Wednesday, March 06, 2013

Bow and kow-tow to the Dow

What goes up must come down

The Dow Jones Industrial Average on Tuesday surged to its highest closing level ever, erasing the index's loses during the financial crisis. The Dow closed at 14,254, passing its previous high of 14,164.52 in October 2007. The London's FTSE 100 Index closed at its highest level since January 2008.

The Dow is composed of a basket of 30 industrial stocks that are largely impervious to the struggles of ordinary Americans. Personal income isn't going up, as wages are stagnating. Employment isn't going up, America is still short three million jobs it lost in the recession. American companies are in a golden age of profitability, even as the unemployment crisis continues and many ordinary Americans find it difficult to either save or borrow money. The wealthiest 1% are living up boom times while the rest of the U.S. continues to languish in the clutches of a recession.

 Meanwhile companies are sitting on $1.4 trillion of cash, according to the Federal Reserve. "That number, a record high, equates to almost 9% of US GDP," wrote JP Morgan strategist Michael Hood in December. "The cash stockpile has not risen enormously over the past year but it is roughly double the amount from 10 years earlier."

The last time the Dow hit a high, in 2007, the Federal Reserve and the European Central Bank were already collaborating on a global economic bailout, and Bear Stearns collapsed six months later. Before that, the high was in January 2000, only about three months before the market started a long, ugly downward slide in the wake of the tech boom. Go back further, in 1987, when the Dow hit a temporary high before the recession of the late 1980s and early 1990s hit. In 1966, the Dow hit 1,000 and by 1967 the economy began a long downward slide into the stagflation of the 1970s and the recession of the early 1980s. None of that, however, beats the Dow's high in September 1929, just weeks before the giant crash that ushered in the Great Depression.

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