A few thoughts about Dow 10,000

The stock market, contrary to the popular beliefs of some, is not a casino. It's not just a gambling house or a ponzi scheme.

The stock market is where the profits of the biggest, richest corporations are priced and distributed. I don't think you can be intellectually consistent by complaining that corporations are raking in gigantic profits at our expense, but also believe that the stock market is only a ponzi scheme or a gambling house.

Stocks rise because the amount corporate profit that will be distributed to that stock in the form of dividends, is expected to rise or has already risen (or those higher corporate profits will be retained and will lead to higher future corporate profits).

Stock purchasers are basically purchasing future dividends. The higher the dividend, the higher the price of the stock.

That said, what mainstream stock market boosters miss, is that corporate profits have only a loose connection to employment and even production.

For example -- and this says a lot about Dow 10,000 -- a sneaker company will have the same profit if it sells 10 million sneakers and makes $1 profit on each pair sneaker, as if it sells 1 million sneakers and makes $10 profit on each pair of sneakers. The stock prices will be similar -- and in fact, the smaller volume seller might have a higher stock price because of the possibility of selling greater volume in the future.

The stock market measures profits, not the scale of production or the number of people working to produce stuff.

So what's happening, imho, is that corporate management has already adjusted to managing a smaller economy -- less workers, less products, less revenue, but more profits.

I'm just trying to explain the disconnect between people who may see their 401Ks rise and are pleased, and people who are unemployed and don't see any new jobs.

They stole a few trillion from the tax payers, of course you get a few billion in profits.

The problem that led to the first crisis have not been fixed but rather REINFORCED.

All the economists who saw the first disaster coming are now saying that the next crash is inevitable and it will be worse.

So, just stop with the b.s.

Smart investors would jump the hell out now before the coming tsunami of the next disaster.

because their retirement accounts are connected to the stock of the company for which they worked.

There may indeed be another downturn, but we don't have to hope for it.

And, yes, the thugs stole a shitload of money, but what do you want ma and pa kettle to do when they have their retirement funds locked up? I hope for a better market for them.

Well, that's certainly cause for celebration..

:puke: :puke: :puke:

Good points all. And people often forget that it foretells an improvement in the overall health of the economy.

Eventually, people start making some of the money the big firms are.

Eventually.

--d!

That's what Keynes warned against. There can be an adjustment to lower production, employment, etc., that becomes semi-permanent.

That's what's kind of scary this time around -- for the first time in a long time it might not "indicate" a recovery in the real economy.

I'm actually convinced of it. I think recovery will happen, but will be quite weak. Better a weak recovery than a "W"-shaped depr/recession. (And that shape is oddly symbolic, innit?)

The price of energy and basic resources have increased greatly; these effects are causing inflation, leaving less capital (and disposable income) for saving and investment. It's not simply "Peak Oil", but a combination of problems starting to kick in. And the fact that America has spent the last 40 years dismantling its industrial infrastructure and (most of its) agricultural producers' market guarantees that it will be more difficult to re-establish any kind of prosperity. (I'm not an apocalypticist, but it's no stretch to realize that it will be a difficult situation for the entire world.)

I'm also nearly certain that there will be another "stimulus package" by 2012 -- one that really IS infrastructure-based. The only long-term, healthy way to put people back to work and eliminate the debt/deficit complex is for capital growth to happen. And this time, I sincerely hope it's widely held and not concentrated in a small "go-go" affluent class.

--d!

When it will be no recovery at all for the majority of people.

Once upon a time it worked the way you say it does and if you read an Intro to Finance book, that is the way they would explain it. It doesn't really work that way anymore.

Everything on Wall Street is about meeting expectations. These expectations are made by analyst who look at industries and write reports, said Analyst also happen to work for the brokerage firms that are selling the stock to investors and the general public.

Now your sneaker company could make a $10 million dollar profit one quarter, with an EPS of 10 cents a share. Now the analyst will take a look at that make assumptions and say we believe that the sneaker company will make a profit of $13 million dollars next quarter. If said sneaker company makes $13 million dollars next quarter, said sneaker companies stock goes up. If said sneaker company makes $10 million dollars, which is still a good profit it stocks goes down. If the company continues to not meet expectations it under performs and its stock becomes low enough that a competitor can buy its assets and realize a nice premium. This despite the fact that it is still making a good profit. It just isn't making the profits on a quarterly basis that the analyst, who are far removed from the company are demanding.

Now the brokerage firms and investment firms are the "House". They determine the expectations and the game is rigged in their favor. They can write expectations reports that are outright ridiculous but since the reports are out there, the company is stuck with them. These firms are also engaged in option trading on the very firms that they are writing up expectations reports on.

When you are investing in a stock. You really are hoping that you are betting on one the House likes or there are honest analyst covering.

There are quite a few of us out here who have a basic understanding of this stuff but can't convey it as clearly as you just did.

It's a rigged game and the house is always going to get its percentage.

Amazes me.

The Big Lie technique is an old and well used one and people fall for it every time.

The market actually once worked that way.

I'll pass it on to the next math PhD from Wall Street I run into slumming in the East Village.

That Math PHD, is making a significant amount of money gaming a corrupt system.

Dividends are bad and they consume capital. Dividends encouraged long term investment, and when your firm makes a profit off the commissions of the buying and selling of stock. A buy, hold, collect dividends and expect moderate capital appreciation over years strategy was not good for business.

Thus a whole bunch of economist were hired to go out and sell the public on the idea dividends were bad.

Most people who know anything don't listen to the stupid analysts. Granted, there are a lot of dopes that do and this is how the real players make money. Also, people who have a good sense for trends in the country's buying habits and/or successful new technologies/products can make a lot of money by investing in the new companies (or older companies that invest in the future).

It is a Casino. I really don't put too much faith in a system where something can be trading at $60 one day and a week later be trading at $30 and a week later be bankrupt, meanwhile there are people out there who are shorting said stock the entire time making a fortune.

Casinos don't make their money off of everyone being the MIT Black Jack team.

You don't have to be that well connected (or even rich) to "see" through the bullshit that is used as a supposed measure by the simple minded (including the press.)

It's a Casino if you're playing poker, but it's only a one-armed bandit if you're a sucker already.

However the Casino wouldn't be placed in Atlantic City. It is more like a Wild West poker game with people hiding a few cards up their sleeves.

If it is poker, the house always takes its cut on each hand, regardless of who win or loses.

Sorry, I just think there is a better way to encourage long term economic growth and stability than the current system.

Like pushing off from the bottom of the swimming pool in the deep end, our economy pushes off its floor. The DOW crashes faster than the economy in general, because it's a leading indicator, reflecting (as you note) investor expectations for return, short or long term. Once the business sector begins contracting and shedding jobs, cutting costs, stopping new moves, and getting lean and mean, there is this natural period when savings effected by cost cutting begin to pay bottom line returns. Those good numbers are a positive sign, and investors react to it by buying UP the market.

It is upon that foundation that the recovery gets built. That's why I am excited about where the markets are. They reflect a return of investor confidence, and that bodes well for jobs within a year.

Last November, it was an unprecedented ARMAGEDDON that was threatened. This October, it's homilies about "how it always is." Odd.

The financial markets encourage bad behavior for long term economic growth and reward risky irrational behavior for short term gains.

and this is what Krugman is worrying about. It's possible for the economy to find a low level equillibrium and stay there. That was Keynes fundamental insight, even more than the use of fiscal policy to reverse it. And that's why Krugman keeps warning about Japan's lost decade.

A recovery of the stock market reduce political pressure to get the "real" economy of jobs and production going again.

So many people are unemployed, and so many employed people are so spooked that we're still in a downward spiral of the real economy, and the consumer is fundamentally altering his or her long term behavior.

The reaction around here to the DOW going over 10k would be comical if not so tragic.

We have UNEMPLOYED persons pissed off because the stock market is getting better. How insane is that? What kind of person thinks to himself "well, I don't have a job, so I hope no one makes any money until I get one!"? It's self defeating, and yet, there are people here who do just that.

I have news for them. They are not getting employed again until a lot of Americans in the stock market see a reason to be optimistic.

I know we could still run into the ditch, but what's the point of that? This on our watch, and I'll be damned if I'm going to be talking gloom and doom.

Of taking a look at what caused this and preventing it from happening again. You and I may disagree on the market, however human nature is a beautiful and complex thing.

Here is my biggest gripe, a lot of people made a lot of money when the economy was crashing down as evidenced by the bonuses Goldman Sachs made. Those same people are now going to turn around and spend a small percentage of that money fighting economic reforms that will prevent them from engaging in the same bad behavior in the future. It is human nature.

I give him poor grades on Health Care, Iraq and Afghanistan.

I give him poor grades on gay issues.

I give him poor grades for not demanding things of congress.

I give him good grades on the economy. The economy is better today than anyone expected six months ago it would be by now. It's not well. It's a long way from well. I am more optimistic than most about jobs returning. I think we'll see positive movement by early 2010. Others think it's more like summer, and they may be right.

My gripe is that it was done without getting any concessions for doing it. These guys have gotten everything they have wanted in terms of capital infusion. They even were allowed to change an accounting rule (one they furiously lobbied for) so they wouldn't have to recognize their losses on their toxic assets overnight.

Wall Street needs to recover. However, Wall Street needs to submit to some new regulations that will prevent the behavior. What is about to happen, is the White House is going to move to make reforms and the very people he just pulled from the abyss and allowed to return to prosperity are going to fight reform harder than the insurance industry ever imagined.

It was a bad deal for the country long term.

I opposed the bailout a year ago. I wanted them to let several big banks fail, and for Uncle Sam to spread the reconfigured banks among the better market performers. I didn't like that at all.

I do like the stimulus package, but don't think it's getting money out there for jobs nearly fast enough.

I want to see Obama whip Wall Street into line better, but I think he has resolved that is a battle he can't fight before 2011. I have no use for the Goldman Sachs guys who effectively run our monetary system under Obama. But the president has to pick and choose his battles. He knows that Bill Clinton got bogged down in his first year in some unpopular causes, and stumbled through that year. Obama wants to avoid that. He's decided his real priority is making sure the economy is best positioned TO improve in 2010. Everything else is a lower priority.

You don't get the economy back on track and than implement economic reforms. You implement economic reforms than get the economy back on track.

If you are correct and we are in a recovery, there will be absolute zero political will to do anything about Wall Street in 2011.

Now that we have reached DOW 10,000. It is going to be harder, as the Wall Street parasites start to go out and make a sell that the market has corrected itself and that they can police themselves and reforms are bad for a recovery.

What has happened is we are doomed to another speculative bubble, and this one is going to be even harder to clean up than the one that just burst. Why will there be another bubble, because these guys make profits off blowing bubbles not long term sustained growth.

The Tech bubble in 2000 was covered up by the housing bubble. My greatest fear is we are sheep being led to another slaughter and there isn't going to be 700 billion dollars to stop the trauma next time.

First, we cannot permit monopolies. If you're "too big to fail", then you need to be "busted" into several parts. This was also the precursor to the Great Depression, when Teddy Roosevelt and Woodrow Wilson were in power.

Most of AIG's divisions are still profitable. They were profitable before the crisis occurred. A small division in AIG was permitted to engage in dangerous behavior and that dangerous behavior resulted in the company being taken over by the government.

Instead of containing the small portion, what we have done is kept the entire organization captive (instead of selling off its parts or spinning them off in new capital issues)

If we hadn't bailed out AIG, this would have happened naturally.

It's hard to talk rationally about a Keynesian low equillibrium when you know that doomers will misinterpret what we're saying and actually root for the end of the world as we know it.

A stock market recovery is part of a broader recovery -- I agree. When asset prices recover, middle class families with assets will feel less shell shocked and begin spending again.

I just think, from my experience studying developing countries, that this time I think the stimulus has to be helped from overseas -- especially recycling of Chinese surpluses here, which is what the Japanese did in the 90s.

It is not about creating jobs. It's not really about investment. How's your 401K and how will it be in 2 or 3 years?

The stock market has become a place for swapping paper and scheming to come up with the next new idea to make billions of dollars, such as they did with the credit default swaps. Brilliant!

were replaced by capital appreciation, the DOW is about day trading. Making profits off of short term buying and selling of securities.