Dow 10,000 Matters

I am self-employed, so for the last year or so, that has been self-(un)employed. For the last three months I’ve been dipping into a non-tax-deferred mutual fund account to stay afloat. The upward trend of the Dow has been a godsend.

It’s still a scam. It’s still a measure of their economy, not ours. None of us has any say so in what our 401k invests in; same with college investment scams.Matt T makes a good point: the scamsters punish those who save.

Friction wrote:>>>It’s still a measure of their economy, not ours.Our economy IS their economy. As unfair as that is sometimes, Dow 10,000 is a crapload better than Dow 6,500.Like Eric, I’m self-employed and this year has been the most difficult year of my career. But there are small indications that the worst is over. THAT MATTERS. This break in the gloom wouldn’t been happening with Dow 6,500.

Plus it’s nice to rub it in the face of the Sean Hannity disciples who started calling it the “Obama recession” in mid-February. How’s that taste, hairpiece mantle?I told my wingnut father in March (when the DOW was hovering in the 6,000 range) that he was going to be eating his words regarding the stimulus package by late 2010, by which time the DOW would be back above the 10,000 mark. Amazing that Obama has been able to restore confidence even quicker than that.There are still problems of course, most notably unemployment. But any economist will tell you that unemployment is the last of the indicators to get turned around. The most significant part of the DOW is that companies see it start to trend upward (and other signs of economic expansion), and they’ll start hiring people again.

It does no good for Main Street. So it’s up to 10,000. So what? The reason it is up is because companies are saving money by not hiring folks, still laying off people, banks still aren’t lending to small businesses. Therefore people aren’t buying stuff because they’re unemployed.Until we get folks working and spending it makes zero difference to me what the Dow is up to.It’s a vicious circle.

The DOW, as we know, is an easily manipulated indicator of nothing. It is simply a measurement of public corporate profits which will go up when a company shuts down it’s US operation and moves to China or moves its factory to Guam and uses forced Chinese laborers to work for grossly substandard wages in an attempt to stick a “Made in USA” label on it.You’re falling for it Bob, “the 401k is looking better than it did 6 months ago so things must be getting better”Things are not getting better the worst is yet to come, trust me.My Father used to say, “If you can’t afford to lose it don’t put it in the stock market”

The peasant mentality coming from some sectors of the left on this is staggering.

Rover wrote:>>>The DOW, as we know, is an easily manipulated indicator of nothing.Cute maxim.So when the Dow crashes and there are events like Great Depressions, that’s the result of an easily manipulated “nothing?”I wish some people would read what I write before they comment. No, it’s not THE economy and there is a disconnect. But the Dow is a signpost for better times. It’s a leading indicator. And I’d rather have a positive leading indicator impacting business decisions than a 6,400 on-the-brink-of-collapse leading indicator.Sheesh.

Klugman in the article link writes:On the other hand, it would take two years of 5% growth just to get unemployment back to around 7%. So we’re a long way from being out of the woods, or even to the point where the Fed should lift rates above zero.So not too much optimism — but the picture isn’t entirely black. (

Indicators translate into perception and what matters with the Dow is perception and confidence.On that front, it matters because it “feels” hopeful and Wall Street reacts to that — it’s very emotional!

Bob Cesca Wrote:>>we all understand that it’s not The Economy>So when the Dow crashes and there are events like Great Depressions, that’s the result of an easily manipulated “nothing?”>the Dow is a signpost for better times.

@Rover:You’re arguing against something that I never wrote. You said: “The DOW is simply a measure of easily manipulated corporate profits based mostly on speculative trades of those companies shares.”Okay, I agree. The stock market is a casino that can manipulated and scammed and played. I never said it wasn’t. But do you deny that it has real world implications? My argument isn’t about the quality or wisdom of the market — my argument was about the general implications of a strong market vs. a crashing market.

Another self un-unemployed here who’s glad to be able to open my IRA statements again which I didn’t do for about a year.I also want to say my ex used to call me negative and I bought into it but I’ve learned what negative is on this and other blogs.Sheesh is right Bob.

We should all remember that unemployment is tied to both people being laid off and other people not leaving the labor force who would have (thereby not opening positions up for others).There have been a large number of baby-boomers who were planning to retire but couldn’t after their market-based IRAs and 401(k)s tanked. The faster those accounts recover, the faster those people can retire and can be replaced by others who need to enter or remain in the labor force. That’s how reduction in unemployment without real labor force growth works.

@Ghetro: Good point!

I’m not an expert or anything, but I do have a B.S. in Finance…and I’ve gotta say, some of the anti-market comments on here show a complete lack of understanding of what the stock market is and how it works.

@Rogect8Can you be specific and illustrate with examples?Thanks.

If the rise in the Dow is due to a re-evaluation by the market of the expected earnings of the underlying assets of companies or a reduction of the perceived riskiness of those earnings, then great.I don’t think that it is. Some of the big banks earnings are being supported by speculative investments – the things that got us into this mess in the first place – and by misleading financial statements due to the dropping of the mark-to-market rule.The earnings of other companies are being propped up by a weak dollar – other countries are doing better than we are and are buying stuff at low cost – and by government spending. This is great in the short term but not sustainable.If this increase in the Dow causes people to go out and buy assets, like homes, that they can afford, then it might kick start the economy.I, for one, am not spending money on anything and will be hunkering down for a good long time.

Rogect8I’ll bite: one can invest their money into the stocks of corporations that are publicly traded on Wall St. These corporations take the money from one’s local economy and pumps into their offshore headquarters so that they pay zero taxes on the income. They show a huge profit and you sell and make money. Good for you. How did that benefit anyone in your local community but you?Or you work for one of these larger companies that have a 401k benefit. You do not control what companies those 401ks invest in. Said business pumps money out of the local economy and pours into their headquarters. Their profits increase. Your 401k value increases. Do you go and skim the profits? Nope, because doing so would incur a tax penalty. How does a 401k benefit your community if its entirely dependent on the health of the corporations that continue to send jobs offshore and call it a good thing? They’ve gutted our economy, and so when the DOW rises it’s pretty much an indicator of how well the butcher is gutting us, no? Seeing that no real jobs have been created?But go ahead, insult me the no nothing doofus who refuses to believe the lies we call Capitalism each Sunday Morning. America is great!Follow the money. It doesn’t end up in your economy and yet Bob, are you saying your small business depends on the health of the Wall St. Casino while they continue to shred the middle class? Your livelihood depends on the ability of corporate profits to gouge us even further? Then what are you so freaking optimistic about? WHat new jobs have been created in your area that is lifting everyone else’s boat?

Friction asked:>>>>Bob, are you saying your small business depends on the health of the Wall St. Casino…I never said it “depends” on the Dow, but it helps. Businesses, including the sorts of businesses I deal with, often look at the Dow as an indicator of the status of the economy, and from there they use it as one of many indicators to help determine whether to spend money. When the economy is slowing and the Dow is dropping, they freeze or slow their spending. When the Dow is rising, they act more boldly with their budgets.This is simplified for length, and there are of course other factors, but a rising Dow helps.

Terri – Not sure why you’re getting defensive, because I wasn’t even talking about you. The stuff you said about the emotional aspect of the stock market is actually (mostly) correct.But, since you asked for a specific example, here’s one: the idea that it is an “easily manipulated indicator of nothing” is not factually accurate. The market can, in the short term, be manipulated to a very small extent, for example by high volume traders. But in the long run, it is (and has been throughout history) a very accurate indicator of the state of our economy as a whole. At its core, what it is supposed to be measuring is the underlying value of the businesses that people invest in when they buy a company’s stock. Because of the human component of the markets, there is obviously a speculative aspect to it as well, which as you pointed out, can indeed be influenced by peoples’ emotions, confidence levels, etc. Obviously, if the DOW rises by 10% tomorrow, the value of the underlying businesses hasn’t actually increased by 10%. But over a longer time period, it very accurately tracks economic expansion/retraction.FrictionSoul: Your first paragraph assumes that EVERY SINGLE PUBLICLY TRADED COMPANY is synonymous with Enron, Tyco, or Worldcom. That’s simply not the case. Those sorts of problems have occurred, and most likely continue to exist to some degree. But that’s due to a lack of market regulation and abuse of the system – not some inherent flaw in the system itself. The potential for abuse is no reason to condemn the entire system of capitalism; it’s a reason to modify it eliminate those problems.I’m not quite sure what you’re getting at in the second paragraph, but it seems like you might be decrying the corporatization of America in general. If that’s the case, then there are good points to be made for and against that…but either way, it’s only tangential to my original statement, which was that some of the aforementioned comments indicate a lack of understanding of how the current system actually works.Obviously you’re no fan of capitalism, and that’s fine. I personally think that regulated capitalism is the best economic system that human beings have been able to come up with so far (admittedly, we still need a lot more regulation). A lot of very smart people agree with me…Paul Krugman comes to mind. I’m not sure what system you’re advocating in its place, but there are probably a whole lot of smart people who agree with you as well (assuming it’s some form of socialism, then there are definitely a whole lot of smart people who agree with you).I didn’t mean to imply that you (or anybody else on here) is a know-nothing doofus – it’s perfectly healthy to have a debate about the current system; I was just trying to say that it seems like there are some misperceptions floating around about how the current system actually works.Either way, we’re all in agreement that the discrepancy between the haves and the have-nots has gotten way out of whack (conservatives don’t even disagree on that point). The only real dispute is about the best way to fix it.

Rogect8 said:>>a specific example, here’s one: the idea that it is an “easily manipulated indicator of nothing” is not factually accurate.

@ Rover – At this point I’m not really sure where you’re coming from, because in this same thread you’ve placed the blame for our economic woes on:1) The capitalist system itself2) The large companies that comprise the DOW/Fortune 10003) ConsumersSo I’m not really even sure what I’m responding to at this point. So I’ll just address the only direct question you asked…>>>Why when their (by which I assume you mean “there”) are real jobs, ones that actually make things is there no false economy, no overvalued stocks, no bubbles? yet if we look back at the 1920′s and 30′s we see the same thing happened last year as the false economy crashed.”1) First of all, you just defined “real jobs” as “ones that actually make things.” I’m not quite sure, but you seem to be saying that the only “real job” that one can have is in manufacturing. Since we’ve almost fully transitioned to a service-oriented economy as opposed to a production-based economy at this point, I’ll ignore the fact that you’re implying that roughly 90% of Americans don’t have ‘real jobs.’ I guess you’d rather we all work on assembly lines or something. The makeup of our job market is just the natural progression of a society. First it’s agrarian, then it’s industrial, then it’s services.But regardless, your own statement reveals itself to be false. We did still have an industrial economy in the 1920′s/30′s during the Great Depression. So clearly, “when there are real jobs, ones that actually make things,” there CAN still be overvalued stocks and bubbles. Bubbles are a part of ANY market-based economy – they have nothing to do with the type of jobs people have.Also, other than the economy tanking (both real and “false,” whatever the hell that means) in both situations, there are few similarities between what happened during the Great Depression and what happened now (at least in terms of the underlying causes). The only other similarity is that a lack of federal regulation allowed for the problems on Wall Street to infect the rest of the country. In the 30′s, that meant bank failures. Luckily, we’ve nipped that problem.In the current situation, the causes are more clear. A real estate bubble emerged, and then burst. That SHOULDN’T have been a problem for anybody who wasn’t involved in real estate speculation. But again, a lack of regulation was allowing banks to pool their mortgages, and sell them to larger banks. Those banks then sell them as mortgage backed securities, levered with debt taken out from OTHER banks, and backed up by the debt of insurance companies. That should not have been allowed to happen, because it allowed a problem in the real estate market to infect the financial industry, and then the insurance industry, and therefore peoples’ 401k’s. Nothing like that happened in the 1920′s – the only common thread is that a lack of regulation allowed problems in one industry to needlessly spread to others.The problem has absolutely nothing to do with a lack of “real jobs,” or even “overvalued stocks” this time around.You go ahead and keep thinking that people who put money in Wall Street are “gullible.” Over the short term, you can indeed get burned doing it. But since the NYSE opened up, it’s fueled growth in the long term, and yielded an average return of 10.8% per year. That’s good for consumers and businesses alike. The key is to have a long enough investment horizon. The smartest thing anybody can do is open up a tax-free Roth-IRA and invest in a low-fee, index-tracking fund, and put small amounts of income in there over a long period of time.In lieu of that, have fun watching Michael Moore’s anti-capitalism movie in a corporate-owned theater, and then go hide your money under a mattress or something.