Stock Market not really 12,200...

[kentuck]

Comments from Kevin Phillips:
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http://www.huffingtonpost.com/kevin-phillips/the-destructive-rise-of-b_b_94351.html

<snip>
Economic, financial and regulatory issues should dominate politics and government in the United States for the next two or three years, which is important enough. National discourse may also have a new and deserving bogeyman. Franklin D. Roosevelt had Big Business, Ronald Reagan had Big Labor, and my guess is that the new president inaugurated next January will have Big Finance.

True, finance has been whupped by presidents before. Thomas Jefferson and Andrew Jackson, for example. But that was in the quill-pen era when the financial sector was a pup. Today's financial services sector, by contrast, is a grasping, gargantuan combination of banks, stockbrokers, insurancemen, loan sharks, credit-card issuers, hedge fund speculators, securitization mavens and mortgage operators. Over the last five years, financial services has reached a swollen 20-21% of U.S. GDP -- the largest sector of the private economy

<snip>
In fact, phony Washington statistics and warped market measurements make it doubly hard to tell. The federal Consumer Price Index is already regarded by many Americans as a con job, and the press periodically quotes investors who state their belief that current U.S. inflation is really 6 to 9 percent a year, not the 2-4 percent the government alleges. I agree. On top of which, because the value of the dollar has dropped so far, the Dow Jones Industrial Average at the end of March was not really 12,200, a number barely up from its 11,700 peak in 2000. If you measure the Dow in Swiss francs or euros, two strong currencies, it has already lost some forty percent of its 2000 value. Too many Americans live in a dream-world of economic misinformation.

I began writing about these matters with a 1990 book entitled The Politics of Rich and Poor, and in several other volumes since then. Today, the economic negligence of Washington and Wall Street, more than two decades in the making, has led to a multi-dimensional crisis in which this country faces an unprecedented convergence of problems: unprecedented debt, tumbling home prices, reckless money supply expansion, growing inflation, insufficient and expensive oil, and an eroding dollar. Sadly, there may no longer be a plausible way out.

...more

[ThomWV]

1. That's a silly statement

Kevin Phillips is smart enough to know that that stock index relates to prices paid by every currency on earth at whatever the prevailing conversion rate was at the time of purchase. It is not as if the NYSE stands as an island onto itself amid sea of dollars barren of any other currency. That stock market is invested in by people all over the world and it reflects a worldwide valuation of the US industries represented as expressed in dollars. The discount is built in.

Dam, I know I haven't explained this well. The point is that you shouldn't think of the DOW as representing dollars, think of it as an arbitrary index of world wide trust in what we have left of an and the functioning of industrial base within the context of the world wide market.

[Kolesar]

4. This is not a first time event

The dollar fell and we had had severe inflation after the energy crises of the 1970s.

[kentuck]

5. If most of the investments in the market are in US dollars....?

then it would make sense that if the dollar has lost 40% of its value, then the stock market also would be worth less, would it not??

[ThomWV]

6. No

Yes, to buy a share of stock you have to present a US dollar, but you are accepting the valuation of the dollar on the day of the purchase so it constantly corrects for itself. Today, at this hour, as the market is up 125 points some thousands of those shares that are being bought and sold are being bought by institutions or people not in the USA. Those people are converting at today's rate - they are paying fewer of their Yen, Peso, Euro, whatever it is, to get into this market but its in their own currency's, and that is what matters. Its the same every day and has been all along. That is why you can't pick a time in the past and then compare it to the present relative to the value of the dollar. That stock index has been self correcting for currency value differences every day with every foreign trade that has been made. That is why I said to think of it simply as an index, not in dollar terms.

[kentuck]

7. And dollars are invested in the Tokyo market and Hong Kong markets?

I would agree. But the vast majority in all the markets are the currency of those countries, I would think? But, I admit I am no expert on the matter. However, if you have 100 shares of stock that you sell today for 20% more than you paid for it 5 years ago, then I do not see how you can say you have not lost money??? Isn't the market mostly about investors such as yourself?

[nolabels]

9. So which poison are we eating?

Either way the economic outlook for future growth is not good and sticking head in sand does not make it go away. Trading being halved or value being halved either one will have to indicate something has changed. Are things less valuable, are people hoarding and taking things in private or is it a change in focus away from trade. It obviously is a combination of many things but which is more prevalent and or crucial?

It's a change undeniably but the 'what ifs' will only probably be seen in historical terms

[leftofthedial]

10. another way to put it is that the 11,700 peak in 2000

IF REPRESENTED IN TODAY'S DEVALUED "SIXTY-CENT" DOLLARS, would have been about 17,500.

But, if you normalize to a static index, say 2000 dollars, you can get a better view of fluctuating stock share value. If you had the same portfolio today as then, stocks worth the same number of dollars, say $1000 worth of stock in XYZ Corp in 2001 and you still have $1000 worth of XYZ Corp stock today, the net worth of your portfolio in real terms would have declined by about 40%, because that $1000 would now buy 40% less stuff (euros, gas, food, bullets, whatever).

A dollar in 2000 was worth about $1.50 (or whatever) of today's dollars, whether it was a dollar of stock, a dollar's worth of gas, a dollar bill, a dollar's worth of high explosives or whatever. The capitalists can not regulate themselves. Never have. Never will.

[davekriss]

11. Yes, but the unit of measure has been changing

That's Kevin Phillips point. The market is (if you're a free market adherent) correctly priced and discounted by the global market today. Kevin warns that we should not be lulled into satisfaction that the DOW is at least slightly higher than the 11,700 level in 2000. If you used the same unit of measure as in 2000, the market would look lower by 40%.

Note, on an inflation-adjusted basis, the 12,300 DOW is 10,005 (in 2000 USD), so by any measure Wall Street and Main Street is worse off as a result of the Bush misAdministration.

[Warpy]

2. I've been pointing out the invisible crash in the market for

a couple of years, that now it's lost over 50% of its value through the erosion of the value of the buck. While that doesn't mean much to small fry like me, I'm afraid it means a great deal to the wealthy and corporate.

They have far less leverage when dealing with the rest of the world and their interests will begin to look ripe for takeover as soon as the present misadministration is gone.

Unfortunately, they still have to start making the connection between the GOP core economic dogma and the fiscal disaster it invariably produces when tried long enough. Some of them will likely never make the connection, focusing more on the runup in paper wealth during the strong dollar Clinton years than the inevitable collapse later on.

[Kolesar]

3. In brief: bush debts have flushed the value of your investments

whether stock/equities or cash. I might as well jump

[KharmaTrain]

8. Many Have Been Hoping On Euros For A While...

Not just the wealthy but pension funds and other investments. They long ago saw the borrow and squander habits of this regime and that it would deflate the dollar...which it did. Smart investors hedged into foreign currencies or gold a while ago and have been offsetting losses with gains on these fronts.

The boooosh regime was ruining the economy even before they grabbed power. Anyone remember the Enron scam of 2000? It was designed to screw up the economy and make Al Gore look bad (plus make Kenny Boy a very rich man). The dollar has been in a steady decline ever since...and so be it.

Yes, it's how market work and those who were smart have found ways to weather the storms...so far...and yet another indictment of how inept and corrupt this regime has been.

Sadly, this story doesn't have sex or race or some other salacious side...thus the corporate media will ignore it.