Friday, June 11, 2010

Vaporization versus Transference of Wealth

The below was a comment on Bill Cara's blog.


Re: Nationalising BP would kick the stuffing out of its price

You're absolutely right Bill. The $4B USD represents the top 10 holders only. Look at the total picture:
BP closing price 3/31/10 57.07
BP closing price 6/10/10 32.78
$Loss/share 24.29
Percentage loss 42.6%
Total shares outstanding(billions) 3.13
Mkt cap 3/31/10 $178.63
Mkt cap 6/10/10 $102.60
Loss $76.03
Wealth evaporation. I've always wondered where the money disappears to when share prices drop so sharply.

Steveo's Reply
2 Cases:

1) Vaporization
2) Transfer

Sometimes its just vapor....i.e. someone bought at 20, went to 80 they thought they were rich, then back to reality they lost nothing.

In other cases a counterparty sold to them at 80, it drops to 20, and the counterparty took their money effectively.

However, even in the first place, the psychological effect on the market seems to be even worse than in the second place.    In the second example, at least someone feels rich (probably HBB).

Here's the rub....I just don't feel all warm and fuzzy that in the second example, the fact that HBB took/has the money, that it will be a resource properly deployed to benefit our country in any positive way.

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Insightful and Useful Comment!