Re: "Stock Market and the Real Economy"

["廖子光 Henry C.K.Liu 郭??" <hliu@xxxxxxxxxxxxxx>]

Mason Clark wrote:

>   Surely, the ability of entrepreneurs to raise copious quantities
>   of money is aided and abetted by the high stock market prices.

More is at play. With structured finance using hybrid financial
instruments, replacing real capital with notional capital, there is in fact
more money chasing a dwindling supply of stocks.  IPOs are misleading
because only only a small portion of the new equity is put up for sale thus
generating a high market valuation while raising only a few percent of the
capitalization, not to mention "lock-ups".

>
>   Also, the ability of new companies (dot.coms) to acquire old
>   companies (AOL-Times/Warner) is possible because of high,
>   and perhaps distorted, stock prices.

This is due mostly to the divegenec in market value between the NASDAQ (the
new economy) and the NYSE (the old economy).  The jury is still not out on
this one.

>
>   And my friends and I are admitting to spending more freely because
>   our stocks held directly and indirectly make our net worth higher,
>   even if a temporary illusion.
>

Not quite a temporary illusion.  The smart money are all hedged.  You and
your friends can walk into any bank or brokerage house any day and hedge
your gains by giving away you future upside.

>   How did someone look for that "empirical evidence"?
>

Watch your neighbors move into bigger houses.


Henry C.K. Liu