Friends, as I am watching “the news” tonight, I am hearing of what’s being called a “troubling development” for the Romney/ Ryan team- the Dow is up… Oh, happy days are here again!!!!
This is a meme I’ve already been hearing from some of my more lib-o-tarded acquaintances. The Dow index dropped 50% under Bush, but has doubled under Obama, almost totally recouping its losses in the Financial Crisis. The Dow is now higher than when Bush left office. Whoop! Whoop! So I got curious.
The Dow Jones Industrial Average (DJIA, “the Dow”) has a long history that started in 1896 with nine stocks that were in an imaginary portfolio. At the end of the day, the prices of those nine stocks were averaged to form the index and show you how much imaginary money you made (or would have made). Part of the reason for this was to lend credibility to the stock market, which was not too well regarded back then. I mean all good conservative investors bought bonds, which made a promised and predictable return on investment and were backed by hard assets! By the way, how’d those GM bonds, backed by hard assets, work out for all the “conservative investors” when the SCOTUS overturned two-hundred-and-some years of precedent in contract law and put the union in front of them when GM went belly-up?
-Jumping way ahead-
Today, the Dow index is comprised of 30 stocks in different industries, to try to reflect the overall economy. Not to get too far into the statistical details, but a “divisor” is applied to the actual stock prices. Well, not that we could get too far into the details- Dow Jones is a private company that makes money by figuring all this crap up for us. Their exact means and methods are proprietary, and I don’t blame them for trying to make a buck.
Here’s the key- what are those 30 stocks? I’ll give you a hint- they ain’t the same stocks as they were in 1896. Not even in 2008! Again, the Dow index is the performance of an imaginary stock portfolio, washed over with statistical methods.
On June 9th, 2009, General Motors filed for Chapter 11 bankruptcy. Guess what day it was magically plucked out of the Dow and replaced with another company? Yup. How did the statisticians account for suddenly losing 100% of their imaginary investment in GM? Who the heck knows!!! But I guaran-damn-tee you that losing 3.3% of your portfolio in a day has to hurt!
I give the folks at Dow Jones credit for trying their best to do what they’re trying to do- establish some kind of baseline for the stock market. But out of the 30 DJIA stocks, only 25 were on it when Obama was elected. Think about that- the Dow has had a 17% change in composition from the bottom of the crisis. In fact, only 6 of the DJIA companies- that’s only 20% of the index- predate Carter. And of those 6, all but one were added before WWII (think Great Depression). GE is the only company in the original Dow that is still in it.
Dow Jones tries to be the arbiter of the horse race. Fine. But when the rider can change horses in the middle of the race? How do you handicap that? What’s that do to the odds? Who knows, and who knows how they try to compensate for it in their black box calculations? Another example- AIG was removed from the Dow in September of 2008, having lost more than 98% of its share price. Bank of America had only been added in February of 2008, at a price of around $40 a share, before it plunged to around $4 a share in September of that same year. Honeywell, which BofA replaced, “only” dropped by about 50% and has mostly recouped its loss in share price. And Honeywell did it without receiving $45 billion in TARP loans, and $118 billion in US government loan guarantees like BofA got. Never mind the ongoing gravy train of “government money” (our tax dollars!) going to “refinance” mortgages, and Fannie Mae and Freddie Mac mortgage purchases, which bolster BofA’s position, which at the close of business today stood at less than $9 per share.
So, my underlying point is this- is the Dow a true measure of the real economy? How can it be?
Maybe some of our Dudes and Dudettes can help come up with some straight-up, to-the-point retorts that anyone can understand to use against the lib-o-tards when they start spouting **** like this. That’s one of my goals in researching and writing this. The other goal is to help directly convince anyone who thinks that the economy is somehow turning around under Obeyme- ahem, Obama.
“W” Bush left office with the Dow at $12,650. Ground chuck was on sale at the grocery store for $1.49/lb. The Dow closed today at $13,440. Ground chuck went on sale at the grocery store last week for $2.99/lb. Gold was around $1,000. Now it’s around $1,800. What’s that tank of gas costing you today?
Why is the Dow up? Could it have something to do with the Fed devaluing our currency to hold interest rates at less than 1%? Well, capital ($$) seeks return. Higher risk is supposed to equal higher return. Since bondholders are no longer safe, and mortgages are now risky, money flocks to where it can eke out a measly 4% return on investment. That includes offshore investment money, too. I’ll sell you a bridge in Greece! Cheap! Hell, it might become a historical monument- there was a riot there just last month. Where is the world’s money going? Ain’t the Euro!
Today, your share of the Federal Debt stands at $51,091. Yours. Not your household’s, not your kids’, but yours. If you’re one of the lucky few who pay taxes, your share works out to $140,000. That’s about 78% higher than it was when Obama took office, less than 4 years ago. What do you and I have to show for it?!?
*Disclaimer- Dow Jones, DJIA, “the Dow,” Bank of America, Honeywell, GE, Greece, General Motors, etc. are all registered trademarks of their respective owners. Hell, “da fedral gubmint” probably is, too… TM’s used under fair use standards without permission.
We have to have some non-sucketh music, so here’s Flunk’s wonderful cover of New Order’s “Blue Monday”: