Thursday, June 9, 2011

You can't lose what you never had.

Where did all the money go?  Nowhere, it turns out!

Again, the idiot media hypes how much money was "lost" in the recession.  They just don' get it, do they?

Until you cash out and have a realization event, the phantom equity in your home or any asset is just a number on a piece of paper - a valuation, not an actual value.  It isn't money until you sell it an convert it into money!

So there was no "Lost Trillions of Dollars" but lost valuation of homes.  You see, in order to lose trillions of dollars, you actually have to lose dollars, not just lower a number written on a piece of paper.

So your home goes down in "market value" - you have not lost money on it until you sell it.  Similarly, you don't make money on your home, unless you sell it and cash out.

The idiot media has the same fascination with "market cap" of stocks - taking the latest share price (what some chump like you or me paid for Apple) and multiplying it by the number of shares.  But it does not represent the actual value of anything.

Just as if every American put their home on the market at once (which is sort of what is happening now) housing prices would plummet, if you sold every share of Apple right now, the stock value would tank.  The vaunted "Market Cap" would never be realized.

Market values are just theoretical values of what an asset is worth.  Until you cash out on an investment, its "value" is just an estimate, based on current market conditions and your mileage may vary.

Idiot commentators in the Idiot media like to do op-ed pieces asking "Where did all the money go?" - and of course the answer is - no where.   Values are not money - there was no money, just prices.  And prices are not money.

And of course, idiot homeowners say things like "I paid $250,000 for this house, and it shot up in value to $500,000 in 2007, but today it is worth only $250,000!  I lost $250,000 on this house!"

No you didn't, idiot, you broke even.  You may have lost an opportunity to cash out at the peak of a market but you lost no money.

And this mentality reflects the idea that markets always go up, up, up.  People assume that a stock will be worth more tomorrow than it is today, or that their house will be worth more tomorrow than it is today.  And generally speaking, over time, they are right.  But prices fluctuate, and bubbles and price spikes do not represent real values - unless you have the foresight to cash out when they occur.

But don't go wondering "where all the money went" - because it never went anywhere.

(OK, I confess, I have it.  All seven trillion.  Ha-ha!)

And actually, study the chart above, carefully.  Note how most of the losses of the recession have recovered and are on track to reach their historic highs and go higher....  Good news just doesn't sell!

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