interest group.

And this is how ordinary people got in stock market in latest 20 years, almost nothing (in mutual fund) or a loss (401k in Nebraska). A rare data leaking from government censorship net.

Bush and his group only blow the trumpet on that 13.2 but leave the "3.7 and loss" alone.

One thing very important is this took place in a rising stock market. Investor should have a rich profit, yet the result is poor. Where the profit came from? Stock market won't create wealth. It came from potential loser. From 232 paid by new buyer.

In the chart of S&P 500 index, we can see there are two obvious expanding period. The index rose from about 200 to 500 in 15 years. (1980 to 1994) This is the time when pension fund and IRA introduced into the market. And index rose from about 500 to 1200 in 10 years (1995 to 2004). It reflects that how the investment fund baloons the price of stock market.

I made a rough metaphor to make it easy to understand: The original invetor had a stock worth $200 for 30 years, then government introduced a new buyer, Pension and IRA. Pension and IRA paid $500 in 15 years and had the stock price being $500 in 1994. To make market a prosperous one, government found another big buyer, 401(k). 401(k) is a rich man, in 10 years, he raised the market by $700 to $1200. 401(k) now has no extra money to raise the market. (401k paid $1200) G(government) promised it can double in 10 years. But who has that much money to double the price to $2400? G now is in a hurry, the only one he can find is S.S.. S.S. has that ability to boost the stock market, but the problem is 10 years later, when S.S. intends to sell the stock, who has that much money $4800 to take over the hot potato? After all there will be an end. That's how a potential flood developing into a tsunami.

Bush doesn't care. What he wants is at current he and his group can make money. He borrows to pay the bill. (He cut tax by issuing national bond, you people pay it later) He spends at your debt. When crisis break out, he is not a Presidnet any more. Or even he is not alive then. Young people will bear the loss.

5. Bush's privatization plan will endanger S.S. further (5/22/05)

(1) 'In the year 2018, for the first time ever, Social Security will pay out more in benefits than the government collects in payroll taxes,' Bush said.

So in 2018, it will be a break even year.

If the S.S. payroll tax is $100 in 2008, the actual benefits paid to old people are $90, then there will be $10 surplus fund go to save in current account of S.S. This trend will go on until 2018.

But when Bush's plan is carried out, about one third of S.S.tax will go to the privatization account instead of S.S.current account. The calculation is: 35/42 x 1/3 = 0.27. Here I suppose the working years of people are 42 years.(also the period they pay tax. If their work start from 20 years old to 62 when they retired.) the rate of people who enjoy privatization are 35. years. (20 years old to 55 years old which Bush said enjoying privatization)

So $27 would go to privatization instead of S.S.current account. There is only $73 left to pay retired people while they were promised $90. The $17 shortage will have to take from the S.S. saving portfolio. The break even year will be in 2008 instead of 2018.

Bush should say, "In the year 2008 when my privatization plan goes, for the first time ever, Social Security will pay out more in benefits than the government collects in payroll taxes,'

Bush's plan accelerates the collapse of Social Security and directly endanger the old people who depends on S.S. benefit.

(2) Administration fee. Estimated 2 trillion in ten years period. It will either come from S.S. tax or from an additional tax from all tax payers. One thing for sure is it won't come from the pocket of Bush and his group. Another thing for sure is it will go to the pocket of financial group.

Quote, "Economists opposed to Bush's plan say the 10-year, potential $2 trillion cost of shifting to individual investment accounts is reckless and would require such a huge increase in government borrowing that it could destabilize the nation's economy. " ("Social Security change pitched" Mercury News 12/17/04)

Quote, "Social Security spends 1 percent of its money on administration. But administrative costs for private insurance range between 12 and 14 percent, according to the American Council of Life Insurance. In Chile, which instituted a system of mandatory private savings accounts in the early 1980s, administrative costs exceed 20 percent. This is your money, going straight into the pockets of Wall Street. "

http://www.thepetitionsite.com/takeaction/504620720?z00m=20239

Before you gamble in Casino, you lose first with a fee about 15% to 20%.

Sure sounds like you know what you're talking about.

Bush can't even explain why we should go to private accounts. Somebody sent me a copy of his latest speach, it just made everyone laugh, ofcourse, he only speaks to crowds of Bush believers. I imagine anyone else would throw tomatoes at him.

It's not a good idea, yet he will try to force it down our throat. One of many reasons why I'm protesting to have him impeached.

6. Average investor in stock market (6/2/05)

Everyday, in debate of Social Security privatization, I always encounter with the argument, "Historical, the stock market offered 10% returns over the long haul (40 years)."
Or "average S&P goes up 10.5% each year. In latest two years went up 50%."
It seems there is a strong reason to invest in stock market. 10% return each year, what a brilliant figure. Yet it's a gimmick.

The flaw for this theory is that high return from stock market doesn't mean high return to average investors. But Bush never talked about this. And seldom media talked about this too. One day I finally found a data about the return of average investors. And found why media and government avoid this topic, the most important topic. Read this:

Quote, "Over the past 20 years, the average investor in mutual funds that hold stocks earned almost nothing once inflation was taken into account, even though stocks enjoyed terrific gains.

These are among the results of the 12th annual study of investor behavior by Dalbar, a Boston financial-research firm.

The study found stock-fund investors had returns averaging just 3.7 percent a year from 1985 through 2004, while the Standard & Poor's 500 index returned 13.2 percent a year. Annual inflation averaged 3 percent, chewing up most of the investors' gains." ("Break the buy-high, sell-low pattern" S.J. Mercury News, 5/8/2005)

http://www.philly.com/mld/philly/business/columnists/jeff_brown/11311526
.htm?template=contentModules/printstory.jsp

There did is high grow up of S & P index, there was also a low return for average investors that almost was nothing if considering inflation.

Average people don't care about the high index of S&P. They care about thier return. Where did the money go? It went to the firms which control the market.
To my equation, (suppose the stock is S&P index, oringinal price at $100, in 10 years period)

37 (average investors gain in 10 years) + 95 (special interest group gain in 10 years) + 100 (capital gain of S&P company) = 232 (price paid by potential loser after 10 years)

One thing I should remind you that this is the result of mutual fund. Though there was little gain, the average investors haven't lost its capital because the fund was managed by expert. What if there is a real "privatization", average investor does it individually?

Here is a story again seldom to be reported.

Re: This is a problem that is beginning to be recognized. Since 1964 Nebraska offered state employees the chance to manage their 401(k)-type plan. Extensive employee education and training seminars were given, and everyone expected outstanding investment returns. But when the state audited the program in 2000, the results were incredibly discouraging: employees were making bad investment after bad investment. So in 2003, Nebraska eliminated employee choice from its 401(k) plan.

From: NewCartesian

http://forums.washingtonpost.com/wpforums/messages?msg=2800.351

Hardly a gain (with expert) or a loss (invest by yourself even being trained), that's average investors' encounter in stock market.

The most important thing is this happened in a grow-up market. That more and more pension fund were guided into the stock market. Yet, average investors had such a poor result. What if the trend reversed? (When the fund lured to support stock market is exhausted like what I said in "4. The reverse point"?)

Of course, Bush will never tell you this. Otherwise, how can his group get fatter without your fund joining in?