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In the world of investing, we often hear it said that people are putting their money into stocks, bonds, gold, land, and so forth.  The use of the expression “putting into” is clearly a dead metaphor.  I suppose a miser who buries his money could be said to be putting his money into land in a literal sense, but the other investments defy any such literal interpretation.  We understand the expression to be figurative for buying.  Similar consideration applies to the opposite expressions, “taking out of” or “pulling out of,” which are figurative for selling.

Thus, a man who buys a lot of stock may be said to be putting his money into the stock market, while a man who sells a lot of stock may be said to be pulling his money out of the stock market.  But what is merely a figure of speech when speaking of individuals becomes downright peculiar when it is said of investors generally, as is the case in a CNBC article published today:  “Investors pulled the most money out of stocks last week in two and a half years ….”  In this case, we cannot simply construe this as meaning that investors sold a lot of stock last week, because for every seller there is a buyer; from which it would follow that investors bought a lot of stock last week.  And if we further translate into the corresponding dead metaphor, we would conclude that investors put a lot of money into the market.

Just as there is no problem speaking of individuals putting money into or pulling money out of the stock market, so too is there no problem comparing one type of investor with another, retail versus institutional, dumb money versus smart money, workers versus retirees, and so forth.  But with investors as a whole, something is amiss.  The article also speaks of money rotating from one type of investment to another:  “After such a big move, it would only be natural for investors to start shifting money around as allocations get out of whack with too much allocation to risk.”  While an individual or type of investor can sell this and buy that, the trades will be offset by those who buy this and sell that.  No matter how much money is “pulled out of” one type of investment and “put into” another, exactly the same amount is “put into” the first and “pulled out of” the second (less commissions, of course).  In short, money does not literally go into an investment.  It only changes hands, going from one bank account to another:  from the buyer’s bank account to the seller’s bank account, with a little into the bank account of the broker.

This, by the way, ties in to another peculiar remark heard from time to time.  And that is that the reason all the money being printed by the Federal Reserve has not produced any inflation is that all the money has gone into the stock market.  But as already noted, no matter how much money “goes into the stock market,” the exact same amount “comes right back out.”  In other words, when people buy stock, other people sell it to them, and the total amount of money in circulation remains the same; because it mostly just goes from one bank account or money market fund to another.

Presumably what is intended in all this is that the price that will clear the market on one day is different from the price that will clear it on another.  Therefore, instead of saying that people pulled their money out of the stock market last week, we could say that the price at which willing sellers could find willing buyers was lower last week than previously.  Or, we could just say that the stock market went down.

So why don’t we say that?  I suspect this another one of those circumlocutions by which we try to reassure ourselves.  First of all, simply saying, “The stock market went down last week,” as if it were just a brute fact, would make it sound as though the movements of the market were just a matter of chance, and that we were at the mercy of irrational forces.  But if the movement is accompanied by a reason, such as “owing to profit taking,” or “on account of the jobs report,” or “because investors are increasing their cash allocation,” we are reassured that the market is rational and that there is a reason for everything.  Moreover, the people who supply such reasons are presumed to deserve our respect and admiration.  Second, when we say that people pulled their money out of the stock market last week, it sounds as though they still have their money, and all is well.  If we just say the stock market went down last week, it sounds as though people lost money, and all is not well.

Originally posted to disinterested spectator on Mon Feb 10, 2014 at 03:40 PM PST.

Also republished by Community Spotlight.

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Comment Preferences

  •  An entertaining read, ds. Bottom line is that it (9+ / 0-)

    is all about sales, the selling of the stock market, or the bond market, or real estate as worthy and, more deceptively, safe places to plant your money.  (Take note that the word "plant" implies growth, yet more subtle sales slang.)
    As for me, my $127 is steadily dwindling to keep the house warm.  Soon it will be out of the market and I'll have to come up with another $127.  And if they kneecap Social Security that I paid into for 52 years, I might have to turn to a life of crime that crosses state lines so I can be arrested, tried and put into one of those Martha Stewart prisons that I also helped support for 52 years.  There you have it, my Plan B if all the money goes funny.

    Building a better America with activism, cooperation, ingenuity and snacks.

    by judyms9 on Mon Feb 10, 2014 at 04:04:40 PM PST

  •  I think they are just making stuff up when they (5+ / 0-)

    give reasons why the market went up that day. Or down.

  •  We should be permanently freed by now (4+ / 0-)

    from the idea that the Stock Market represents investment in business, with which the business expands, creating jobs, which puts more money into circulation which produces profits for other businesses.

    They've pretty much made it clear by now that they are not going to create more jobs, and if there's a crash the bankers and executives are going to use the opportunity to screw workers out of their 401 K investments.

    This is why Wall Street is a massive tumor on the American economy.

    You can't make this stuff up.

    by David54 on Mon Feb 10, 2014 at 08:39:31 PM PST

  •  They pulled money out of the market. (3+ / 0-)
    Recommended by:
    AnnCetera, Nowhere Man, muddy boots

    The fact that there were buyers and sellers doesn't explain anything.
    What happened is that a lot of money just disappeared into thin air.  The buyers spent less than the sellers had paid so money was lost.  

    If it ever was "put into" the stock market then in must have been "pulled out" because it's not there anymore.

    Language is just code: it doesn't have to make sense until after it has been interpreted.  And then only when that is the intention of the speaker.

    "Our problem is not that the glass is half empty or half full, but that the 1% claims that it is their glass." ---Stolen from a post on Daily Kos

    by jestbill on Mon Feb 10, 2014 at 11:56:13 PM PST

  •  When money does go out of markets (11+ / 0-)

    There is an exception that you note, and it’s important: If someone buries their money, the money is taken out of the market -- all markets. This is the equivalent of saving money in a bank that is not invested, money that was someone’s income, but didn’t get spent on a purchase, and so was not someone else’s income.

    This is why Say’s “Law” isn’t true (as has been well-known for 150 years or more). This is why a family can “tighten its belt” by earning more and spending less, but why the private sector and government cannot all do the same at the same time. It literally doesn’t add up. The result of government trying to the imitate private sector is to depress the economy leading to what is sometimes called a “depression.”

    This is why Keynes and Krugman are right, and why government policy in the US and EU has been disastrous. A plausible idea, that everyone can save (at the same time, without matching investment), turns out to be false.

    As you say, what makes sense for an individual sometimes makes no sense for all individuals taken together. This pattern is at the root of a remarkable number of destructive behaviors.

    •  Micro- macro- analogies are bunkum (3+ / 0-)
      Recommended by:
      mkor7, Trevin, muddy boots

      I am beginning to think that all arguments with analogies from microeconomics are entirely bankrupt. I proposed to a class, "Resolved: increasing the minimum wage will/will not increase prices/decrease hiring." All the students took the "will" side, and every blasted one of them argued from an implicit analogy (which they weren't aware of. . . this is why I'm there, to point it out) of "Small bakery, with the moral owner barely making enough to pay wages."

      I asked if that analogy applied to, say, a large corporation like Wal*Mart. I asked what would happen if a corporation increased profits but did not pass those on to labor. I asked them where their payment to investors was in their analogy. (I did this very, very gently.) I pointed out that a moral economy of the small bakery would not pay the least possible wage to the employee and would not be subject to a minimum wage hike's effects, barring severe economic constraints in other respects. I agreed, of course, that their analogous model might be correct, but questioned scaling it to a macroeconomic argument.

      Everyone's innocent of some crime.

      by The Geogre on Tue Feb 11, 2014 at 06:44:02 AM PST

      [ Parent ]

  •  Deadly metaphors (5+ / 0-)

    You're on the right track, I think.

    These abstractions get treated as concrete forces, and then they suffer the pathetic fallacy. As human beings have emotions, the market (which is nothing but an accumulation of individuals making individual decisions) gets attributed emotion, intention, and, worst of all, desire. Such nonsense should fall at the first hurdle of any sane hearing, but, instead, it gets repeated often enough to pass from lazy lie to accepted Law.

    Thus, we hear that "the market" "hates" instability. The market cannot hate. The market cannot think. Furthermore, people in the marketplace rather enjoy instability to the same degree that they despise it. The people who despise it are generally those with long term strategies, and those who love it are those who look to be adventurist. The long term folks may be our heroes or our villains, and the adventurists may be pirates or brave explorers, but the sloppy thinking of neoclassical economics and its "laws" has us in thrall to a permanent class of professional capitalist.

    I would, myself, like to see all stock market reports banned from news -- local, regional, and national. Until such a day that stock market participation by direct trading by individuals reaches > 15% of the population, it should be treated like news of curling, or gang turf battles.

    Everyone's innocent of some crime.

    by The Geogre on Tue Feb 11, 2014 at 06:36:14 AM PST

  •  There is also the Market Maker, (0+ / 0-)

    the person on the exchange whose role is to provide liquidity.  That person might be considered an unwilling buyer in instances when everyone wants to dump a certain stock.  The market maker stands in and buys and buys when there is no other willing buyer.  Don't feel too sorry for the market maker though.  He will make money in the end.

    "The best time to plant a tree was twenty years ago. The second best time is now." - Chinese proverb

    by VALuddite on Tue Feb 11, 2014 at 12:24:24 PM PST

  •  I'm going to show poor judgment... (2+ / 0-)
    Recommended by:
    muddy boots, cv lurking gf

    ...by commenting here for the first time in years by way of nitpick... but this isn't exactly right.

    When watchers comment on investors "pulling out of the market" they are commenting on selling activity. That is measured by how many shares change hands; it is also measured by the market value of those shares. So you can in fact assign dollar values to people exiting equity positions.

    To your point, it is true that every share sold is a share bought. Fair enough. However, when there are more sellers than buyers at a given price, the price of those shares goes down to reset equilibrium. When the price of shares (their market value) goes down, then in fact value (or "money") has been let out of the market.

    Another exception to your claim is a public stock offering or a company going private. In a public stock offering, investors exchange cash today for shares that did not exist yesterday. When a company goes private, the opposite happens.

    YOU grab a mop. I'm gonna invent a car that runs on hate.

    by The Termite on Tue Feb 11, 2014 at 04:36:34 PM PST

    •  Nitpicking is fine with me (1+ / 0-)
      Recommended by:
      The Termite

      I think part of the problem occurs when people use the word “money” to refer to value.  That they are not really equivalent can be seen by noting that when the market gains or loses value, the money supply remains the same.

      Regarding companies going public or private, I believe the same point still holds. When a company goes public, the money people spend buying the newly issued shares of stock goes into the bank account of the company.  And when a company decides to go private, money that it had in its bank account goes into the hands of those who sold their shares back to the company.

      My basic point is that money never goes into the stock market nor comes out of the stock market.  Money only changes hands as ownership is transferred.

      I hope that my reply to your comment will encourage you to make more comments in the future, to my stuff as well as to that of others.  I would hate to think that it only reinforced your tendency to refrain from so doing.

  •  The problem is not in the symantics; (0+ / 0-)

    it's in the greed. People "put money into" companies, through the market. When they take it out, they're taking it from companies. Investing should be about researching a company - checking its fundamentals, its standing within its area and its competitors, its long-range projections - then if all appears sound, buying a piece of it, believing it will grow at a reasonable rate. That's why Warren Buffet's stock is so costly - he believes in the companies he's bought and doesn't pay out dividends ('cept that one time). The money is there to help the companies grow and thrive. When you're done, you pull your money out of them by selling your interest/shares. Unfortunately, too many have forgotten the end action and focus on the quick profit. In the late nineties, I knew something bad was going to happen soon when a young woman told me she was planning to invest long-term so she could save up to buy a house. I asked her what she meant by long-term: two years. I asked her what kind of return she expected: one hundred percent growth. Hers was one of several conversations I had with that mistaken belief.

    "You must not lose faith in humanity. Humanity is an ocean; if a few drops of the ocean are dirty, the ocean does not become dirty." Mohandas Gandhi

    by cv lurking gf on Wed Feb 12, 2014 at 06:42:58 AM PST

  •  Carry on, diarist. You are on the right track. (0+ / 0-)

    Since I couldn't resist telling an old joke upthread I must balance it with a more serious comment.

    I wondered as I read this piece if you stumbled upon a fundamental truth or came to it by design or education.
    What you say here is very rarely said.

    The two-sided debit/credit nature inherent in financial matters is neglected in a lot of the blather I hear about the Fed printing money or in any discussion of monetary policy and fiscal policy. It all starts with the age-old accounting principle of a ledger with two columns of debits vs credits that offset each other.

    I was pleasantly surprised recently to pick up a new book about modern monetary theory which includes the concept of fiat money created ex nihilo (out of nothing or out of thin air). Right there, on the first page, was everything that I've been saying all along.

    When people don't understand the simplest of truths that you wrote about, they end up very far off course later on.

    There is no existence without doubt.

    by Mark Lippman on Wed Feb 12, 2014 at 09:39:26 AM PST

    •  Thank you for the kind words (0+ / 0-)

      The two authors who have had the most influence on my understanding of economics and finance are John Kenneth Galbraith and Andrew Tobias, and I can’t help but feel their presence in this diary.

      By the way, what is the name of that book on monetary theory?

      •  Here you go >>> (0+ / 0-)

        Title: Modern Money Theory: A Primer on Macroeconomics for Sovereign Monetary Systems
        Author: L. Randall Wray

        It may have been published a few years ago. You can use Amazon to check it out by putting your cursor over the icon of the book's cover on the left side of the screen. Choose the link for 'First Pages' to see what I mentioned about the offsetting of assets vs liabilities.

        There's also a good paper by Cullen Roche on Modern Monetary Theoryat the Social Science Research Network which is a free download. It's one of the top 10 downloads there and it offers a real world education about monetary policy. Roche is a financial professional which makes him suspect to some people. But he knows how things work and you won't find a more straightforward explanation anywhere.

        There is no existence without doubt.

        by Mark Lippman on Wed Feb 12, 2014 at 01:07:56 PM PST

        [ Parent ]

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