Who should own natural resources?

[Zensal]

When you leave the country, things get messy with politics, trade negotiations, and such.

In the States, typically the property owner gets the rights, as they are entitled to and they would typically sell the rights to an oil company. I worked for while in Northern Utah/Colorado for an oil services company doing surveys of wells. Sometimes the well was in the middle of a field of cows. That farmer usually saw a large cut if he owned the mineral rights to the property.

If the land is publicly owned, the use of the land is usually heavily taxed as the mineral rights belong to the people of that state as a whole.

 

[Wheezer]

would the people be ready to pay for the cost of exploration through more taxes?

doubt it.

 

[ChAoTiCpInOy]

The government I know has mineral rights to anything found underground below a certain height.

 

[ebaycj]

Originally posted by: gevorg
There is nothing wrong with profit of course, but the profit of natural resource companies comes from the land that everyone lives on and protects in case of war. Why shouldn't that profit be distributed for everyone's good and future generations? Unlike a typical company that needs competitive products and services to survive, a natural resource company just has to find a way to extract and transport it cheaply once in a while.

...Kind of like how Alaskans receive government checks, instead of paying out (in taxes), due to the state's relative wealth in oil ?

 

[ebaycj]

Originally posted by: OCguy
The natural resources are discovered due to the drive for profit. Why is it hard for people to understand that profit is the driving force?

You think this would have been discovered if BP were a charity?

http://www.rigzone.com/news/ar....asp?a_id=79959&hmpn=1

I have no problem with them making profit.

I do have a problem when they claim that our country's natural resources are their own.

who's to say they can't make profit on the extraction and movement of said natural resources?

 

[BigDH01]

Originally posted by: blackangst1

Originally posted by: Tequila

Originally posted by: Schadenfroh

Originally posted by: TheSkinsFan

Originally posted by: blackangst1
Private and for profit.

this.

Indeed, private citizens can get in on the action by purchasing stock in the mining / drilling companies and receiving dividends or they can allow said companies to make use of their land / mineral rights in exchange for royalties.

this.

Invest in companies who's products you use. For me on an almost every day basis that's Chevron, Wells Fargo, Whole Foods, Coca-Cola, AT&T and JNJ. Dividends and especially dividend reivestment in your IRA is how you can profit indirectly in a very nice way.

Yep. I never understood why people whine about energy profits when they can reap profits as well.

Keep an eye on BP oil in UK. This 1 billion barrel new discovery is HUGE.

Because this is a massive oversimplification of the problem.

As I said earlier, high profits, or any profit above opportunity cost, are a measure of market inefficiency. Basically, any profit above that which is required to entice investors is inefficient. This has some different ramifications with publicly held companies as many people speculate in stock, not invest.

Anyway, let's assume for a second that a company like Exxon Mobile which has a 9% profit margin could still entice people to buy the stock, basically buy opportunity costs, at 3% profit margin. Theoretically, they could capture more of the market by reducing prices and thus still maintain or increase aggregate profit while reducing margins, but this is largely a price fixed market due to inelastic supply. Anyway, that 6% difference is inefficiency.

Further, let us assume that this type of inefficiency is found throughout the market and accounts for 6 cents of every gallon of gasoline you purchase (a relatively small number). If the average person has a car that gets 20 MPG and drives 40 miles everyday to and from work then that person pays 12 cents a weekday and maybe 6 cents a weekend for errands and such. That comes out to be approximately $137.28/yr while not including road trips, etc.

Now let's assume I'm an investor. The above market inefficiency has increased profits and thus increased (hopefully) dividend paid. I go to Exxon Mobil and see that the dividend paid is (forward annual dividend yield) is 2.5%. That means at present stock prices, I have to invest about 5k just to break even this year in terms of the amount I've already paid for inefficiency.

But, of course, most Americans likely don't have 5k in cash to invest in the market. They still have to pay for the inefficiency, but they are getting no returns. Even if they bought $100 of Exxon Mobil a month, it would take over 4 years to get to the point where they were breaking even. And they paid for market inefficiency all of those four years.

Not to mention that if everyone did as you suggested, the demand for oil stocks would be huge, thereby driving the value of the stock up, thereby killing yields. Of course, along the way of rising prices, more and more people would be excluded due to price issues. And, of course, speculators would try to hop on for the free ride. It basically means that established capital has a huge advantage as they can out bid any newcomers and lock them out of the market.

As more people invest, the more one needs to invest to recover those inefficiencies (from an investor's standpoint). And the more stock one has, the more I profit from those inefficiencies even though I may not use more gas and thus pay more for those inefficiencies as well.

It becomes a real problem when you consider this. On aggregate, only 49.7% of people in 2004 held retirement accounts and only 20.7% held stocks. Of course, these numbers rise steadily as family income increases. In other words, poorer people are not reaping the benefits of these inefficiencies but are still paying for them by buying gas. They can't just all simply enter the market because it would drive prices up and dividend yields down either making the stocks unaffordable or crushing the yields to the point where they could never expect to repay the inefficiency they pay everyday.

Market inefficiency is simply a redistribution of wealth from people that don't have capital to those that do. Now, with some commodities one might say this is ok. If there is price fixing behavior occurring with TVs for instance, the redistribution is still occurring but people really don't need to buy TVs. They don't have to give their money to those with capital. Oil and energy is a different story. Most people do have to buy gasoline to get to work. And the poorer you are, the greater the burden these inefficiencies become on you. Then you can see why high profits in commodities that are necessities can be a problem, even for people with some capital.

Of course, in a perfect market there would be no inefficiency. Then again, a perfect market requires conditions which never exist in the real world.

 

[Tequila]

Originally posted by: BigDH01
Because this is a massive oversimplification of the problem.

As I said earlier, high profits, or any profit above opportunity cost, are a measure of market inefficiency. Basically, any profit above that which is required to entice investors is inefficient. This has some different ramifications with publicly held companies as many people speculate in stock, not invest.

Anyway, let's assume for a second that a company like Exxon Mobile which has a 9% profit margin could still entice people to buy the stock, basically buy opportunity costs, at 3% profit margin. Theoretically, they could capture more of the market by reducing prices and thus still maintain or increase aggregate profit while reducing margins, but this is largely a price fixed market due to inelastic supply. Anyway, that 6% difference is inefficiency.

Further, let us assume that this type of inefficiency is found throughout the market and accounts for 6 cents of every gallon of gasoline you purchase (a relatively small number). If the average person has a car that gets 20 MPG and drives 40 miles everyday to and from work then that person pays 12 cents a weekday and maybe 6 cents a weekend for errands and such. That comes out to be approximately $137.28/yr while not including road trips, etc.

Now let's assume I'm an investor. The above market inefficiency has increased profits and thus increased (hopefully) dividend paid. I go to Exxon Mobil and see that the dividend paid is (forward annual dividend yield) is 2.5%. That means at present stock prices, I have to invest about 5k just to break even this year in terms of the amount I've already paid for inefficiency.

But, of course, most Americans likely don't have 5k in cash to invest in the market. They still have to pay for the inefficiency, but they are getting no returns. Even if they bought $100 of Exxon Mobil a month, it would take over 4 years to get to the point where they were breaking even. And they paid for market inefficiency all of those four years.

Not to mention that if everyone did as you suggested, the demand for oil stocks would be huge, thereby driving the value of the stock up, thereby killing yields. Of course, along the way of rising prices, more and more people would be excluded due to price issues. And, of course, speculators would try to hop on for the free ride. It basically means that established capital has a huge advantage as they can out bid any newcomers and lock them out of the market.

As more people invest, the more one needs to invest to recover those inefficiencies (from an investor's standpoint). And the more stock one has, the more I profit from those inefficiencies even though I may not use more gas and thus pay more for those inefficiencies as well.

It becomes a real problem when you consider this. On aggregate, only 49.7% of people in 2004 held retirement accounts and only 20.7% held stocks. Of course, these numbers rise steadily as family income increases. In other words, poorer people are not reaping the benefits of these inefficiencies but are still paying for them by buying gas. They can't just all simply enter the market because it would drive prices up and dividend yields down either making the stocks unaffordable or crushing the yields to the point where they could never expect to repay the inefficiency they pay everyday.

Market inefficiency is simply a redistribution of wealth from people that don't have capital to those that do. Now, with some commodities one might say this is ok. If there is price fixing behavior occurring with TVs for instance, the redistribution is still occurring but people really don't need to buy TVs. They don't have to give their money to those with capital. Oil and energy is a different story. Most people do have to buy gasoline to get to work. And the poorer you are, the greater the burden these inefficiencies become on you. Then you can see why high profits in commodities that are necessities can be a problem, even for people with some capital.

Of course, in a perfect market there would be no inefficiency. Then again, a perfect market requires conditions which never exist in the real world.

That is such bull I don't know where to start. A company that makes profit is good, not an evil thing. Gross profit means the government collects taxes which pays for education, defense, etc and it means employees are paid and benefits are paid. People look at the net profit and say "omg those thieves made so much money!" and forget that a huge percentage of that goes back into capital expenditures which provides future growth and more income and more jobs and more benefits. Of the 23 billion that Chevron netted in income last year, 19 billion of that went into captial expenditures which is a combination of exploration and manufacturing and transportation. And yes some of that goes back into the coffers. Chevron has 32 billion in cash but none of that is anymore mine than yours. You and I weren't the ones taking risks and discovering new oil fields and spending billions on oil rigs or paying oil service companies to rent rigs. We profit indirectly from their risk taking in intangible ways as I explained above.

Oh and your 4 year example of buying Exxon just to break even is very typical of the short-sighted american. You have to think 20 years minimum when investing. If you buy Chevron today your yield is 3.9%. If you accumulated Chevron over the last 20 years and reinvested the dividends like I did my effective yield is over 30%. I not only recouped the costs and made money but I continue to get paid nice dividends. I was borderline poor when I first started buying Chevron and I didn't make excuses. When I wasn't making much money I found ways to cut back so I could invest. I was taught the importance of investing from parents who grew up during the depression who had nothing as kids and no college education. They were as dirt poor as you could get and worked their way up slowly and invested their money wisely over the generations since then and are quite well off now in their retirement.

 

[BigDH01]

Originally posted by: Tequila

That is such bull I don't know where to start. A company that makes profit is good, not an evil thing. Gross profit means the government collects taxes which pays for education, defense, etc and it means employees are paid and benefits are paid. People look at the net profit and say "omg those thieves made so much money!" and forget that a huge percentage of that goes back into capital expenditures which provides future growth and more income and more jobs and more benefits. Of the 23 billion that Chevron netted in income last year, 19 billion of that went into captial expenditures which is a combination of exploration and manufacturing and transportation. And yes some of that goes back into the coffers. Chevron has 32 billion in cash but none of that is anymore mine than yours. You and I weren't the ones taking risks and discovering new oil fields and spending billions on oil rigs or paying oil service companies to rent rigs. We profit indirectly from their risk taking in intangible ways as I explained above.

I never said it was evil, simply stating a fact about inefficient markets and how that effects wealth distribution. This is not unknown and if you claim it is bull then you should educate yourself. You can start by examining perfect competition, various game theory duopoly models, and perfect markets.

Little of the US's tax revenue is derived from corporate taxes. Also, I said anything above normal profit is inefficient. There is still an expected payoff and thus there are still taxes to be paid. Inefficiency is measured above normal profits, although normal profit is difficult to define in large publicly owned companies.

You also need to get your terms straight. Companies pay taxes on net profit, not gross profit. That's after one time items and interest payable. Chevron made a net income of nearly 24 billion last year, not a net profit of 24 billion. I don't think anyone looked at 24 billion and assumed this was net profit.

It's this net profit that's the issue. No one has a problem with money being invested back into their endeavors to create jobs and opportunities. However, if net profit is above normal profit, this is a measure of inefficiency. This is money being used to pay dividends that also raises the cost of the product, or in the unique case of oil, sets a floor. In this case, the profit taking behavior of the shareholders is having a negative externality on those paying for oil. And in terms of those profits (paid out as dividends), people with capital do have more claim to them than people without (it is a bidding system), yet everyone pays those externalities. This is what gives capital the advantage.

Oh and your 4 year example of buying Exxon just to break even is very typical of the short-sighted american. You have to think 20 years minimum when investing. If you buy Chevron today your yield is 3.9%. If you accumulated Chevron over the last 20 years and reinvested the dividends like I did my effective yield is over 30%. I not only recouped the costs and made money but I continue to get paid nice dividends. I was borderline poor when I first started buying Chevron and I didn't make excuses. When I wasn't making much money I found ways to cut back so I could invest. I was taught the importance of investing from parents who grew up during the depression who had nothing as kids and no college education. They were as dirt poor as you could get and worked their way up slowly and invested their money wisely over the generations since then and are quite well off now in their retirement.

Yes, but if everyone did as you did then the dividends would never pay off for most people as the yields would be driven into the ground.

Imagine if all net profits were paid as dividend and everyone who purchased the oil owned an equal amount of stock (and buying stock is what you would have all poor people do). This means that the net profit margin would simply go back to the people who provided the margin and everyone would be revenue neutral. This is a Pareto optimal condition. I can't make anyone better off without making someone else worse off.

Now, imagine this is the real world and that the stock is already held by investors who may or may not buy the product and the net profit margin is paid by people who don't own the stock. This is a transfer of their wealth to people who already own capital (shareholders). So, in order to retain some of that revenue for themselves the buyers, en masse, attempt to purchase stock. This simply raises demand and causes the stock price to increase while driving down yields. As yield decreases, the amount of initial (and installment) capital required to "break even" with inefficiency increases rapidly. Thus, even in a market with perfect information, you need capital to earn the dividend proportional to your over-normal profit overpayment. Any less and you still suffer from overpayment and any more and you make a nice profit from the inefficiency. The more capital you have, the greater the profit.

So I understand, yes, you were able to purchase stock over 20 years and it yielded a positive gross income. However, you are a small part of the market and thus your actions had a negligible effect on the market equilibrium. If every poor person who didn't own stock (which is most of them, about 50% of the country as a whole) attempted to buy into these profits, they would be unsuccessful as this would be enough to shift equilibrium pricing and yield and you'd still have a large proportion of people that could never raise enough capital to reach revenue neutrality.

So in response to the statement about me being the short-sighted typical American, I would quip that your personal anecdote is typical of an American that is unable to extrapolate their experiences to the market as a whole and understand that results may not be typical.

I've made no normative claim about profits being evil or charities being saintly (and frankly, I don't know why profits would be classified as good or bad), I'm simply pointing out why markets favor those with capital. It's no different than me pointing out that capital in the US does far better than labor due to international trade. It's expected.

 

[miketheidiot]

not a black and white issue, its varies widely depending on the resource and its circumstances.


also pro-posts from bigdh01

 

[Possessed Freak]

BASTARD FROM A BASKET...

God did I hate that movie.

 

[RyanPaulShaffer]

Owning natural resources is a bourgeois concept.

 

[marincounty]

Originally posted by: Zensal
When you leave the country, things get messy with politics, trade negotiations, and such.

In the States, typically the property owner gets the rights, as they are entitled to and they would typically sell the rights to an oil company. I worked for while in Northern Utah/Colorado for an oil services company doing surveys of wells. Sometimes the well was in the middle of a field of cows. That farmer usually saw a large cut if he owned the mineral rights to the property.

If the land is publicly owned, the use of the land is usually heavily taxed as the mineral rights belong to the people of that state as a whole.

That's part of the problem, companies pay next to nothing in taxes due to antiquated laws, and of course the crooked congress won't change the laws. Look into foreign companies removing billions in gold from Nevada, while leaving toxic waste, and Nevada and the Federal govt get peanuts.

California tried to pass an oil severance tax, similar to Alaska, but of course the Republicans shot it down.

Publicize debt and privatize the profits.

Text

No royalty is paid to the United States with respect to minerals mined and sold from a mining claim.
Additionally, Congress has considered several bills in recent years to repeal the Mining Law or to amend it to provide for the payment of royalties to the United States and to eliminate or substantially limit the patent provisions of the law.

 

[Atheus]

Originally posted by: spidey07

Originally posted by: gevorg

Originally posted by: OCguy
The natural resources are discovered due to the drive for profit. Why is it hard for people to understand that profit is the driving force?

You think this would have been discovered if BP were a charity?

http://www.rigzone.com/news/ar....asp?a_id=79959&hmpn=1

non-profit =! charity

A non-profit company can still have a R&D department with bonuses to people who make great contribution to new discoveries and methods. This will be the driving force, so yes a non-profit BP would be able to discover new oil fields.

What motivation would they have? Remove profit and the motivation is gone. Think of it like work. Why do you go to work everyday? Would you still go if they gave you food and shelter instead of money?

It's sad that you don't find any satisfaction in your work but not everyone feels the same way. If I had 'enough' money to live comforatbly for the rest of my life I'd still work. Probably in research actually.

And on your first post - don't you think there are other considerations to natural resource use than money? If someone found a way to make money by destroying your favourite national park or whatever would you support that?

 

[dainthomas]

Originally posted by: spidey07

Originally posted by: gevorg
There is nothing wrong with profit of course, but the profit of natural resource companies comes from the land that everyone lives on and protects in case of war. Why shouldn't that profit be distributed for everyone's good and future generations? Unlike a typical company that needs competitive products and services to survive, a natural resource company just has to find a way to extract and transport it cheaply once in a while.

Don't they also have to own or lease the property from where they take it? If some company said I had oil under my property they can't just come and get it.

Think about that scenario if the gubment claimed ownership of that resource on my property, do you think I would be compensated fairly, if at all?

You can lease public land for $5/acre and keep everything you take out thanks to our 140 year old mining law.

 

[Tequila]

Originally posted by: BigDH01

Little of the US's tax revenue is derived from corporate taxes. Also, I said anything above normal profit is inefficient. There is still an expected payoff and thus there are still taxes to be paid. Inefficiency is measured above normal profits, although normal profit is difficult to define in large publicly owned companies.

So exactly how do you define "normal profit" if it's difficult to define for large publicly owned companies?

You also need to get your terms straight. Companies pay taxes on net profit, not gross profit. That's after one time items and interest payable. Chevron made a net income of nearly 24 billion last year, not a net profit of 24 billion. I don't think anyone looked at 24 billion and assumed this was net profit.

Good catch. I hastily wrote up that post in the morning before leaving for work so I did goof up the terms there. Where I said gross profit I meant net profit and where I said net profit I meant net income but I was pretty clear when I said "Of the 23 billion that Chevron netted in income last year" as meaning net income.

So I understand, yes, you were able to purchase stock over 20 years and it yielded a positive gross income. However, you are a small part of the market and thus your actions had a negligible effect on the market equilibrium. If every poor person who didn't own stock (which is most of them, about 50% of the country as a whole) attempted to buy into these profits, they would be unsuccessful as this would be enough to shift equilibrium pricing and yield and you'd still have a large proportion of people that could never raise enough capital to reach revenue neutrality.

Now you are really going off the deep end. For every individual investor that's in it for the long-term there are institutional investors who are in and out of stocks all the time, selling when valuations are out of whack and hedge funds short-selling, bringing the stock back to realistic valuations and dividend paying stocks back to a reasonable yields(assuming no decrease in earnings). Even if all the poor people who are not currently in the market jumped in tomorrow it would hardly have an effect on prices given that there are several thousand stocks. I know when I was poor I was lucky to put $100 in a month.

If a stock's yield is going down while earnings are not impacted then it means the stock price has gone up. People who bought low can sell and make a profit. Those who hold for the long-term don't care if the yield has gone down because the stock price has gone up and they could choose to sell and their effective yield is the same as when they first bought it and increases slowly if they reinvest dividends. Those who buy while the stock price is on the way up, see less of a yield but will only see a loss if they sell if the price drops. Since there are always selling pressures on a stock your theory of an ever decreasing yield and inability to recover initial capital as more "poor people" jump in just doesn't hold and is in fact a very weak theory with no proof. Given a long term horizon of buy and hold, buy on dips and reinvest dividends, dividend paying stocks have always been a great investment of which there is plenty of proof.




.

 

[BigDH01]

Originally posted by: Tequila

So exactly how do you define "normal profit" if it's difficult to define for large publicly owned companies?

Normal profit is much easier to think about in a small business or independent owner situation. The amount of profit necessary to ensure that you don't go anywhere else. If you do, the business closes up shop.

In a perfectly competitive market, this is driven down to almost zero. If I'm operating at costs + 3 and am the only player, it is inevitable that another player will come along and offer cost + 2 and capture the whole market. They have lower margins (and each individual is now paying less for the product), but aggregate profit is still higher than 0, but lower than company A's aggregate profit. This continues until we basically both share some of the market at cost + 1 or the other companies exit.

Now when we look at large publicly owned companies, what metric do we use to define, "shareholders won't go anywhere else?" Yes, they can decide to sell but then someone else is buying. Is the normal profit that which the lowest bidder is willing to take? If Exxon Mobil slashed dividends by 90%, would people still be willing to buy the stock? If so, then the dividend paid might be above normal profit. Another possible way of thinking about it is that banks are only paying around 2% interest last I checked (I'm going to ignore bonds and CDs as these either have cost of entry or mobility problems). If a stock is paying 4%, especially a stock where there is very little risk, like oil companies, then one could look at the 2% difference as being inefficiency. It's not until dividends fall below 2% that investors can get a higher return elsewhere.

Now you are really going off the deep end. For every individual investor that's in it for the long-term there are institutional investors who are in and out of stocks all the time, selling when valuations are out of whack and hedge funds short-selling, bringing the stock back to realistic valuations and dividend paying stocks back to a reasonable yields(assuming no decrease in earnings). Even if all the poor people who are not currently in the market jumped in tomorrow it would hardly have an effect on prices given that there are several thousand stocks. I know when I was poor I was lucky to put $100 in a month.

Equilibrium stock price is a direct result of supply and demand. Yes, people buy and sell stock all the time to bring valuation in line with equilibrium price (there is always short term, and recently medium term, volatility). Now, supply and demand are obviously going to fluctuate based on stock price, yield, etc, but ~150 million people spending $100 a month trying to buy a particular stock is going to drastically alter the equilibrium price.

Another equivalent way of thinking about it is that there is now a lot more money chasing a fixed number of aggregate stock. Thus, in order to purchase some of that stock you need to bid more and accept a lower yield. Now, the entirety of the stock is not up for sale at any given time but there is certainly more demand chasing whatever stock is up for sale. This is great for those that presently own the stock but it doesn't do much for those that buy at equilibrium prices with a much lower yield.

If a stock's yield is going down while earnings are not impacted then it means the stock price has gone up. People who bought low can sell and make a profit. Those who hold for the long-term don't care if the yield has gone down because the stock price has gone up and they could choose to sell and their effective yield is the same as when they first bought it and increases slowly if they reinvest dividends. Those who buy while the stock price is on the way up, see less of a yield but will only see a loss if they sell if the price drops. Since there are always selling pressures on a stock your theory of an ever decreasing yield and inability to recover initial capital as more "poor people" jump in just doesn't hold and is in fact a very weak theory with no proof. Given a long term horizon of buy and hold, buy on dips and reinvest dividends, dividend paying stocks have always been a great investment of which there is plenty of proof.

Yes, but what I'm trying to tell you is that if 150 million people suddenly decided to buy stock the equilibrium price will be driven higher. Yes, this is good for people who buy on the way to the new equilibrium price, but it doesn't help people who end up buying at this equilibrium price, which now provides a lower yield. What I'm telling you is that the sudden influx of demand doesn't help demand, it helps supply. Some demand will become supply and benefit until the new equilibrium is reached, but many will not. It also doesn't help people who enter the market late after the new equilibrium has been reached.

The loss that everyone takes is the externality of the profits. These dividends that are being paid are charged to everyone at the pump, if they own stock or not. If I'm not earning enough money in the stock to cover not just the straight cost of this externality, but also the opportunity cost of it then I'm operating at a loss. If I buy Chevron at 150 and sell at 150, then I break even on the sale but still lose overall. The dividend at that price would be ridiculously low, but my cost at the pump is a constant. No matter the yield being paid to me, my "cost of the profit" is constant.

I don't understand you telling me I have a weak theory with no proof. The value of a stock at any given time is a function of supply and demand. You can't drastically alter demand and expect that equilibrium price will remain unaffected.

Let's view it from another perspective. Let's imagine we are a company looking to raise capital by selling shares and offering a dividend. Now, money represents supply and I represent demand. The more money there is in the market looking to buy, the better for me or the lower the yield I have to offer to attract them.

Let's assume that ~150 million people put $100 a month into the market. That's 15 billion a month. That's great for supply (or conversely those that demand money), but demand now has to expect a lower yield and supply can offer it. Hence a new and higher equilibrium price. Yes, this will entice supply to sell, but it only evens out if these people are leaving the market and not reinvesting. In other words, to prevent market inflation, you'd need to have 15 billion a month removed.

Your proper retort would be, well poor people simply wouldn't buy at the new equilibrium price as the yields would be too low and the initial capital investment too great. That's the problem. The poor can't all enter the market with an attempt to recover their money paid at the pump without making the condition impossible.

This doesn't exclude any individual from buying and increasing demand as one individual will have an almost immeasurable effect on equilibrium. It basically just prohibits the entire population of poor people from doing so.

This really doesn't matter to me except in certain markets. Markets like oil which are far from perfect. There are only a few major players, there's inelastic supply, and people genuinely need to buy gas. In many other markets, consumers can simply choose not to buy a product and thus not contribute to above-normal profits. I don't really have a choice in buying gas. Even if I was so poor that I did not have enough disposable income to buy stock in the oil companies, my money is still paying your dividends. This is a transfer of wealth from me to you.

 

[Tequila]

Another equivalent way of thinking about it is that there is now a lot more money chasing a fixed number of aggregate stock. Thus, in order to purchase some of that stock you need to bid more and accept a lower yield. Now, the entirety of the stock is not up for sale at any given time but there is certainly more demand chasing whatever stock is up for sale. This is great for those that presently own the stock but it doesn't do much for those that buy at equilibrium prices with a much lower yield.

I don't understand you telling me I have a weak theory with no proof. The value of a stock at any given time is a function of supply and demand. You can't drastically alter demand and expect that equilibrium price will remain unaffected.

Of course more demand pushes prices higher and yields lower but this is not a constant. This is balanced by sellers especially institutional investors and hedge funds short-selling because they know that valuations are out line and their selling pushes prices back down to reality. Yields will not stay at 0 because that means prices are only going up and not down(unless earnings were impacted). If what you suggest is true that demand pushes yields ever lower then you don't care if the yield is that low because your unrealized gains are insane because the stock has never gone down and you would only suffer if on the day you decide to sell the stock suddenly drops back to your purchase price. But of course this is not reality, stock prices flucuate because of the sellers and short-sellers and yields come back inline with their historical values. Therefore there is no bad time to buy when you have a 20+ year time frame. This is why your theory is weak.

 

[BigDH01]

Originally posted by: Tequila

Another equivalent way of thinking about it is that there is now a lot more money chasing a fixed number of aggregate stock. Thus, in order to purchase some of that stock you need to bid more and accept a lower yield. Now, the entirety of the stock is not up for sale at any given time but there is certainly more demand chasing whatever stock is up for sale. This is great for those that presently own the stock but it doesn't do much for those that buy at equilibrium prices with a much lower yield.

I don't understand you telling me I have a weak theory with no proof. The value of a stock at any given time is a function of supply and demand. You can't drastically alter demand and expect that equilibrium price will remain unaffected.

Of course more demand pushes prices higher and yields lower but this is not a constant. This is balanced by sellers especially institutional investors and hedge funds short-selling because they know that valuations are out line and their selling pushes prices back down to reality. Yields will not stay at 0 because that means prices are only going up and not down(unless earnings were impacted). If what you suggest is true that demand pushes yields ever lower then you don't care if the yield is that low because your unrealized gains are insane because the stock has never gone down and you would only suffer if on the day you decide to sell the stock suddenly drops back to your purchase price. But of course this is not reality, stock prices flucuate because of the sellers and short-sellers and yields come back inline with their historical values. Therefore there is no bad time to buy when you have a 20+ year time frame. This is why your theory is weak.

It is a constant if people want to remain in the market. If every individual wants to invest in a stock (Chevron), then the new constant demand has set a newer higher price equilibrium. People will be enticed to sell (although not everyone), but the inflation in the market as a whole still exists. It's really not that much different than any other market, except that the stock market has huge factor mobility making it more efficient than most.

Demand can push yield lower. You'll see this quite a bit currently when people are looking for safety or interest rates drop. There can be a long term change in yields depending on demand. There are many stocks out there that yield nothing at all, and people are trying to rely on straight capital gains.

I don't think you understand what I'm saying. If new constant demand enters the market, yield is forced down for people who are buying. This is basically akin to inflation. It's made capital cheaper and forced yields down. Prices don't seek a specific yield, they seek equilibrium and the yield is realized when that equilibrium is hit. If there is more money in the market, the market bears lower yields over the long term as money is cheaper.

And like I said, the capital gains of increasing stock value only helps the current supply. It doesn't help people who buy at the new equilibrium price, where the price will remain relatively constant.

You keep saying this is weak, but I have no further suggestions for you other than to investigate equities and how price equilibrium is reached.

What you are talking about is volatility. This is not the same as the true price equilibrium, which is where going short or long comes into play.