Someone please enlighten me about the Dow

[OwnedByFerrets]

Why the hell is it at an all time high??? To me, it makes no sense at all.

[HereSince1628]

1. Energy price has cut into profits across the board... lower energy costs

means more profits which means more earnings per share. Earnings is one of the fundamental indicators of stock value. Investors are more or less addicted to projetions of increased earnings and they gotta have a piece of it.

On edit...demand drives up price...

[fasttense]

2. All those corrupt, traitorous war profiters have to put their money

somewhere. Nothing else is doing well, so Halliburton CEOs and other war profiteers put it in the stock market. But I noticed many more people are saying that the stock market has been manipulated. So, I'm not sure what is going on. But I do know that the stock market was doing just fine immediately before the Great Depression.

[Eurobabe]

3. Who knows, maybe people are gambling on

an October surprise?

[TechBear_Seattle]

10. It's not gambling; it's the stock market.

:rofl:

[eallen]

4. It's not. Adjusted for inflation, the DOW is still off its highs.

Look closely at the bottom line of this chart:



That's how the DOW is really doing. Another way to think about it is this: How would your savings fare today if, at the DOW's peak, you had either (a) put your money into the DOW, or (b) put your money into CDs? The latter would have been the better choice. Where they would have earned around 20% over that time period, the DOW is just now returning to its former value.

[lapfog_1]

8. The Dow is not a fair average anyway

If a company doesn't do well for some period of time, they are dropped from the Dow and replaced
by a company that is doing better. So it's really hard, over a long period of time, for the Dow
to do poorly.

[Rex]

9. So it is kinda like the unemployment numbers; fixed.

When someone becomes under-employed, they stop reporting that person as unemployed to make the numbers seem better.

[TechBear_Seattle]

12. Pretty much, yes.

I work in the financial industry, I've seen a lot of how the markets are manipulated by insiders. The Dow is a very poor indicator of the economic health of the US, even though it has been promoted as exactly that. A high Dow only means that the 30 or so companies currently on the index are raking in big profits; it has nothing at all to do with the fact that most of these companies do most of their business using outsourced foreign labor (ie offer few jobs to American workers and take advantage of near slave labor in third world countries.)

[ProfessorGAC]

13. It Is, However, A Fairly Good Lagging Negative Indicator

When the economy is weak, the Dow will end up performing poorly. So, the fact that it took five years to get back where it was is a fair indicator that the economy has not been as advertised, and that corporate profitability has been underwhelming for that same period.
The Professor

[TechBear_Seattle]

14. I'll concede that point

When the Dow does poorly, the nation's economy is doing poorly. When the Dow is doing well, the nation's economy can still be doing poorly.

[ProfessorGAC]

16. Correct. It's A One Way Lagging Indicator

Not that i put much credence into any single parameter in economic analyses, (i've done extensive published modeling of macroeconomic behavior for over 20 years), but this one is at least statistically valid and provably relevant.

You are, of course, right that the market is too steeped in speculative investing and long term deferral routes to be truly aligned to the macroeconomy. So, this is absolutely a one way indicator and is actually a bit of a "well, duh" indicator. But at least it's true.
The Professor

[eallen]

15. That's fair. That's one key to why a capitalist economy works so well

It is impossible, even in theory, to know what businesses and business processes will provide value in the near future, since that is a function not only of changing demographics and changes in what people want, but also of what other businesses will do well. It can be difficult to determine that even in the present.

The key to the capitalist economy is that it doesn't try to figure that out. Rather, it is very quick to liquidate the businesses that aren't working, and has low barriers to entry for new ones. Business destruction is one key to economic growth. There can be periods when an economy grows without much business destruction. But they only last until circumstance changes. Japan was doing great in the 80s. The world changed, and because Japan was slow to allow business destruction, instead propping up businesses that weren't doing well, the ensuing recession lasted decades.

So it's quite fair that the DOW replaces companies that are underperforming. That's what investors do in their own portolio. That's what the economy does as a whole.

[lapfog_1]

23. There is a BIG difference between

the model of economy efficiency (which you correctly outlined)... and using the DOW industrial average as
some sort of historical guide as to how well the economy AS A WHOLE is doing.

In other words, the DOW could (and does) have a number of companies included in the index that are doing well,
but the economy as a whole may be doing quite poorly. A broader index that includes good companies, muddling
along companies, and failing companies would tell a much more accurate picture. Economic efficiency would then
tend to remove those failing companies as you correctly point out (they would no longer be included in the
average because they are no longer traded in the stock market).

Fat Denny said today that the economy is GREAT (mostly because of the record DOW), however if you ask the average
wage earner (hell, ask EVERYONE) how the economy is, I doubt very many would say that it's great.

Another issue is that the DOW includes a great number of multinational companies who happen to be traded on the
NYSE and are considered to be US companies because of their history (but many have moved their headquarters to
offshore mailboxes to avoid taxes). The health of these multinationals has very little to do with the health of
the US economy.

[Armstead]

5. I heard a news report thatr said the shitty economy made it rise

No kidding.

One of the MSM news channels while giving the typical roundup of Stock Prices and thumbnail analysis said that data indicating a "sluggish economy" caused stocks to rise.

Why? Because that means the Fed is less likely to raise intererst rates.

Trying to equate the Dow to the actual state of the economy is never consistent. It ionly reflects what the Investor Class believes is in their own best inyterests.

It's similar to whenever unemployment rises, Stock prices rise too, because that means labor costs will decline.

[Maeve]

11. Also, when worried about the economy, folks look for a safe bet

And the stocks of the Dow are traditionally "safe bets"--especially compared with those of the Nasdaq. (Which is NOT at an all-time high)

[Dover]

24. Historically, haven't extreme swings occurred just prior to a big fall?

I think once the housing bubble (which has a slow but serious leak now) deflates we'll be in very bad shape. Or at least many ecnomomists predicted that it was the sector that was propping up the economy and once it collapsed, so would the entire economy.

[npincus]

6. My property tax, energy bills and food bills are at an all-time high, too.

[Double T]

7. wall street is conspiring to promote a phony image that the economy......

is doing just great to help bushco get reelected. Meanwhile plant closing and layoffs continue while corporate america continues to send more manufacturing offshore and outsource everything else to India and Asia. Further, the middle class is being wiped out by bushco and the sellout congress. NOTHING with bushco makes sense, why should the economy be any different.

[Blackhatjack]

17. What Happens If You Buy 'Put' Options & Dow Stays High Next 6 mos?

If you expect a huge drop in the Dow over the next 3 mos, and you invest $ in PUT contracts can you lose more than the cost of our original investment in the put contracts?

[eallen]

19. You're confusing put options with selling short.

When you sell short, you can lose more than your original investment. If you purchase puts, the worst that happens is that they go to zero when they expire and the underlying good is still valued more than their strike price.

Be careful. As a wiser man than me once said: the market can stay irrational longer than you can stay liquid.

:hippie:

[Blackhatjack]

21. Thanks for confirming this .. misinformation is just as prevalent as truth

out here on the internet.

Is there a good link that explains the difference between the two?

[HamdenRice]

18. "All time high" is propoganda - It really means recovered some Bush losses

In normal economic times, the Dow regularly reaches its all time high, because that reflects the fact that the economy is growing and the companies whose shares comprise the Dow are continuously becoming more valuable.

Saying its at an all time high is kind of like saying, my savings account is at an all time high today. If you are a steady saver, have no extraordinary expenses, are earning interest, don't make withdrawals, etc, you would expect your bank account to reach an all time high every day.

What this really means is that the Dow for the first time in history and the stock market in general, have been in a wretched slump ever since Bush came into office and helped promote a stock slide by "talking the economy down" so that he could justify his tax cuts. Add in the shock of 9/11, the uncertainty caused by his wars, fear over the catastrophic deficits, and rigged high oil prices which are decimating consumer demand, and you have a stock market that for the first time in history has gone nowhere in six years. It's unprecedented and it has been a worse performance than it was under Herbert Hoover.

It means that the stock market is recovering to what it was when Clinton left office, after six wasted years of non-growth in the stock market.

[Make7]

22. A stock market that has gone nowhere is unprecedented?

HamdenRice wrote:

...you have a stock market that for the first time in history has gone nowhere in six years. It's unprecedented...

Umm, look at the top line on this chart:



Notice anything about the period between the mid 1960's and early 1980's? Let me put some numbers to it:

Dow closed at 995.15 on February 9, 1966
Dow closed at 995.15 on June 18, 1981

HamdenRice wrote:

...and it has been a worse performance than it was under Herbert Hoover.

Once again refer to the chart above. Here are the numbers for the Dow during the Herbert Hoover Administration:

Dow closed at 313.86 on March 4, 1929
Dow closed at  53.84 on March 3, 1933


- Make7

BTW - that chart was in post #4.

[spanone]

20. Gas Down, Dow Up.....Election Coming, Duh!

[Dover]

25. Yep.......bingo!

And by years end the reality will be impossible to cover up.

[Jcrowley]

26. It makes perfect sense

once you understand how the US economy is (mis)measured.

If the chief of your local police department were to announce today that "activity" on the city streets had increased by 15 percent, people would not be impressed, reporters least of all. They would demand specifics. Exactly what increased?Tree planting or burglaries? Volunteerism or muggings? Car wrecks or neighborly acts of kindness? The mere quantity of activity, taken alone, says virtually nothing about whether life on the streets is getting better or worse. The economy is the same way. "Less" or "more" means very little unless you know of what. Yet somehow the GDP manages to induce a kind of collective stupor in which such basic questions rarely get asked.

By itself the GDP tells very little. Simply a measure of total output (the dollar value of finished goods and services), it assumes that everything produced is by definition "goods." It does not distinguish between costs and benefits, between productive and destructive activities, or between sustainable and unsustainable ones. The nation's central measure of well being works like a calculating machine that adds but cannot subtract. It treats everything that happens in the market as a gain for humanity, while ignoring everything that happens outside the realm of monetized exchange, regardless of the importance to well-being.

By the curious standard of the GDP, the nation's economic hero is a terminal cancer patient who is going through a costly divorce. The happiest event is an earthquake or a hurricane. The most desirable habitat is a multibillion-dollar Superfund site. All these add to the GDP, because they cause money to change hands. It is as if a business kept a balance sheet by merely adding up all "transactions," without distinguishing between income and expenses, or between assets and liabilities.

The perversity of the GDP affects virtually all parts of society. Growth can be social decline by another name. Divorce, for example, adds a small fortune in lawyers' bills, the need for second households, transportation and counseling for kids, and so on. It means one to sell and sometimes two to buy. Similarly, crime has given rise to a burgeoning crime-prevention and security industry with revenues of more than $65 billion a year.

Add pollution to the balance sheet and we appear to be doing even better. In fact, pollution shows up twice as a gain: once when the chemical factory, say, produces it as a by-product, and again when the nation spends billions of dollars to clean up the toxic Superfund site that results. Furthermore, the extra costs that come as a consequence of that environmental depletion and degradation--such as medical bills arising from dirty air--also show up as growth in the GDP.

The perverse accounting of the US economy hides these basic facts. Big distinction between a financial system and an economy. The US has always operated under the wheel of a financial system.