Dow Closes Above 13,000 for First Time = Bad News?
The Dow has hit an all-time high and the other markets are following suit. Great news, right? Not according to AP Business Writers Madlen Read and Tim Paradis:
It looks like a cause for celebration: The Dow Jones industrial average surged from 12,000 to 13,000 in just six months. But appearances can be deceiving, and there may be more reason to worry rather than rejoice about Wall Street’s latest accomplishment.
Stronger-than-expected profits from several large companies helped push the stock market to historic heights. But many big corporations, including the Dow components, made a chunk of that money overseas, where economies are growing faster than in the U.S. And many of the same worries that weighed on investors earlier in the year remain: rising energy costs, a slumping housing market and a possible credit crunch.
Still, the stock market’s best-known indicator surged past its latest milestone shortly after trading began Wednesday, and even made it past 13,100, rising as high as 13,107.45. According to preliminary calculations, it closed at 13,089.89, up 135.95 or 1.05 percent.
The broader market shared in the rally. The Standard & Poor’s 500 index rose 15.01, or 1.01 percent, to 1,495.42, after reaching 1,496.59, a six-and-a-half-year high. The technology-dominated Nasdaq composite index advanced 23.35, or 0.92 percent, to 2,547.89, after hitting a six-year high of 2,551.39.
So, American investors have widely diversified their assets to take advantage of increasing global prosperity. Yet, that’s a bad thing? Even though this means that 1) other people are less poor, 2) those people can buy more American goods and services, and 3) Americans are sharing directly in the good fortune of others?
Hmm.
UPDATE: Jim Henley mentions an article which I have deduced to be Gregg Easterbrook, “The sky is always falling: why all economic news is bad,” The New Republic, August 21, 1989, 21(5). I’ve found the cite in several places, including InfoTrac, but haven’t come across a full-text version. Anyone know where to find one? Presumably, it was the genesis for his book The Progress Paradox: How Life Gets Better While People Feel Worse (Random House, 2003).
Well if the Fed looks at this event and decides that rising interest rates are the right course and go to far….
You mean I’m finally back to where I was 6 years ago? Great!
Maybe I’m being overly pessimistic, James, but I see it as another example of how detached from the underlying economy the Dow has become.
Yes, there’s a significant number of Americans for whom a higher Dow means a larger portfolio (and a sense of well-being that leads to higher domestic consumption). For many the reality is that increased costs, particularly in transport, housing, and healthcare costs, erode any gains they’re seeing.
What American goods and services will the folks overseas be buying, James? We’re only the leader in a handful of areas including arms (to my chagrin). Other areas include food which most of our trading partners either limit or tariff the living daylights out of and intellectual property which is routinely pirated practically everywhere.
Cunning Realist had a great post on the “all time high Dow” and how that can be a less than stellar thing, in fact it can be down right terrifying.
Read it here:
http://cunningrealist.blogspot.com/2006/11/mark-gleich-mark_19.html
Typical liberal comments here. Must you leftists always play the role of Chicken Little?!?
Dave,
Please please please give up your night job as an economist, you are absolutely no good at it. Have you seen how low unemployment and inflation is? Have you seen the growth in wages that dwarfs the growth during the same period of the Clinton expansion (think back…back back back)? Have you even heard about the $3/4 Trillion the tax cuts (cuts!) produced in higher government revenue? Bush’s economic policies are an unmitigated SUCCESS and the market’s stunning performance reflects it.
Steve,
The Fed does not use the Dow as an indicator of whether they will raise or lower rates. Never has, and I cannot imagine that they ever will. What color is the sky where you live?
Nope. I’ve seen plenty of stagnant wages though. In fact I’ve seena fair amount of reports of negative wages change compared to inflation.
pssst- read this:
http://www.washingtonmonthly.com/archives/individual/2006_05/008898.php
and this:
http://www.washingtonmonthly.com/archives/individual/2006_10/009824.php
You mean the bogus unemployment numbers that don’t count people who have given up finding a job? And the inflation numbers that use the incredibly dishonest hedonic adjustments? Those numbers? Yeah, seen em, just can’t imagine anyone would actually use them.
pssst read this:
http://www.weedenco.com/welling/Downloads/2006/0804welling022106.pdf
Again: nope. Haven’t heard anything remotely close to that.
pssst- read this:
http://www.washingtonmonthly.com/archives/individual/2006_07/009190.php
And if you did the suggested reading you now know those opinions were based on fallacies and his economy has actually sucked, unless you happened to be quite wealthy in the first place.
Tlaloc,
All those measures are the same measures that have been used during every president’s term, and are not compiled by political appointees, but instead rely on cold, hard facts.
But I suppose all that money that has been earned in our free and easy-to-access stock market is fake too, huh? Those evil corporations and wealthy people sure have pulled a fast one on all of us, well, I mean at least you liberals.
So I guess the American people have been fooled for a long, long time (as far back as Roosevelt? Lincoln? Washington? The King of England?). Wow you are so smart to be on the up and up! Congratulations!
Your first two contentions are essentially corrent, the third is flawed, as you’d know if you read the link I provided.
Our “unemployment rate” is nowhere near a “cold hard fact.” It is actually the opposite: a total fabrication. The fact that it doesn’t include those who have given up on finding a job is a clear indication of that.
But, yes, the same formulation was used when say Clinton was in office, and it was just as inacurate then.
Fake? No. But it is highly concentrated in the hands of the wealthy. Which happens to match what I said above.
No, they’ve pulled the fast on on you by convincing you to vote against your own intertests by voting republican. By convincing you that as they get obscenely more wealthy and you are left in the dust you somehow benefit.
Thank you.
Over half of the US workforce is in a 401K.
They all went to bed tonight with more money.
Whining about the Bush economy comes from the same old Bush-haters who want to get paid more to do less.
There is a reason that companies lust for H1B visas (from India, especially); they can’t find qualified Americans. Why?
Too much like work for the “self-esteemed” lazy little punks – with no skills (beyond whining)and no initiative.
I know; I used to hire H1B’s by the dozen.
Tlaloc, you are a fool.
Go buy some gold as an investment, hide in your cave, and try to save the world from your “some time” in the future prediction of economic collapse. You will be an old man before it ever happens but will be screaming your portention of it till the day you die. Meanwhile, those evil rich have really soaked me and millions of others who have their retirement funds up huge %’s so far during George Bush’s years in office, and will someday be enjoying the comforts of golf and retirement in Florida like millions before us.
Must really suck to be a liberal like you.
By the way, say hello to Spock for me.
James, there was a classic New Republic article in the early 1990s about why “Economic News Is Always Bad.” I couldn’t find it online despite an exhaustive 15-second search, but it was priceless in explaining how absolutely anything at all reported about the economy could be construed as worrying.
Like I was saying before, the greatest economy in the history of the world!!!!!!
That depends on how much inflation has outpaced their flat wages, now doesn’t it? It also depends on how much the Dow has grown above the nominal.
Because our education system has gone to hell. And because you can often treat immigrant workers (yes, even engineers, I work with many) like shit with little or no complaints.
So, then, you’re saying you aren’t going to learn anything?
Where precisely did I predict an economic collapse?
Chris, can I call you Chris? Chris, before you go buying that mansion you might want to sit down and figure out how much your retirement fund has grown when you correct for inflation. See ’cause when you do that you’re going to be really disappointed, but at least it can be before you have a mortgage riding on it.
There is a certain tedium in watching you people commit the same mistakes over and over again, no matter how many times it is explained to you. I guess it’s sheer optimism that makes some of us keep trying to help.
La la la la la! I love pretending that inflation doesn’t exist. Wake me when the DJIA is anywhere close to the 2000 levels when actually adjusted for inflation.
It’ll all be better when a Dem is elected pres.
Like the homeless they’ll never be found when a Dem is president.