On Feb 9, 2011, at 3:35 PM, SA wrote:
> Yes, but obviously that doesn't actually mean that $0.05m has flowed into that asset class ($1.05m-$1.0m). For example: right now, Coca-Cola's market cap is about $150bn. Its price is about $60. In extremis, if I placed an order to buy a *single share* of Coke at $90 (ignoring practical problems), Coke's market cap would rise by a total of $50 billion. In other words, my measly $90 "flowed into" Coke stocks, and the value of Coke's shares rose by $50 bn! That's why Marx called it "fictitious capital"!
Your order would do no such thing. You could buy the share for 90 but no one would give a shit except maybe to say who's this loon?
Of course there doesn't have to be a dollar to dollar correspondence between money flow and valuation. Who said there did?
> Bubbles don't feed on themselves because people see more money going into an asset - they feed on themselves because people believe others in the future will be willing to pay them a higher price than the most recent price. In other words, it's people's psychology feeding on other people's psychology.
What? Money has nothing to do with it? Really? What's a credit boom about then? Why was so much mortgage debt created to inflate the housing bubble? If it was all about feeling, you didn't need all that borrowed cash.
> Isn't your position similar to that of a monetarist who just assumes that V is always constant?
No. V can vary. Which isn't to say that M doesn't matter.
Doug