The future, the stock market, and you.

Off topic post, but like I said, it's my place, so bleh bleh bleh. Besides. It's important.

Over here at Political Animal, Kevin Drum is hosting more of a debate about Social Security privitization. Same thing over at MaxSpeak.

Both fall into the same trap. The assumption is being made that the stock market is well...real. It's not. It's a media created operation that people think is an investment, but is merely speculation. You're waiting for another sucker to come along and buy your stock at a higher price. Period. Dividends? Merely a pittance. And the storm is coming...

Some quick math. The figures I hear toted, you have about a 20 P/E ratio. (Price/Earnings) But in reality, only about 60% of profits are actually given out as dividends (as far as I know that's horribly high/optimistic. Very few companies are even paying out dividends.) That makes an effective P/D ratio (Price/Dividend) of...33.3 to 1. That's going to get you an average return of about 3%. Not a very good return, at least in the scope of things.

But what about capital gains? And 3% for free isn't a bad thing, is it?

It really is all in the stock price. And the market for stocks is going to shrink very fast very soon, for a number of reasons. The retirement and sell-off by the baby boom generation. This sell-off will make any projected problem in SS look trivial by comparison. More profitible investments/speculation, mainly oil and water. As well, just a general disfavoring towards stocks. The various scandals, making it more clear it's an insiders game. The final factor, is the destruction of the American middle class, reducing the number of guppie investors. (Because that's what you are. If you look at a table and can't see the guppie. It's you.)

So 3% dividend growth (at a best-case estimate), well..what if your stock price drops 1 or two points a year? Errr...that's not good, is it? It would make it pretty much a wash. Mise well just leave it in the bank, huh?

Nobody is talking about this, mainly because the media has been damn good in brainwashing people that the stock market is investment. (Here's a hint. Very rarely does stock money EVER go to the company. IPOs and internal stock sell-offs. Doesn't happen every day) And investment is a good capitalist thing and therefore the stock market is doubleplus good.

So why are they doing this?

Here's my theory. Not that they're actually saying, making them liars if this is the motivation. But here's the thinking. And what they'll be saying in 10 years if this gets by.

All the additional money in the stock market will actually float stock prices for quite a while. That will mitigate the coming storm in the market, as well as give the average person a horse in the race, making governmental aid easier. So you'll actually see short-term gains, until the other factors make the whole house just fall over that much harder.

In any case, the REAL problem in America is consumer debt (that will sufficate the service industry), and health care (which is sufficating..well..everything). If those are not taken care of soon, things are going to get not just ugly. But fugly.