Black Monday
Sunday, March 03, 2002 (12:54:02)

Posted by Rod

September 15, 2001 Why the stock market should not reopen Matthew 6:19-21 19 Lay not up for yourselves treasures upon earth, where moth and rust doth corrupt, and where thieves break through and steal:  20 But lay up for yourselves treasures in heaven, where neither moth nor rust doth corrupt, and where thieves do not break through nor steal:  21 For where your treasure is, there will your heart be also. Because of the tragedy on New York, the stock market closed on Tuesday, September 11, and remained closed the rest of the week.  Since that time, people have continued to go to work, buy groceries, work in their yards and carry on a normal life.  What would happen if we kept the stock market closed for good?

The first thing that comes to mind is that people will lose money.  Let's examine how some could lose money.  If they had their savings "invested" in the stock market and could not sell their stock, they would lose money, right?  Sort of.  Let's consider the term "invested" for a moment.  An investment is something you do with your assets to make them more valuable in the future.  You invest time (an asset) with a dog, training it so that ultimately, the dog will be better behaved.  You invest seeds (an asset) into the ground, hoping for a greated return in food, flowers, etc.  You change the oil in your car (an asset) to make sure it keeps running smoothly. Before a company can sell a product, they have to have a product.  Workers create the product that is sold.  The product could be a tangible item or a service.  Either way, you can experience the product in one form or another.  If more people want to buy the product, people make more of the product for them to buy.  When people no longer wish to buy the product, people make another product to sell.  If alot of people want to buy a product that you have little of, you charge more for the product.  If you have alot of product and few want to buy it, you sell it for less.  This is an elementary example of Supply Side Economics. Sometimes a company grows, or wants to grow and needs some money.  In "the old days" the company owner would somehow make ends meet or borrow from a bank.  Today, some companies sell stock, hoping to raise money.  This is a shaky deal in that when someone owns a piece of stock in your company, they sort of own a piece of your company, kind of.  If they own alot of stock in your company, they actually have a say in how your company is run.  You are responsible for taking care of that person's investment (gamble) even though the only thing they tangibly own is a piece of paper.  Some businesses are worth much more on paper than in real life.  Most rich CEOs can only measure that wealth on paper.  There is no way they could cash in all of their stock. Somewhere along the line, someone else thinks that piece of paper is worth more than the one who first bought it, and they buy it from them for more money.  The company goes right on functioning, making and selling product, but somehow, someone just made money off of the company and no product changed hands. The person who first purchased the paper is gambling that someone else will want to buy it for more than they paid for it.  This is not an investment.  This is a gamble.  Their purchase is based more on speculation than the productivity of a company.  By and by, the business owners, who own stock, decide to let their employees buy stock.  In short, the owners of the company are gambling with the company assets, and decide to let the employees gamble too.  This gives the employees a false sense of security in the company.  They wish to make it a better company so their investment (gamble) will be worth more.  Remember that no product is tied to the piece of paper called stock, rather, the perceived value of the paper is tied to the paper.  If the company's productivity falls, the perceived value of the paper can be lower because someone thinks it should be.  Sometimes, another company, selling the same product, loses money.  That can cause the value of the first company's paper to be worth less, even though productivity and sales have not fallen.  The perceived value of the "market" is lower, which in turn makes the perceived value of the company's paper lower.  Your company can perceived as being lower in value because another company is worth less, even though you are carrying on with business as you normally did in the past.  You are guilty by association. Every weekday. a bunch of people get together in a room and scream at each other, buying and selling paper.  They are screaming at each other because there are alot of people in this crowded  room and they want to be heard above the others.  They wear weird cloths, scream and wave their hands.  After a day of screaming and buying and selling, they look at the score and see who has bought or sold the most during the day.  The score either upsets them or excites them because they either lost money or made money.  Still the company goes on making and selling product. Sometimes, people get frightened, thinking that their paper may be worth less, and they begin to sell more and more paper in hopes of minimizing their loss.  They have no faith in the value of their paper.  They fear that others will see their stock for what it really is, paper.  This gets more people afraid and they start selling their paper as fast as they can.  If enough people sell enough paper, they call this a "stock market crash".  When the stock market goes way down in virtual value, people lose jobs, houses, cars, etc. even though the company may still be making and selling product.  In other words, there is virtual, paper economy that has an effect on the real economy, simply because people think it does. If I hand you a dollar, you are pleased.  If I hand you a one hundred dollar, you are excited.  Why?  Because people think the one hundred dollar bill is worth more than the one dollar bill.  Why?  They are both on the same size piece of paper and have the same amount of ink on them.  They are technically worth the same amount.  People want the one hundred dollar bills because they know that other people "think" they are worth more so they can buy more with them.  Technically, two one dollar bills are worth more than one one hundred dollar bill because they have more paper and ink, but people don't see things that way. We have been brainwashed into putting our faith into the virtual economy where paper is worth more than product.  We "invest" our virtual value, hoping that someone else will think it is virtually worth more.  Is this an investment?  Not hardly.  This is a gamble.  There is nothing tangible that is tied to it.  We fool ourselves into thinking that our investment is tangible.  We even create virtual jobs for people who will take care of our virtual belongings for us.  This is similar to building an imaginary house, and hiring a virtual landlord to manage it for us.  I wonder if I could make some virtual paint to sell to those homeowners.  Clear would be a favorite color if it had a rose-colored tint to it.  I'd make MILLIONS in virtual money! In the sixties, people used to take drugs to alter their reality.  Some of those people grew older, but they are still living in an altered reality. Let's get back to the stock market closing.  We have survived an entire week with the stock market closed.  Would we survive if the stock market remained closed for another week?  Of course we would.  If that is true, then it must also be true that we would continue to survive if the stock market remained closed for good.  One reason that we have survived for a week is that people believe the stock market (their virtual reality) will reopen and they can begin to buy and sell paper again.  Eventually, if we left the market closed, these virtual landlords would foreclose on their invisible houses and kick the tenants out.  Some would get so upset, they would jump out of windows because other people think their paper is worthless and they have no virtual houses to foreclose on.  This is sort of like a game of Monopoly, where the winner is holding more paper and little plastic houses at the end of the game.  Imagine someone killing themselves because they lost a game of Monopoly.  It is all a virtual reality.  The virtual economy is a simulation of real life investments. If I am a farmer in real life, I plant seeds and sell my harvest.  If someone wants to live in the virtual reality, they buy and sell paper, guessing what they think my profit margin as a farmer will be.  This is called trading in futures.  People can lose their virtual money if my harvest is smaller.  Still, I am still in the real world, with real food to sell.  These virtual farmers buy and sell paper, gambling on profit margins for corn, soybeans, and even PORK BELLIES!  Remember, this is not an investment.  It is gambling.  These people are placing bets. Now for the funny (sad) part.  Some virtual people actually buy and sell paper, which is linked to what other people think other paper is worth.  Go back and read that sentence again.  Money is an example of virtual value.  Some people gamble on what another's virtual value is.  This is called the Money Market.  Talk about living on the fringes! So what would happen if the stock market remained closed and people lost their paper?  It has happened before.  It was called The Great Depression.  Sounds ominous doesn't it?   It sounds like everyone was feeling sad.  In a way, they were.  When the virtual economy came crashing down, the losers scrambled to gather up all the tangible assets they could.  They foreclosed on houses, land, cars, etc. because they realized their virtual dollars were worthless.  Some who could not gather any tangibles jumped out of buildings and killed themselves.  When all of the tangible assets were gathered, they found they were actually worth less, because no one had anymore virtual dollars to buy them with.  You see, they had something tangible and still wished to trade it for something virtual.  People hit the streets.  They built tar paper shacks to live in.  They ate at soup lines.  The virtually poor were still poor.  The virtually rich, were poor. Game over.  No one wins at Monopoly. It does not matter if the stock market opens or not on Monday.  That which is tangible, is still tangible.  That which is virtual never had value.  People just think it does.  So if realities collide, those who live in reality will survive.  Those who live a fantasy, will be destroyed. Let's get back to our earlier example of a tangible.  When a farmer collects the harvest, he is gathering something tangible.  That must make this activity more valuable than one where people are trading paper back and forth.  Right? Luke 12:16-22 16 And he spake a parable unto them, saying, The ground of a certain rich man brought forth plentifully:  17 And he thought within himself, saying, What shall I do, because I have no room where to bestow my fruits?  18 And he said, This will I do: I will pull down my barns, and build greater; and there will I bestow all my fruits and my goods.  19 And I will say to my soul, Soul, thou hast much goods laid up for many years; take thine ease, eat, drink, and be merry.  20 But God said unto him, Thou fool, this night thy soul shall be required of thee: then whose shall those things be, which thou hast provided?  21 So is he that layeth up treasure for himself, and is not rich toward God.  22 And he said unto his disciples, Therefore I say unto you, Take no thought for your life, what ye shall eat; neither for the body, what ye shall put on.  Matthew 6:19-21 19 Lay not up for yourselves treasures upon earth, where moth and rust doth corrupt, and where thieves break through and steal:  20 But lay up for yourselves treasures in heaven, where neither moth nor rust doth corrupt, and where thieves do not break through nor steal:  21 For where your treasure is, there will your heart be also. Matthew 6:24 24 No man can serve two masters: for either he will hate the one, and love the other; or else he will hold to the one, and despise the other. Ye cannot serve God and mammon.  So, what would happen if the stock market did not reopen on Monday?  How will you fare? Is it well with your soul? Rod