I was reading The News & Observer (A Raleigh, NC newspaper) today when a comment came jumping out of the newspaper in the City and State section.

A few years ago video poker machines started popping up statewide.  In the city of Raleigh I have actually been to a few bars / restaurants that dedicated portions of their places solely to video poker machines.  While the machines don't pay out cash directly they print out receipts that the bars apparently cash in for them.

In recent months the FBI has begun cracking down on such operations.  

On 8/1/02 dozens of sheriffs swarmed the capital and had a news conference demanding that legislators outlaw video poker because it isn't on the law books.  It technically isn't against the law.

Here is the comment that really stands out, "We want video poker banned once and for all.....We don't want to police it....If people want to gamble, they can play the stock market."

If the stock market continues to decline I believe ALOT more people will believe that investing = gambling.  I personally think that the financial services industry has lulled many Americans into believing that the stock market is their saving grace towards a nice retirement.  

The reality is that the stock market is about valuing a piece of paper that represents partial ownership of a company.  The stock price is nothing more than how much the market (millions of buyers and sellers) agrees that the piece of paper is worth.  It is speculating......speculating on the value of a piece of paper.  By purchasing a stock, in the open market of General Motors, any "investor" isn't investing.  They are simply believing that the piece of paper they bought will appreciate due to buyers outnumbering sellers based on rising earnings, cash flow, new products, etc.

Financial services companies talk about how stocks generate a higher level of returns in the long run than every other investment alternative.  

This is true......But there are 5-10 year spans that are HORRIBLE for investors.  If a person avoids such periods and simply holds cash he or she would be far better off.  Below is a chart showing historic multiples and how they have continued to rise since 1980 due to solid economic growth.

The one element many economists forget to mention, again and again, is that the national debt grew from $960 billion to $2.3 trillion from 1979 to 2002, an 8% annual increase.  Over 15% of your paycheck goes towards paying a banker interest on the national debt.  That money isn't creating new jobs, it isn't paying for social security, it isn't going to building better roads and it sure as hell is going to be a burden on the next generation of children as the baby boomers retire. 

Conclusion: As the market returns to historic multiples, due to lackluster growth (my belief), I think the stock market and investors are going to increasingly be correlated with gambling.  Many investors will feel burned and many won't return for a long, long time.  The cost of capital for new companies will increase and innovation may potentially be quashed by unavailable capital.  

Legal Disclaimer:

BetterBizBooks.com is founded and operated by Dan Ross and is an personal website to provide independent and public research. This report is provided as a public service. All information provided must be understood as opinion only and is not investment advice. All statements and expressions are the opinion of BetterBizBooks.com and are not meant to be a solicitation or recommendation to buy, sell, or hold any form of investment vehicle. Any opinion made by BetterBizBooks.com is based on raw data and reports that have been presented by independent government agencies, private industry associations and other sources.  BetterBizBooks.com makes no representation or warranty as to the accuracy of the information provided. The information provided should only be used as a research tool.  Reading of this document constitutes your acceptance of these terms and conditions.

If you liked this book check out the following:
Politicians and economists have been raving about this book since it was published in 2000.	An essential read for CEOs or aspiring managers. This book is a summary of his best work, which spans over 60 years!	Find out how the Internet truly can change the way businesses interact with customers in Seth Godin's excellent analysis.	Each section provides some unique insight into human behavior, some examples in recent history and tons of witty comments from historical figures