Your Questions About The Stock Market Is A Ponzi Scheme

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Michael asks…

Why don’t we just do away with stocks and only use bonds?

The reason why some companies abuse the environment, workers and even the whole system. Is because the owners of the company are not responsible for what they do. Its like Socialism on a corporate level. If everyone is responsible then no one is responsible. Stocks are nothing but pieces of paper and the stuff you see in the stock market operates like a Ponzi scheme. Only the original investment gave value to the company cause the company was able to use it. Anything after that is just a gamble on who is more likely to buy or sell that piece of paper.

Meanwhile the real owners hide under the pretense of CEO. They get to devalue stocks and even mess around with the whole company. Knowing full well that they can get away with it. The company is actually registered under its own name. So that makes the CEO and its cronies invisible and provides anonymity where they can unleash hell on the environment, evade taxes, commit fraud and pretty much do what they want. Knowing full well that they can get away with it.

We can still have stocks and those who own them should have insider information on the company. After all if we do away with (Companies having their own identity as if they were a person or something like that lol) then if you own shares in the company. You should know what the company is doing and you should have a voice on that. Especially since you can get sued over any misdeeds done on behalf of your name. Remember your name is on the stocks.

Anyway interest rates on bonds should be determined by the Government not the Federal Reserve. Those who lend their hard earned money (bonds) should be compensated handsomely and they should get all the information necessary to make sure they are protected. Bonds unlike stocks are more like contracts.
@Burt- Don’t worry I am going to write a whole book on this one day then we will see who is dumb.
Oops I made a mistake. I meant to say that interest rates should be determined by the Market not the Government. Yahoo sucks cause you can’t change your mistake on this.
@Frank- If its determined by the CAPM then how do you explain Facebook, Apple, Whole Foods etc.

What about the Chinese stock market?

If ADR’s are supposed to move in lockstep with the Chinese market then why are the stocks and the ADR’s diverging from one another?

No that is not true we all know how it works. Don’t give me that.
@Neocon- The only reason why you earn so little on your bonds is simply because the Federal Reserve is manipulating interest rates. If you get rid of the Fed and let the market decide the interest rates ( Not the Government that was a mistake that I made before) then you can decide if its worth it to lend out your money or invest it on something useful rather than a piece of paper with no value.
EDIT- Yea that is what I am referring to corporate bonds. The Government is something else entirely. As for the Government I think its silly to walk around with trillions upon trillions of dollars worth of debt like that. I mean the average citizen prefers to lend to the Government rather than a company. Even though they know that the value of their treasury and other government bonds are consistently losing value at a rapid rate. One can hardly call that safe.

Justin answers:

I personally am concerned about the way Mr Bernanke is using his QE3. He is putting 40 billion dollars of Mortgage backed dollars to make the Banks more aggressive about Mortgages and 45 billion a month in treasuries sold at little to no interest. I guess his twist game last year did not work out very well for him. Gosh, that’s a trillion dollars a year floating around. But that’s nothing. The Fed in Oct of 2011 backstopped BoA with 75 trillion in sub prime derivatives and JP Morgan Chase with 79 Trillion.

It is my opinion that we are now in the Twilight Zone of Finance and these numbers are surreal in intent

Donald asks…

do many small businesses….such as landscapers, building sub contractors keep up with the stock market too?

as everything is dependant on how much money the people at the top are making isnt it? if they are not making lots of money in the ponzi scheme…how can the guy cutting the grass every week be paid ?

etc?

DO MANY LOOK AT THE STOCK MARKET FORECASTS IN THE UK EACH SPRING? JUST LIKE IN THE USA? (TO FIND OUT WHAT KIND OF “BUSINESS YEAR” IT WILL BE FOR THEM? IS IT TRUE THAT IF STOCK PRICES ARE GOOD..THAT BUSINESS WILL BE GOOD FOR EVEN A BRICK LAYER? HOW ABOUT OTHERS?

Justin answers:

It’s a good idea to invest (including save) some of what your business earns. Becoming a smart investor means learning how markets work.

Thomas asks…

Why should Bernard Madoff take all the blame?

Anyone who believed you could make double digit returns in the stock market for 30 consecutive years without gaming the system or a ponzi scheme was seriously unaware of basics with stock investing. No one could do that. The best quant (computer model) couldn’t pull that off.
Why doesn’t any of the greed that people had get mentioned? Everyone points a finger at Madoff but not at their greed? What about diversification?

The real culprit was the people’s greed – Madoff merely facilitated the greed. If Madoff weren’t there to do it, someone else would have been.

Even Elie Wiesel was dumb at that point.
Everywhere I see, “It’s his fault, it’s his fault, it’s his fault”. Actually, it was *THEIR* fault to be dumb enough to believe him.

Justin answers:

He holds the most fault because he was scamming those people and he knew it all along, and that’s wrong.

James asks…

do “Bulls” need “Pigs”( or “Cattle”?) to make PROFIT in the Stock Markets?

Jim Cramer calls them “Pigs”…? or what about “Bears”? (what are they to a hungry ” invester”?)…how about “Cattle”? or what would be describe the rounding up of as many “innocents” as possible in order to (As Jim Cramer puts it)..”Slaughter” them when time is ripe?

IS THIS HOW “STOCK MARKETS” WORK BASICALLY? (IT IS A “PONZE SCHEME” OR KIND OF LIKE A CARD GAME..WHERE THE MONEY IS TAKEN FROM THE LESS “IN THE KNOW”?)

Justin answers:

It’s betting, no question about that. However, it is not a ponzi scheme.

If I buy a stock, I am betting that the price will go up. If I sell a stock, I am betting that the price will go down. You need two people in this transaction and only one of them will “win.”

Mark asks…

Would you be able to hande this career?

The job is to lure clients to put up their money for investments made by you. The investment amount per client is no less than $500K or $1M. You must guarentee the client a 24% return per year. Once the contract (usually 1year and up) is signed, cash has been put up, the company would issue 12 post-date checks for that year, 2% of the investment per month to the client. YOU use that money to speculate on anything a make quick money in the stock market. Your salary starts at $500,000 and if you are meeting the minimum expectation, 24% return a year, 20% over and above that amount is your bonus. Most of these positions means you’ll be making a mimimun of $1 million with bonus. If you’re not meeting that 2% requirement per month for the client you’re fired. The job is very stressful, very insecure and extremely long hours especially first 3-5 years you work everyday with no days off, minimum of 13 hour per day. Would you be able to handle the position?
Oh yea and every day you work in this position hundreds of people are fighting over your position so essentially you must always be the best of the best in your position.

Justin answers:

Guarantee 24% return per year? Sounds like a Ponzi scheme. Talk to Bernie Madoff.

Robert asks…

Pyramid Scheme?

What’s the Pyramid Scheme and anyone have any examples of it?

Justin answers:

Is like a Ponzi scheme, it is a fraudulent investment operation that involves paying abnormally high returns (“profits”) to investors out of the money paid in by subsequent investors, rather than from net revenues generated by any real business. It is named after Charles Ponzi.

Pyramid schemes now come in so many forms that they may be difficult to recognize immediately. However, they all share one overriding characteristic. They promise consumers or investors large profits based primarily on recruiting others to join their program, not based on profits from any real investment or real sale of goods to the public. Some schemes may purport to sell a product, but they often simply use the product to hide their pyramid structure. There are two tell-tale signs that a product is simply being used to disguise a pyramid scheme: inventory loading and a lack of retail sales. Inventory loading occurs when a company’s incentive program forces recruits to buy more products than they could ever sell, often at inflated prices. If this occurs throughout the company’s distribution system, the people at the top of the pyramid reap substantial profits, even though little or no product moves to market. The people at the bottom make excessive payments for inventory that simply accumulates in their basements. A lack of retail sales is also a red flag that a pyramid exists. Many pyramid schemes will claim that their product is selling like hot cakes. However, on closer examination, the sales occur only between people inside the pyramid structure or to new recruits joining the structure, not to consumers out in the general public.

A Ponzi scheme is closely related to a pyramid because it revolves around continuous recruiting, but in a Ponzi scheme the promoter generally has no product to sell and pays no commission to investors who recruit new “members.” Instead, the promoter collects payments from a stream of people, promising them all the same high rate of return on a short-term investment. In the typical Ponzi scheme, there is no real investment opportunity, and the promoter just uses the money from new recruits to pay obligations owed to longer-standing members of the program. In English, there is an expression that nicely summarizes this scheme: It’s called “stealing from Peter to pay Paul.” In fact some law enforcement officers call Ponzi schemes “Peter-Paul” scams. Many of you may be familiar with Ponzi schemes reported in the international financial news. For example, the MMM fund in Russia, which issued investors shares of stock and suddenly collapsed in 1994, was characterized as a Ponzi scheme.

Daniel asks…

I am sorta considering playing the lottery?

I know that it is nothing more than a tax. But, think about what that tax pays for. It’s a tax that gives you a minuscule chance at tens of millions of dollars! Like do you realize that if you were to win $100,000,000 you would make $4,000,000 every single month for generations to come at even a relatively low interest rate of .04%? What do you think? I know the odds of this happening are next to impossible, but at the same time it puts you in a position where you are in that small minuscule percentage that can buy relatively anything they want. Do you think it is even worth entertaining the idea (at the same time, you could also invest the money in the stock market and maybe make just as much). If you do what do you think is a reasonable amount to spend on it and how can you responsibly incorporate it into your life. (Ex. Buy one every day with your morning coffee, buy one once a week, buy one when you get your pay cheque, buy one once a month, once a year etc.)
Put the entire amount in a bank account with .04% interest rate per month.

math

100,000,000x.04=4,000,000

you make $4,000,000 every month in a bank account that pays .04% interest every month.

$40,000 would be
.0004% interest bank account per month

40,000 per year would be 3,333.33 every month

that would be less than less than .00004% per month
40,000
Ohhh Yeh, I get my stupidity now Haha yeah I meant a 4% interest rate Haha I was thinking in my head 4% as a number is .04 but I forgot that .04% and 4% are not the same number duh, I am retarded!

Justin answers:

Forgeting the fact that you can’t really multiply…

100 x 4% = 4

100,000,000 x 4% = 4,000,000

so 100,000,000 x .04% = 40,000

But of course that’s not really relevant, you can live a life of luxury, we get it.

Do you have a point? If you to dream about it, go ahead.

EDIT: I hope you also realize that 4% a month = 48% per year… Even the worst Ponzi schemes didn’t promise rates that high.

Charles asks…

How do taxes work for capital gains and investment income?

Ok, I was technically not using any real money here because I used a simulator. On March 20, 2009 at the through of the recession I used a simulator and purchased Blackrock, mastercard, ford, lockheed martin and apple. I’m still long on all of these (I was worried about LMT but since Congress is Red, thats a green for military spending) My portfolio has increased roughly 73% since then (I know sounds like a Madoff Ponzi Scheme, technically it is fake money). Now I’m starting to revise my strategy looking for more undervalued companies and hot sectors as the economy recovers and want to use real capital. But I’m not entirely sure about how taxes, cap gain taxes and other fees associated with retail trading works. I should have jumped in earlier especially before the Fed announcement but was scared as to what could happen to my money.

Justin answers:

Since 3/20/09, the S&P 500 is up about 64%, so +73% is a little above average. Not Madoff-like at all. You started your exercise at almost exactly the bottom of a bear market. Do not mistake a bull market for expertise in stock picking.

Dividends have their own tax treatment. Rates are currently low, but scheduled to rise Jan 1st if the Bush tax cuts expire as scheduled.

Short term capital gains (holding period less than 1 year) are taxed like regular income.

Long term gains (holding period > 1 year) are presently taxed at a max of 15%. That is also scheduled to rise if Congress does not act.

Most states also tax both dividends and capital gains, so factor that in as well.

You should read the instructions for the relevant IRS forms at least once. This is a bit painful, but really is necessary if you are going to be an investor. See especially 1040 Schedule D for Capital Gains.

Ken asks…

regulation of share market?

Can anyone give me some information, document, and news about the regulation of share market recently, thanks so much

Justin answers:

Well in Australia there are two regulators, one the Stock Exchange itself, which can question the companies about trades that have taken place, and price volatility. Plus there is the Australian Securities and Investment commission, which regulate the way the boards of companies behave, and can investigate any suspicious dealings.
In America, it would seem that only greed regulates the market, as there does not seem to be any control over companies or individuals, especially “Ponzi or Pyramid” type schemes, despite there being a government department that is supposed to do just that.

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