Three cheers for the Dow Jones Industrial Average!…or four, if you like.
Since setting its first new record high in more than four years last week, the beloved Blue Chips have marched ahead to six more record-high closes. In all, the Dow has advanced ten straight days — the longest winning streak since 1996!
One would think the economy is smelling like a rose…rather than pushing up daisies. But one would be wrong, as ZeroHedge pointed out last week.
On the day the Dow logged its first of seven straight new highs, ZeroHedge trotted out a kind of financial “The Way We Were” — comparing today’s economic conditions to that of October, 2007, when the Dow set its previous record high:
In other words, the Dow made a new record high despite the economy’s performance, not because of it.
Perhaps the stock market “knows” something about the future that is humanly unknowable. Perhaps it “sees” something that is invisible to the human eye. Perhaps it knows and sees the advent of a great economic revival. Perhaps.
Your editor has no idea what the market knows or sees; he only knows that he doesn’t see it. What your editor does see is a stock market that the masses adore, residing in an economy that the masses abhor.
So maybe it is not hope that is driving the stock market to record highs, but despair. Maybe stocks are rallying because investors are afraid to do anything else with their capital — maybe they are afraid to risk their capital in an economy that features zero interest rates, stifling regulatory regimes and capricious tax laws.
Bottom line; the Dow’s record-setting performance tells us nothing about “why.” The stock market is silent on this point. Perhaps it is too terrified to speak.
One thing we know; the rallying stock market stands in stark contrast to the bear market in economic vitality. We also know that bull markets are unfolding in all the wrong places. Unemployment, government debt, food stamp participation, “No knock” SWAT raids and “No trial” drone strikes are all in bull market mode.
The nearby chart tells part of the tale.
Sure, the Dow has reached a record high, when measured in dollars. But the index is not even close to a record high when measured in gold, food stamp participation or “extrajudicial” drone strikes.
Each of these metrics, in its own way, reflects a government that is “hard at work.” The fact that the Dow, priced in gold, remains very far away from a record, suggests that Chairman Bernanke is working overtime. His dollar-printing escapades have played a very big hand in the Dow’s record-setting climb. By devaluing the dollar, in other words, Bernanke “inflated” the Dow price.
The doubling of both food stamp participation and drone strikes during the last five years reflects a different form of governmental hyper-activity. But this hyper-activity shares the identical DNA as Bernanke’s money-printing. All these activities express the genetic traits of a government that continuously expands its power “for the greater good,” a government that belives its influence enables progress, rather than impedes it, a government that considers itself so essential to the march of human civilization that it will dehumanize any individual and sanction any uncivilized act to achieve its objectives…for the greater good, of course.
Maybe that’s why the Dow is setting records…because big, intrusive, debt-financed governments are such a potent source of national prosperity. Maybe. But we’re still inclined to believe that “the government is best that governs least.”
Whatever the reason(s) for the Dow’s record-setting performance, your editor does not begrudge the Blue Chip Index its moments in the sun.
Three cheers for the Dow Jones Industrial Average!
Eric Fryfor The Daily Reckoning
Eric J. Fry, Agora Financial's Editorial Director, has been a specialist in international equities for nearly two decades. He was a professional portfolio manager for more than 10 years, specializing in international investment strategies and short-selling. Following his successes in professional money management, Mr. Fry joined the Wall Street-based publishing operations of James Grant, editor of the prestigious Grant's Interest Rate Observer. Working alongside Grant, Mr. Fry produced Grant's International and Apogee Research, institutional research products dedicated to international investment opportunities and short selling.
Mr. Fry subsequently joined Agora Inc., as Editorial Director. In this role, Mr. Fry supervises the editorial and research processes of numerous investment letters and services. Mr. Fry also publishes investment insights and commentary under his own byline as Editor of The Daily Reckoning. Mr. Fry authored the first comprehensive guide to investing internationally with American Depository Receipts. His views and investment insights have appeared in numerous publications including Time, Barron's, Wall Street Journal, International Herald Tribune, Business Week, USA Today, Los Angeles Times and Money.
Or maybe it is because they take every dogs stock out and keep the dow advancing. I was wondering what the dow would be reading if Kodak were still part of it? would we even be at the pre 2000 highs??
nice piece, very objective, love “the way we were” comparison !
Even if tech giants like Facebook and Apple have a down day now and then, that doesn't mean they aren't still sound companies with upside potential. Of course, some people aren't convinced... which is why the word "bubble" has now reentered the conversation. Dave Gonigam has the full story...
Gold has had a rough go of it since the 2008 financial crisis. But according to Matt Insley, there is now a very clear price floor for the yellow metal. And what's more interesting, he comes to this conclusion by way of a glass of chocolate milk and Janet Yellen's actions from here throne at the Eccles Building. Read on...
The recent spate of new tech-based IPOs has a few prominent investors (Ahem... David Einhorn) touting the return of the '90s tech bubble. But there are some very good reasons why this market is nothing like the '90s, and why investors should be wary of any advice to the contrary. Paul Mampilly explains...
Generic drugs are supposed to lower healthcare costs and provide you with another medical alternative. That's what it says on paper. But there's a real danger that goes along with these drugs. A danger even your doctor might not be aware of... Dr. David Eifrig has the full story. Read on...
The solar panel turns 60 on Friday, but this birthday celebration will be unlike any other the industry has seen so far. In the past, solar energy's high price tag meant its wide-spread usage was nothing more than a pipe dream. But now, after six decades, solar power may finally be cheaper than oil and Asian liquefied-natural-gas. Greg Guenthner has more...