Enough

[ScottA]

I'd like to point out that income does not equate to wealth. I know people who make over $100k and are flat broke. I know other people who make $25k and have plenty of money.

[Native_NM]

Scott and Dug and gang,

Paper wealth (which comprises the majority of the "Top 1%'s" wealth is not tangible.  Bill Gates, for example, is worth $50 billion.  The market cap of Microsoft is $220 billion.  While he has diversified, his stake in MSFT is worth almost $15 billion on paper.  The book value of MSFT is only $50 billion, and that includes $15 billion of intangibles (goodwill) which has no real worth if the company were to liquidate it.  The tangible book value of his company is only $35 billion.  His paper stake is almost half of MSFT, and he only owns about 5%.  His stake is large, but is grossly overvalued.  If we all quit buying Windows tomorrow, the stock would tank, and so would his "wealth".  Most people don't realize that MSFT actually has a huge retained DEFICIT. 

If you look at where the wealth is derived in the US, most is in the form of equity:  Gates, Buffet, Ellison, Hewlett, Packard, Dell, Waltons, Ford, et al.  Most of their wealth is "paper", and is subject to market fluctuations, just like your 401(K).  It would make sense that as the stock market rises, the proportion of wealth would rise also as they own the companies.  Duh.  Other than the last couple of years, the last few decades have been one of prosperity for all Americans.  This ties into the "standard of living" comment you made earlier.  Why should I care that Dell has a zillion dollars?  Why should I care that the Walton's have a zillion x 4?  I don't.  I just know that my standard of living is better because of the PC revolution, outsourcing, and Chinese imports. 

Dug has a house.  I'm guessing no mortgage.  He has a skill set (building, electrical) a job, and the FREEDOM to do what he wants, when he wants.  That is real wealth.

[Ajax]

Scott and Dug and gang,

Paper wealth (which comprises the majority of the "Top 1%'s" wealth is not tangible. Oh, yes it is

Bill Gates, for example, is worth $50 billion.  The market cap of Microsoft is $220 billion.  While he has diversified, his stake in MSFT is worth almost $15 billion on paper.  The book value of MSFT is only $50 billion, and that includes $15 billion of intangibles (goodwill) which has no real worth if the company were to liquidate it.  The tangible book value of his company is only $35 billion.  Why does book value matter? 

His paper stake is almost half of MSFT, and he only owns about 5%.  His stake is large, but is grossly overvalued.  To state that his MSFT stake is overvalued based on a back of the envelope book value analysis is laughable.  MSFT has $37 billion of cash and short term investments.  Over the last three years the company has earned $51 billion.

If we all quit buying Windows tomorrow, the stock would tank, and so would his "wealth".  Most people don't realize that MSFT actually has a huge retained DEFICIT.  Why don't you tell everyone why?  Why does a company that makes the money the MSFT does have a retained deficit.  It's certainly not anything to worry about

If you look at where the wealth is derived in the US, most is in the form of equity:  Gates, Buffet, Ellison, Hewlett, Packard, Dell, Waltons, Ford, et al.  Most of their wealth is "paper", and is subject to market fluctuations, just like your 401(K).  Paper??  Their wealth represents ownership in America's largest and most profitable corporations.  It's hardly just "paper".  They own the engine that runs the American economy

It would make sense that as the stock market rises, the proportion of wealth would rise also as they own the companies.   Duh. Wait, first you say their wealth isn't tangible, and now you agree with me that they basically own America?

Other than the last couple of years, the last few decades have been one of prosperity for all Americans.  This ties into the "standard of living" comment you made earlier. Not sure you can make that argument.  Median Income in the US is flat over the last 20 plus years .

Why should I care that Dell has a zillion dollars?  Why should I care that the Walton's have a zillion x 4?  I don't.  It's not that they have money, it's what they do with it, how they write the rules to benefit themselves, and how they screw the middle class 

I just know that my standard of living is better because of the PC revolution, outsourcing, and Chinese imports.   Unless you've lost your job to the PC revolution, outsourcing, or Chinese imports


Dug has a house.  I'm guessing no mortgage.  He has a skill set (building, electrical) a job, and the FREEDOM to do what he wants, when he wants.  That is real wealth. That sounds great, like mom and apple pie, but it's simply not true.

[Native_NM]

If you want to make a comparison of what the rich own vs. what the "poor" own it needs to be and AAPL to AAPL comparison.  The value of IBM or Apple or Dell is the future cashflows.  The future earnings.  That is why the market cap of the companies is far in excess of the book value.  In America today, it is human capital that drives the future earnings of the Fortune 500. We are moving to a knowledge-based economy.

Google is worth $173 billion in market cap.  It only has tangible assets of $41.5 billion.  That  is the liquidation balance.  The cash and buildings, etc.  The real value of Google is what its employees can generate for Google shareholders in the future.  That translates into a higher share price, which results in the Google brothers, as founders, being zillionaires as they still own tons of stock.  If every Google employee quit tomorrow, Google is worth nothing.  In fact, there are probably only 100 really key employees at Google.  Nothing prevents any current Google employee from leaving and doing his or her own thing, or starting his own business.  The wealth of rich people is measured primarily in the future earnings of the employees of the companies they own.  Your wealth and my wealth is measured in tangible items like our cars and homes and furniture and cash, and to a lesser extent, equity in 401(k)s or small companies we own.  But most of our wealth is tangible.  Unless you signed an employment or slavery contract with your employee, you are free to leave and work for yourself anytime you want. 

A guy like Dug (a young version), graduates from college and decides to open an electrical company.  His total revenue is $300,000 per year, and he pays himself $85,000.  The rest is overhead.  His net income is 10%, or $30,000 per year.    He is 25, and can work another 40 years, and grow his business. 

On paper, he is worth almost nothing today.  He bought some new trucks and leases a building, but he also borrowed some money from the SBA.  In order to make a fair comparison of how wealth is divided in America, we have to value it the same.  Only a small percentage of companies are public traded.  Most businesses in America are small business with less than 25 employees, and they don't get to count the discounted cashflows of their future earnings as wealth today like Gates and Dell and the Google boys do.  Our young Dug is worth at least another $250,000 in discounted cashflows on a comparative basis.  And he is free to do what he wants, when he wants.  If we made a comparative analysis of the wealth of 200 million workers based on future earnings, it would exceed the wealth of the rich guys.


As for MSFT's valuation, it is not laughable. The value of MSFT is the tangible book.  The cash and the tangible property.  That is $50 billion, which is mostly cash.  If some guy introduced a new product that made Windows obsolete, MSFT could disappear in two years. Ballmer made that statement to shareholders a year or so ago.   MySpace just sold for $35 million.  A few years ago it was worth billions on paper.  There are hundreds of stories just like it. 

To summarize:  You can't include trillions of future earnings into 1%'ers balance sheet while you are excluding it from the balance sheets of 200 million workers who are going to make it for them.  That is what is laughable.  Free your mind from the MSM and think at a macro level just for one day.  It is enlightening. 

Some guys or gals are so caught up in somebody having more than you it is laughable.   If you want it, go and get it. 

[dug]

Dug has a house.  I'm guessing no mortgage.  He has a skill set (building, electrical) a job, and the FREEDOM to do what he wants, when he wants.  That is real wealth. That sounds great, like mom and apple pie, but it's simply not true.

Well actually it is a bit like mom and apple pie and that's all right with me. Shooter is right, I have a house (almost!), no mortgage, not a cent of debt, a fantastic wife and two great kids. I worked very hard for it and maybe got a little bit lucky by starting a business in a prime economy but I have been able to achieve most of my goals (so far). Make no mistake- I am jealous of no man, and I would not trade my skin for anyones. Probably the most content people on both sides of the tracks are the ones who live in the moment and pay no attention to things they can not control. Maybe I am a little jealous of that trait because sometimes I obsess over issues like this and regret the time and energy wasted, time that I won't get back. I think it's part of human nature though, at least part of mine, to want to improve and sometimes that desire can extend beyond yourself.

It may sound all mom and apple pie but my biggest concern is for my children, and maybe their children's future. I want better for them, and by better I don't mean more money but actual opportunity and freedom to realize their dreams as I did.  It is especially disheartening to think they may be robbed of it with no resistance, and even approval from the general populace.