On Sat, 14 Mar 2009 10:47:40 -0700, "Wayne C. Gramlich"
wrote:

F. George McDuffee wrote:
On Sat, 14 Mar 2009 10:49:30 -0500, GeoLane at PTD dot NET
GeoLane at PTD dot NET wrote:
snip
For anybody above the lowest tax bracket, stocks are a better place to
save than a savings account for tax reasons alone since stocks are
taxed at a lower rate than dividends in order to encourage people to
invest in our companies.
snip
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While widely touted, "investment" as used here is another
word/mind game. When you by a stock or bond on the secondary
markets you are investing in the "market" and not in a company.

Strictly speaking the only time buying a stock invests a dime
into a company is at the IPO. After that it is simply
speculators swapping stocks back and forth, with *NONE* of that
money going into a company for investment, economic expansion and
job generation. {question -- why then are secondary market
sales/speculation subsidized by the tax payer by the lower
"capital gains" rates? As this is not generating any "economic
added value" shouldn't the rate logically be *HIGHER* not lower?}

Even with an IPO, a significant fraction of the money is "creamed
off" by the underwriters, and even more is skimmed by the people
that got stock options before the IPO [such as high level
employees and venture capitalists] in that the money that is
raised by the sale of their stock goes to them and not the
company. The money [and the capital gains tax rate] received by
the executives and V/C may well be justified as they did create
the company, but it should not be confused with "investing" in
the company, as the company doesn't get a penny of it.


Unka' George [George McDuffee]

Companies issue stock both before and after IPO (initial public
offering.) Sometimes the shares are skimmed by underwriters and
sometimes they are not. The overall concept of companies issuing
more stock is called stock dilution and is discussed somewhat in
wikipedia:

http://en.wikipedia.org/wiki/Stock_dilution

IPO is *not* the end of issuing stock for most companies.

In addition, a company takes a certain amount of its profits
and uses them to expand and grow. A stock has a book value:

http://en.wikipedia.org/wiki/Book_value#Stock_pricing_book_value

By owning shares, the shareholder is part of this investment
process as well.

-Wayne
--------------
You are of course correct, but try to put things in perspective.

If 99.99% of "investing" is in the secondary market with *NO*
money going to the corporations/companies involved, why
concentrate on the tiny exceptions, particularly when these are
mainly reserved for the insiders, e.g. IPO allocation? This is
another case of letting "the tail wag the dog."

Anyway you slice the baloney [bulloney?], purchasing stocks in
the secondary market is an almost total delusion, if you think
you are somehow "investing" in a company, when you are actually
buying chances in a rigged lottery.

In theory your statements
In addition, a company takes a certain amount of its profits
and uses them to expand and grow. A stock has a book value:
are correct, but in practice appear to be non-operational.

As recent events have shown, most such "investments" have proven
to be highly speculative financial manipulations rather than any
reinvestment in the core businesses, frequently based more on
short-term tax avoidance/evasion than any real "value added"
potential.

You are also correct when you observe that a stock has a "book
value."

It is preciously the calculation of "book value" that is causing
much of the current market turmoil under the "mark to market"
asset valuation rules, and the apparent gross [criminal?]
understatement of liabilities, primarily defined benefit pension
obligations, "off-the-books" accounting dodges such as "special
investment vehicles," "special purpose entities," "conduits," and
a huge number of contractual guarantees / co-signed loans for
"spun-off" operations. E. g. Delphi, GMAC, and American Axle for
General Motors. Derivative [CDS] liability accounting is another
extreamly murky area, e.g. AIG.

It is not at all clear why corporations with *NEGATIVE* net
values per share in the range of hundreds to possibly thousands
[when all liabilities and "mark-to-market" asset valuation are
included], with [belated] "going concern" exceptions in their
auditors' statement in their annual reports, continue to sell for
*ANYTHING*, particularly on the major exchanges such as the NYSE
and NASDAQ. If these trade at all, they should be
OTC/pink-sheet.

Everything considered, it appears that the lower classes "invest"
in lottery tickets, and the middle classes "invest" in stocks.

FWIW -- it appears the literal lottery players may be getting
better odds and a more honest game.


Unka' George [George McDuffee]
-------------------------------------------
He that will not apply new remedies,
must expect new evils:
for Time is the greatest innovator: and
if Time, of course, alter things to the worse,
and wisdom and counsel shall not alter them to the better,
what shall be the end?

Francis Bacon (1561-1626), English philosopher, essayist, statesman.
Essays, "Of Innovations" (1597-1625).