The Greatest Stock Market Bubble is bursting?

Discussion in 'Economy' started by Neubarth, Jun 3, 2009.

  1. Neubarth
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    Neubarth At the Ballpark July 30th

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    The Greatest Stock Market Bubble is bursting?
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    The Price to Earnings Stock Market Bubble is due to burst. This is the most overvalued market in American History, so it should go down. The only question is when will that happen? It may have started today with Bernanke's speech before Congress.

    For the first time he admitted that there is uncertainty about any potential recovery, but went on to say that he hopes for a recovery later this year. Hope is hope, and is not fact.

    There are so many idiots out there paying good money for stocks selling at their highest P/E ratio in history. In uncertain times, that is crazy. But what the hell, all they are doing is choosing to put their 401K funds in a mutual fund that targets the S&P this or the XYZ that, and have no idea what they are doing. They only hope that the market goes up and are perplexed when it does not.

    Stocks are usually worthless pieces of paper. If a company goes bankrupt, the stock holder usually gets nothing. Yet, people buy stocks because it is a gamble that the company will stay solvent and may some day pay a dividend on those shares. The only problem is that most companies stopped paying dividends years ago. They just sell stocks to get free money from the mutual funds. In some cases, that free money is used to pad their bonuses. Bank of America just issued 30 Billion worth of new stocks to help them prepare for a long drawn out Depression. If B of A goes bankrupt, all of those new stock shares will be worthless. Glad it is not me holding those shares.

    When you own stocks, your hope is that there is somebody out there who is willing to pay more for the stocks than you did. Sure enough, that works over half of the time and markets tend to go up because of it. People are willing to pay more and more for worthless pieces of paper. That has to be the most amazing thing in world history! And to think, I am saying that with a straight face.
     
  2. Toro
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    Toro Diamond Member

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    Neubarth

    I am afraid you misunderstand what stocks are. Stocks are a claim of ownership on the business, no different than one's ownership of any business. A stock is only worthless if the company is bankrupt. Most companies are not bankrupt, thus most stocks are not worthless.

    The PE ratio is high because profits are depressed. The price to book and price to cash flow of the market, though not dirt cheap, are below historical averages.
     
  3. Neubarth
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    Neubarth At the Ballpark July 30th

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    Toro, I do not misunderstand what stocks are. They originally started out as promissory notes that were written to cover the money loaned to a company. At no time did they represent what you claim they do. The interest that one would expect on the loan of money to the company was called a dividend. People assumed that because they were a creditor to the company that if the company was dissolved, they would get the proceeds of the company, but that assumption like all other assumptions was false.

    You know as well as does anybody else invested in companies now-a-days that the Bond creditors get first shot at the parted company if it declares bankruptcy. Seldom if ever Do the stock holders get anything after the Bond holders each take their pound of flesh nearest the heart.

    Go ahead, Toro, FINALLY tell the people the truth. Stocks are essentially WORTHLESS when a company falls on hard times.

    WE HAVE SOME VERY HARD TIMES A COMING. GET RID OF YOUR STOCKS WHILE YOU CAN!

    You are telling the truth that P/E ratios are astronomically high because profits are depressed. That is because we are in a Depression, and one would naturally expect profits to be depressed. Your statement is the understatement of the year, but very truthful. I commend you for your veracity.
     
    Last edited: Jun 3, 2009
  4. Toro
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    Stocks are worthless when the cash flow from the business is insufficient to cover interest payments to debt holders and a company has to declare bankruptcy to protect it from the claims of its creditors. Only when a company is in bankruptcy is the equity of a company worthless.

    But most companies are not in bankruptcy, nor will they go into bankruptcy. Therefore, most equity is not worthless. Even during the Great Depression, most businesses did not go into bankruptcy. Heck, most banks did not go into bankruptcy, and banks are the most leveraged businesses around, as you can see here.
     
    Last edited: Jun 3, 2009
  5. Neubarth
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    Neubarth At the Ballpark July 30th

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    But toro, how many stocks still receive dividends. If you do not receive a dividend, than what to you receive in addition to the stock certificate itself?
     
  6. Toro
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    The value of any asset is the cash flow that accrues to it. Equity share capital is a claim on the profits of a company. The fact that a company does not pay a dividend now does not mean it will not in the future.
     
  7. Neubarth
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    Neubarth At the Ballpark July 30th

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    So, you are saying that people risk their lives savings on a stock because it might at some time in the future pay a dividend? In the present market, I'd think that the chances of going bankrupt are far greater than the chances of getting a dividend. Stocks are essentially worthless.
     
  8. wimpy77
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    where are you getting information from that suggest so many companies are gonna go out of business? they aren't paying dividends because they are trying to save money.
     
  9. Toro
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    Equity is merely another component of the capital structure of a firm. The value of a firm is the discounted cash flows that accrue to the firm. If the value of the firm is greater than the value of all the debt and liabilities, then the residual is the value of equity.

    Today, most firms have an enterprise value that is greater than the sum of their liabilities. Thus, most companies' equities have positive net worth.

    More on enterprise value.

    Enterprise value - Wikipedia, the free encyclopedia
     
  10. Neubarth
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    Neubarth At the Ballpark July 30th

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    Ninty percent of the companies that were ever listed on the NYSE are bankrupt or have ceased to exist. With that in mind and the current economy to wake people up, I can safely say, most stocks are worthless.

    Meanwhile, let's look at 1929:

    Just like the Wall Street Crash in 1929, there has been a rebound even though the economy continues sharply downward.

    [​IMG]

    Note how the initial fall in 1929 was about 40% and the rebound into 1939 was about half of the loss, just like now.

    Everybody was hopeing like now for a V shaped recovery and strongly bought back in to the market.

    That rebound was not to be, just like now. The economy continued down then, and it is continuing down now.

    There are no data showing a recovery no matter how much Washington lies about it.
     
    Last edited: Jun 4, 2009

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