Archive for Dow Jones

The Dow’s All-Time High

Photos_NewYork1_032The Dow Jones Industrials just closed above 17,000 for the first time ever. While they are celebrating the 4th of July, Americans can rejoice in the good fortune the stock market is giving them.

But wait, what’s actually driving the stock market to reach its highest level of all time?

Since its high in 2000, the Dow is up 45%. Over the same period the CPI is up 40%. Nearly all of the gain in the stock market is just because of prices going up, not because of real economic growth. In fact, if you factored inflation out of your stock returns over the past 14 years, you earned a miserly 0.2% per year.

There’s lots to celebrate this 4th of July weekend, but stocks for the long run is not one of them.

(Originally posted at Mises Canada.)

End QE and Pop the Stock Bubble

Writing in the Financial Times this weekend, John Authers is concerned with the lack of volatility in the stock market.

More remarkable than the market’s level has been its consistency. The US not seen a correction (a top-to-bottom fall of 10 percent or more) since the turbulence in the summer of 2011 that followed the decision by Standard & Poor’s to downgrade US sovereign debt from triple A…. This is strange. Markets seldom go up in a straight line like this. Progress is made bumpily, with rallies interrupted by sharp selloffs.

Since the Fed started its QE programs the stock market has been pretty buoyant. This is especially true with the latest and ongoing round known as QE3, which covers most of the period Authers is concerned with.

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Indeed, the upward trajectory in the stock market follows the Fed’s quantitative easing programs almost perfectly. With the recovery on Main Street still sluggish, the Fed can at least claim that it has given Wall Street some relief.

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Indeed, the relationship between the M1 money stock and the Dow has been about as good as any statistician could hope for upon first glance.

Of course, with the Fed starting to taper its easing program there is a fear that the luck of the stock market might run out. Of course with the Fed still committed to increasing the money supply by $65 bn. a month, it doesn’t look like Wall Street’s stimulus package is over quite yet.

None of this bodes well for the rest of us.

A stock market artificially propped up by the Fed’s loose money policies is sure to end badly. Ending the seemingly endless credit creation and popping this bubble is the lesser of two evils.

(Originally posted at Mises Canada)

Four Ways to Value the Stock Market

Philippine-stock-market-boardWith the Dow Jones closing above 16,600 for the first time ever last week, investors are overjoyed by the signal this sends. Apparently all is well in the economy, and those pesky threats of unemployment and sluggish income growth are figments of your imagination.

Over at Mises Canada today, my daily article shows how well the stock market has been performing in something other than money. It turns out its unsettling. Since 2000, the stock market has just barely maintained its value in inflation-adjusted terms, this despite being over 5000 points higher today.

In terms of gold the collapse is even more pronounced. It takes nearly 75% fewer gold ounces to buy a “unit” of the Dow today than it did 14 years ago!

That´s not exactly what I think stock market cheerleaders have in mind when they talk about “investing for the long run.”

Read more here.