(Mikkel Roland Egesberg)- http://euro-wealth.eu
This will be the Wealth of nations like info-place, hopefully...
Too often the media focus only on GDP and the development herein, but what they often forget is, that some of these money from the nation's production in a year ends up in savings, and that these savings accumulate over the years, ceteris paribus, but what decides the Wealth of Nations, is decided upon, how these money are managed...ergo the Wealth of Nations!
So how does it work? We can see this from a "Micro" or a "Macro" perspective.
"Micro" being seen from the view of consumers or companies, and "Macro" from the nation's view.
We could start by making a budget for an indivudual/consumer, and sofort this person earns more than he spends, savings will be created. He might get the bank to help him make a budget, or do it himself in an excel spreadsheet made by Microsoft.
These savings can be used to buy Bonds from the government or companies, to finance their future operations, or they could be put in a savings account, or used to buy stocks in a company.
The company can issue bonds..lets say they can lend from the banks/or small savers at 10% interest rate per year, and the factory can give a yearly retur on 15%, then they would make a profit on the difference between these two amounts, here 5% points.
The company should borrow as long as the payoff from the factory is higher, than the interests rate expenses it loans at...the profit, ceteris paribus, will be the difference between the rate on it's bonds, and what payoff the company can get from it's investments, e.g. a car factory.
If one buys stocks in a company instead, the consumer/investor can do it in two ways: at IPOs, or a capital expansion from the company. This is called the "primary market".Here the company will get the funds for futher investments, without having to pay interests rates on bonds, the price is deluted shares for its old investors, that would now own less percentages of the stock company/corporation, than they did before the issuing of new shares.<
If one buys stocks in e.g Microsoft (Microsoft Corp. NASDAQ: MSFT) it would most likely be in the "secondary market", which is just the exchange of ownership of already existing stocks...The secondary market is a gambling place for traders trying to buy stocks, and sell them at a higher stock price later on, but in reality very few knows what gonna happen, eventhough the banks are not short of making all different claims about the economy's and companies' future development, but reality is that very few saw the Covid-19 virus coming, an exogen-shock to the economy, that hit all from airlines to hair-dressers, whom were forced to shut down their daily operations!
So then, what is the best way to finance a company's expansion with new factories? Issuing Bonds, or a capital expansion selling new stocks in the primary-market? It seems the Europeans favour issuing bonds, paying interests on loans, e.g. annuities.
So too can Governments do , we have Treasury bills, Treasury notes and Treasury bonds. Treasury bills are issued for less than 1 year, Treasury notes (T-notes) have maturities of 2, 3, 5, 7, or 10 years, and Treasury bonds from 10 up to 30 years.
American companies generally favours issuing stocks, and having their citizens buy these, or foreigners at their stock exchanges Nasdaq and NYSE, Nasdaq being TECH companies, and NYSE industrials.
Let's play with the idea of stocks...Let us say Tesla, a US Car-company which seems very expensive, and let's show how they can use stocks to their advantage. Companies have assets and liabilities, assets being machinery e.g. liabilities loans, and equity.
In accounting these two must add up. If Tesla has assets of 5 US Dollars, and liabilities of 4 US Dollars in Loans, then the Equity, would be the difference between these two, can the be calculated as 5 USD machinery minus 4 US Dollars loans, resulting equity of 1 USD, and this is what stock owners with stocks in companies actually own, when all loans have been paid of. The rest is owed to banks and bond holders and this is the share creditors own of the company!
Now the banks start to worry about their loans to Tesla, so the write some nice investments reports with "Buy"/"Sell"/"Hold" shit for the sheeps that make up private investors, and call it a stong buy, which US Bloomberg og CNBC will then post on their live channels.
Let us start by saying Tesla has 2 stocks for 2,5 US Dollars giving us a market cap of: (2 * 2,5 = 5 US Dollars). Lets say tesla has an equity of 1 USD and and loans of 4 USD, a fair valuation then.
Now the media start making "strong Buy" recommendations and Tesla stock rises to 10 USD...
Tesla sees this and try to harvest the Goodwill, issuing new shares in the primary market at 10 USD per stock, with 2 new stocks.
That gives us (2+2 =4 ) stocks and a price of 10 meaning a market cap of 4*10=40 and Tesla now has 4 USD of loans still, and the equity now is at (1+ 2*10= 21 USD), just by making financial transactions based on "STRONG BUY".
The combined stock owners owns more equity, and the newcommers in this ponzi scheme paid for the party, now with a market cap of 40 USD , Equity 21 USD and loans of 4 USD...Now then what is the company worth then? Only the Equity of 21 US dollars, and future profits, because this is what the Shareholders own of the assets, rest being financed by loans from banks and bonds, that needs to be repaid back sooner of later. Profits can be added to the equity and/or payed out in dividens...A company is only worth its equity, plus future profits, with the future profits being calculated as "Net Present Value" (NPV).
One might look at Debt to equity, so see how much the stock-holders own of the company, and how much is paid for on credit by loans from banks and bond-holders. The number of stocks (#) and the stock price multiplied by each other make up the "market cap", how much the stock owners and creditors company is worth in total. In real life i belive the banks own 60 times as much of Tesla, than the stock-owners (Debt/Equity)... I belive it's at 60 Debt/Equity...(corection --> checked it again, its at 60.0%, looks like someone forgot the %). This means that debt could be like 60 and equity 100, which would then give us 60/100 = 0,6. If we then take 60+100=160 and do 60/160= 37,5%, we find that the banks and lenders own 37,5% of Tesla and the shareholders 100/160= 62,5% of the company. One could then do equity 0f marketcap of 40 from the example and do this: 40/0,625= 64, which is the total valuation of the company, had it been owned fully by the investors!
One might add corrected "Price/Earnings" (P/E) numbers based one this new valuation, had it been owned fully by the investors! "(Price/0,625)/Earnings, let's call this "Mikkels P/E"
"EQUITY IS KING in wealth manegement" I Mikkel Roland Egesberg would say, just too bad these numbers are hidden most often. I know Boeing has negative Equity, and should be declared bankrupt, but they got new loans from the banks, that would have lost the values of all loans, not being covered by assets, negative Equity!
By Mikkel Roland Egesberg: So welcome to
Articles that may come up here are Bitcoins etc., which I dont understand the logic behind..? It seems to be money made of of thin air, perhaps you would like to buy a letter "A" on this site, and pay me money each time I type "A", that seems to be the logic behind bitcoins, ...I belive it is a bubble, but the trades with the US stock "gameshop" stock showed us how dangerous it can be to short assets, even though it might be bubble....what happens if it tripels or more, and you lent the stock out in order for it to fall in price, so you can buy it cheaper, and score the difference, which is what you really do if you short an assets, e.g. a stock.
I will also try to cover the coming Hyperinflation in the USA!
I see 4 things that will happen because of this:
1. - Hyperinflation or close there to in the US
2. - Huge rise in interest rates.--> which leads to a new housing bubble, because noone with variable interest rate can afford e.g. 40% interest rate on their mortgage!
3. - Gold prices will skyrocket...
4. - The US dollar will collapse and will fall in value vs. to the Chineese "Renminbi" or the European "Euro".