Skip to comments.The Dow at 14,000: not as good as gold (Do not be fooled by the DJIA hitting record highs)
Posted on 02/11/2013 7:41:04 AM PST by SeekAndFind
What an illuminating week for Wall Street the Dow Jones Industrial Average has been bobbling just above and below the record high 14,000 mark, even as the country comes to grip with the reports that its economy has actually been slumping, with GDP shrinking 0.1 percent in the last quarter of 2012.
The Obama administration is trying to put a bright face on things but the rest of us feel like were smoking more now and enjoying it less.
Well, guess what: While the Dow Jones Industrials have been edging past 14,000, the actual value of those stocks has been going down.
By this, I mean that if you take one share of each of the stocks in the Dow index, their combined value as measured in gold is lower than it used to be. The price in paper money may be going up, but the real value is slumping.
At about 14,000, the Dow Jones Industrial Average stands at nearly twice the 7,949 at which it stood on the day in January 2009 when President Obama first took the oath of office. But value of the stocks in the index has drifted downward; a portfolio of one share of each stock is worth only 8.3 ounces of gold, down from 9.3 ounces on Jan. 20, 2009.
There are those who will say that this is a trick, that no one measures things in ounces of gold anymore. Not since 1971, when President Richard Nixon finished taking America off the gold standard which then still defined the dollar by law as a 35th of an ounce of gold.
(Excerpt) Read more at nypost.com ...
The Dow is simply back to where it was in late 2006. Had it followed historic gains it should have doubled by now. I’ll cheer when it hits 28,000.
It is just good that something is working in our economic world. Of course they always have to spin it negatively. That is the journolists job....negative news scares the masses.
This is what I have been saying and posting whenever I had the opportunity. The DOW is never adjusted for inflation, and so it is a false number.
Also, the fascination with consecutive Zero digits is ludicrous.
28000 what? Space credits?
How many ounces of gold would that be?
I'll bet that business creating wealth is just as good a hedge against inflation as gold is. Probably better. You can put your gold in your basement. I'll bet on business.
“That is the journolists job....negative news scares the masses.”
Go back to sleep its all good.
This is what refutes the “no inflation” argument. The two-to-four billion dollars the Federal Reserve is throwing to the banks literally every single business day of every single month is going straight into the stock market. There’s your inflation. If that money were to ever make it into the real economy, you’d see prices for everything going up a little bit more every day, like the stock market (and gasoline).
Shortly after that, we got Pelousi and Reid running Congress, and the DJIA plummeted. Coincidence?
The concept that “gold is not money” is completely Orwellian and a mind in denial.
We know progressist Orwellianism was entered in our minds when Nixxon offered detente and abandon of the Gold Standard in favor of dubious promises and technicalities that were purely theoretical.
The Dow is a theory of business which is not exactly like gambling, but gambling with time.
We all know the stocks floated that increase the DOw’s value always decrease soon after they are floated because companies are not stupid. They are not going to sell low and buy high, buying back control after the floated value increases, that is.
So, it is interesting that the “optimists” themselves continue it as a MAddoff ponzi scheme, knowingly using it to screw people yet believing for others and themselves that it is wise to do.
We are screwed by the media, it is clear, and Bernanke/Obama mania which is driven by low information scammed voters with potential ownership of firearms and seeing their children exploited by the sociopathic homosexual agenda fraud too.
This is not going to end well.
I would say the plummeting followed by the reincrease is not coincidence. First they sold their stuff obviously threatened and overpriced once the stooges got in congress, then stuff was refloated under their need to optimize the country into the current rise we are seeing.
The dynamic is clear.
Once upon a time, not so very long ago, the stock market was legitimately regarded as a leading indicator of economic activity: A rising market "predicted" expansion of economic activity with a lead time of somewhere between 6 months and a year (typically).
Arguably, this is no longer the case. The Federal Reserve's "cheap money" policies have the effect of inflating the asset values of equities. Plus at a time when 70% of trading is conducted by high-powered computers trying to capture miniscule price differentials, the stock market is no longer a reliable representation of the judgments, information, and sentiments of actual (human) market participants, of their sense of future economic conditions.
In short, it seems to me the current valuation of the stock market indices is wildly out-of-synch with real economic conditions on the ground, which look very likely to include a return to recession or worse before 2013 is over.
We get another recession (or worse) because of the federal government's insane fiscal and monetary policies, thanks to the feckless irresponsibility of the political class. They just keep kicking the can down the road, rather than deal with the real problems that are causing our economy to implode principally the federal debt officially at about $16.5 trillion right now (not counting the unfunded liabilities of the Social Security and Medicare programs, which if included would cause the total debt to rise to about $72 trillion) and the monetary policy the Fed is running to "pay it down."
In short, the way this works is the Treasury has an auction of U.S. government bonds. Under the Fed's so-called Quantitative Easing Infinity program, the Federal Reserve then steps in and buys roughly 80% percent of the issue which tells me that China and Japan, for instance, have pretty much had their fill of U.S. government bonds right now. (Indeed, both countries' central banks have been acquiring gold bullion recently in lieu of U.S. bonds.) The Fed is buying roughly $85 billion a month in Treasuries and mortgage-backed securities, and it's pledging to continue this buying for as far as the eye can see.
They are doing this because they are desperately trying to keep interest rates as low as possible. This means they have to prop up the price value of U.S. securities, which their participation in the market helps them to do they hope. (As you probably know, bond prices and interest rates are inversely correlated: When bond prices go down, interest rates go up.)
But where is the money coming from to pay for these purchases? The Fed just prints the money it needs! Of course, it's not really "printing" anything this fictional money exists only as an entry on a computer. But its very existence inevitably cheapens the purchasing power of every dollar you hold this gets you inflation, the silent tax.... Which allows the federal government to pay off its huge debts with depreciated dollars, literally by making you and me poorer.
Meanwhile, interest payments on the federal debt account for about 15% of the annual budget. For every 1% increase in interest rate, the debt servicing cost goes up by $160 million per annum. So austerity is coming to America whether we like it or not: The Fed is "running out of bullets" with each successive QE round, it has gotten less "bang for the buck" in terms of juicing asset values (i.e., making the economy look better than it is), and its "tools" for targeting interest rates have become more and more ineffectual with each succeeding QE round.
As Mike Larson of Weiss Research notes,
Bernanke, the printer-in-chief, is giving [Congress and the President] cover to avoid real solutions. By buying up bonds willy-nilly, Bernanke is financing the big deficits and enabling Congress and the White House to continue playing games with our country's future. He's creating a false sense of calm in the markets. He's keeping both Wall Street and Washington doped up on cheap money!... There's only ONE way Washington will ever have the guts to cut a deal.... When they're cornered like rats and have no other choice, when both the stock markets and the bond market are collapsing all around them.Thanks to the Treasury Department (Tim Geithner) and the Federal Reserve Bank (Ben Bernanke), we are now in a situation in which the federal government is massively engaged in self-dealing in its own securities. If a private bank were to do that sort of thing, its management would be taken out in handcuffs, and would go to jail.
Thanks to such corrupt practices, not only is the stock market in trouble (i.e., due for a "correction" that reflects the actual economic reality Larson sees a 9,000 level on the DJIA as a distinct possibility), but the bond market is in a world of serious hurt, as well: The current "bubble" in bonds and debts, according to Larson, is the biggest we have seen in the history of the world.
How did that come about? Thanks to all the manipulation by the Treasury and the Fed, interest rates are being kept artificially low. High-risk companies are borrowing tens of billions of dollars in the junk bond market at yields so low that they offer no compensation to investors for the extra financial risk involved. But with depository accounts, CDs, and Treasuries offering such puny yields, fixed-income investors including a whole bunch of retirees are "chasing yields" in order to gin up current income. And this is creating a massive bubble in low-quality, risky debt; and perhaps there are also signs of a renewed bubble in real estate, as people buy homes not to live in, but to rent out and thereby get a bigger income stream than available on bonds.
As Larson put it,
[J]ust like Greenspan before him, Bernanke is waging an absolute war on savers. [Seems to dovetail nicely with Obama's war on the middle class]. He's decimating their earnings power by pegging interest rates at rock bottom levels, below the rate of inflation.It seems that Washington's breathtaking corruption is causing the economy to sink while the stock market is rallying "A very dangerous divergence" while at the same time setting up an implosion in the corporate bond market that has the potential to wipe out the capital value of bondholders, as interest rates inexorably rise, as they must, given the federal government's shocking fiscal and monetary irresponsibility. When rates rise, this will be a death sentence on companies that are already on "life support," and will negatively affect companies such as utilities, transportation, telecommunications, etc. that are interest-rate-sensitive in their basic operations.
Obama will try to blame the Republicans when the fecal matter finally hits the rotating device. But he is the poster child of Washington corruption these days. He's as crooked as a country road.... I can't stand listening to him anymore he is a serial, habitual liar, not to mention a thug. And Geithner and Bernanke work for him, not the Republicans in Congress.
Again, SeekAndFind, thank you for posting this illuminating article!
Quote: "For every 1% increase in interest rate, the debt servicing cost goes up by $160 million per annum."
WRONG!!! Make that $160 billion per annum.
Simply put, there is no way the economy can ever grow fast enough to meet the rising cost of the federal debt load.
Something's gotta give; and it won't be pleasant.
Gosh, for a moment I thought to myself, hey $160 Million ain’t so bad.
Now this is BAD news.
Unfortunately, very few in Washington have this sense of crisis or urgency...
That's for sure, SeekAndFind! Most seem to be totally detached from reality.
Still, in the Senate, I think Rand Paul and Bob Corker actually realize the absolute enormity of the problem: You can't "grow your way" out of the coming debt implosion. Interest payments will soon crowd out all discretionary spending, will eviscerate our military forces, and will force the federal government to default on promises it has made to its citizens. I think Paul Ryan in the House gets this, too.
Only a prosperous nation can ensure the existence of the "social safety net." Yet Obama's fiscal, monetary, and economic policies deliberately, effectively are geared to cripple the economic engine that has heretofore always delivered prosperity to the American people. He's deliberately taking a wrecking ball to our system of free enterprise. People think he's "going after the rich" but the fact is, he's at war with the great American middle class.
But he, and the political class in Washington (which recently has been massively infiltrated by Wall Street types Bernanke, Geithner, Jack Lew, etc., who presumably seek to defend the interests of other Wall Street types in an incestuous relation) think the American people are totally clueless, stupid on these issues.
Indeed, the inhabitants of "second realities" who occupy Congress are counting on that. (Nancy Pelosi, please call your office.)
But when the inevitable day of accounting comes, they will find "no place to hide."
Someone pointed out that with our debt service we are essentially paying for China’s military.
Jeepers! but what I don't think it matters. Our National Magistrate and our National Legislature are junkies, strung out on deficit spending. Both will go on spending money we don't have until the system collapses. Just as a junkie's veins collapse from a constant injection of narcotics.
Amy Winehouse (I know, Amy died of alcohol poisoning . . . same thing) here we come.
Look for the federal oligarchs to soon ‘lease out’ huge tracts of resource rich lands under federal jurisdiction, to service the debt to China ... essentially, the oligarchs will give the resources over to China for exploitation, of course without the striffling regulatory restrictions which little barry bastard boy commie enjoys imposing on American industry.
Yep. That's a fact. At the same time, just the very thought of the impending "sequesters" on domestic and military spending which will take place on March 1st has caused a needed second carrier group in the Persian Gulf to remain in its home port, stateside. And preparedness/training of our military services to be massively curtailed.
We are on the fast track to becoming a banana republic, a toothless military, a second-rate power that increasingly cannot defend itself against the international predators who detest America and everything she stands for.
Do you ever wonder "who" Obama is "working for," and "to what end?"
I sure do!
Obama is the son of an anti-colonialist, Black Nationalist, Marxist father who also happened to have been a Muslim. His step-father Lolo Soetoro brought him up in Madrassas in Indonesia. I gather Obama has no sympathy for traditional American values, nor any genuine love for the country he "rules" (in his own mind).
Not to mention we know, from his own words, that he detests the federal Constitution which he swore an Oath to uphold, protect, and defend.
We're stuck with him for four more years of "doubling down." Thanks to a whole bunch of "conservatives" who refused to support the GOP candidate in the 2012 election. (Thanks alot, guys!) So we're stuck with him. I only hope the America that we know and love can survive the experience.
Jeepers... Thank you so much for sharing your insights, dearest sister in Christ!