Tracking the Dow
Not only is it obviously stupid for political commentators to be assessing the quality of economic policy by tracking the ups-and-downs of the stock market but the fact that the commentators who want to do this keep wanting to specifically use the Dow Jones Industrial Average just highlights their ignorance. Not only is there no particular significance to the stock market as such, but there’s no particular significance to this index. It just happens to be the thing that cable networks have chosen to highlight most prominently in their on-screen data. But it’s only 30 companies! Admittedly, they’re large and widely held companies.
But why not use the S&P 500? Or the Wilshire 5000?
To be clear, that wouldn’t make this idea any less dumb on the merits. But if we’re going to have stock-based punditry then it could at least be informed stock-based punditry. Back in the real world, the key issues are the trajectory of employment and income. Right now, they’re heading down. The hope is for that trend to turn around. First, employment starts trending up. Then incomes start treading up. And with incomes and employment moving upward, asset prices increase. But to expect the White House to pull a stock boom out of its ass in the midst of falling employment doesn’t even begin to make sense.
71 Responses to “Tracking the Dow”
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February 24th, 2009 at 9:42 am
And then you wonder why Atrios laments about how stupid our discourse is. CNBC is one of the problems.
February 24th, 2009 at 9:43 am
This is a great picture of Maria Bartiromo, and I notice the Dow is up, which is great news! But I can’t tell by how much. There’s a lot of boring text around the margins, which seems to be shrinking the picture. Please enlarge.
February 24th, 2009 at 9:46 am
Actually, Matt, the stock market tends to start bouncing back long before the unemployment numbers do. (The bond market will likely be the first indicator to rebound, even before the stock market.) The stock market isn’t so much an investment in how healthy a company is right now, but rather how healthy it’s going to be. Investing in stocks is a prediction.
A rebound in the stock market is going to be one of the first indicators that we’re coming out of all this. The unemploymnet figures will follow that.
February 24th, 2009 at 9:46 am
Not that the discourse isn’t stupid, but this is a stupid point.
Here’s a chart tracking the Dow vs. the Wilshire 5000. They’re pretty close correlates.
If they ever diverged significantly, that would be news, obviously. Neverthelsess, experience has shown the Dow (along with the S&P) to be a pretty good indicator of the wider market, so why not use it?
February 24th, 2009 at 9:48 am
Since the stock market should best reflect expected corporate profits then the media is tracking income. Remember income isn’t just wages earned by people Matt seems to care the most about.
February 24th, 2009 at 9:53 am
The chart on google is acting a little wonky, so here’s a five year comparison, Dow vs. Wilshire 5000, from Yahoo.
February 24th, 2009 at 9:54 am
I’m pretty dumb (see my comment at #2).
But I’m not as silly as G. Gekko. Corporate profits are, indeed, one kind of income. But they’re only one small part of the overall income picture.
And about 3/4 of those profits go to a very restricted number of people — the top 10%.
http://www.demos.org/inequality/numbers.cfm
So yeah, they’re income. But they’re a crappy barometer of overall well-being.
February 24th, 2009 at 9:54 am
What an Obama apologist. The private sector is signaling that they do not believe that the Obama Administration is going to be good for them. Trillions of dollars of debt will mean much higher taxes in the future.
The private sector is also facing more environmental, financials, and labor regulations that will increases taxes.
Any private company would have to be insane to blame on any expansion in the next year or two until the uncertainity in all of the economic proposals of the Obama Adminstration are worked out. The market is just reflecting that reality.
February 24th, 2009 at 9:55 am
Remember income isn’t just wages earned by people Matt seems to care the most about
It also money earned without working that gordon wants taxed least.
February 24th, 2009 at 9:57 am
How disingenuous of conservatives to claim that the stock market reflects the health of the economy as a whole and should immediately rebound upon the implementation of a new policy. For years these same conservatives tried to credit the economic boom under Clinton to the policies of Regan and Bush, and stated that a President’s economic policies take YEARS to manifest themselves in the economy. Now they say it takes days?
February 24th, 2009 at 9:58 am
#8 is pretty silly too. When the stock market falls, it means that people expect stock values to decline. It doesn’t mean that “the private sector” is sending a message that I get to interpret for you by reading the entrails of birds.
What was “the private sector” telling us in ‘87, pray tell?
February 24th, 2009 at 9:58 am
Thank you.
The stock market and its depredations do not measure the economy. When the tech and housing bubbles sent the dow soaring, they were false indicators of economic health, as we all know now.
February 24th, 2009 at 10:05 am
The Money Ho has a lot of assets tied up in that Dow. And so do all of her little friends.
You don’t believe they give one crap about anything other than their own balance sheets, do you? Because that would really give me a laugh.
February 24th, 2009 at 10:05 am
Ted,
In 1987, the stock market was probably overvalued. Also, the market was vulnerable to computerized trading. Investing in stocks is a bet on the future of a company. Right now, most investors believe that being on the future is a bad bet. Given the prospects of long term regulation of the financial markets, new regulations in energy, environment, and transportation, new labor regulations, and rearranging of the health care, there are few segments worthy the investment.
Since most people expect the market to go sideways for years or continue the drop, why not invest in short term government debt or the money market and wait the five years? Of course in five years, there may be so few profitable segments of the economy that there will be no long term recovery of the stockmarket.
February 24th, 2009 at 10:08 am
“What was “the private sector” telling us in ‘87, pray tell?”
That a Governor from Arkansas was on the rise. They were signaling their disapproval.
What?
February 24th, 2009 at 10:08 am
Ted,
Silly me. I had no idea income meant “only income distributed equitably.” But then even wages wouldn’t meet Matt’s arbitrary definition of income since they also go disproportionately to the rich.
February 24th, 2009 at 10:08 am
@14: All of the sentences in that comment make sense. But they don’t fit together to form any coherent argument.
February 24th, 2009 at 10:13 am
If this drop had begun after Obama was elected — or if the day to day fluctuations seemed to respond to the announcements of new regulations — you might have a shadow of an argument, superdestroyer.
But it is, on the contrary, clear that the drop began as a response to instability in the finance sector. And insofar as I can make any sense of day-to-day fluctuations (which really isn’t very far, in spite of what CNBC pretends) they seem a lot more closely tied to that continuing instability than to announcements of any new regulations.
Please try to have a modicum of intellectual honesty. I would love to have an opposition party with just a teensy weensy little bit of intellectual honesty. We used to, you know. You can rediscover your roots.
February 24th, 2009 at 10:16 am
Once agan the cable networks demonstrate they are far wiser than Yglesias. The Dow Jones has 30 stocks for a very important reason: taking into account (1) the time for posting of closing prices at the end of a trading day on the New York Stock Exchange in 1910, (2) the quantity of calculations to be made by abacus, and (3) the printing deadline for the next morning’s Wall Street Journal, more than 30 stocks would create an intolerable risk of late newspaper delivery. And when the newspaper delivery horses run late, they’re still on the streets after the streetsweepers who are supposed to follow them have gone for the day, and nobody wants that . . .
February 24th, 2009 at 10:16 am
Ah-ha. Here is your problem; you don’t understand why people invest in stocks.
Investing in stocks is a bet on the future stock value.
February 24th, 2009 at 10:17 am
@16: No one said that profits don’t count. They do count. But corporate profits are 10-12% of GDP. Wages are 45% of GDP. Which should we pay more attention to?
February 24th, 2009 at 10:17 am
Um, surely one reason the media tracks stock market indices, rather than employment and income, is that the information is updated more frequently?
February 24th, 2009 at 10:24 am
They are very good indicators when each index is experiencing the same phenomena. Recession and expansion are unbiased phenomena that affect a 30 stock index roughly the same as they affect a 5000 stock index.
A government stimulus plan, however, is likely to be directed. It is not an essentially random event. There is a significant possibility that a 30 stock index could be affected very differently than a 5000 stock index.
A 30 stock index would be more prone to pre-passage speculation. If people thought that the bill would concentrate on aiding big industries, and it failed to do so, there would be a speculative rise and fall. If the bill actually favored smaller companies, the Dow would drop in comparisson to the broader indices, even correcting for speculation.
February 24th, 2009 at 10:28 am
Shorter Matt. “I think any index that makes Obama look bad should be discounted.”
February 24th, 2009 at 10:30 am
Though of course if the markets were rising Matt would be screaming how this is GREAT NEWS for ObaMessiah and his plan to save the world.
And since the Progressives have touted their ObaBitch’s ability to sway us all with his dulcet tones it is notable that an important segment of our economy is tone deaf to him.
This is just like the CBO findings… used by the Lefties when they support the ObaStimulator and ignored or discounted when they predict important negatives.
And no my dear ObaBots this sort of hypocrisy is not original to either party nor any one ideology.
Beyond ideology I suspect that it is the realities behind these CBO projected negatives which the markets are listening to and that for good reason.
February 24th, 2009 at 10:31 am
Aren’t these the same people who thought Bush would be good for them?
Regardless of whether you think the Dow is tea leaves or just a Rorschach Test, the argument coming from the right just doesn’t really work for them. Ultimately, this is just a fleeting talking point born of the political necessities of this particular moment and it’s one that will haunt them when the market eventually starts ticking back up (and to be sure, I, among others, will personally see to that).
February 24th, 2009 at 10:32 am
Let me see… An opaque and unregulated market, leveraged, on average, at 40 to 1, with a total notional value four times the size of GDP goes to shit taking the global economy with it and this proves that over-regulation is the root of our problems? Got it.
Are we sure this isn’t that marijuana thread from a few days back?
February 24th, 2009 at 10:34 am
Of course, as others have pointed out, this tactic is really just a way of wingnuts trying to deflect attention from the long-term conditions that led to the economic crisis and try to blame Bush’s legacy on Obama. But again, this will do nothing to keep this disingenuous strategy from blowing up in their face (of course, they’ll try to assert that the inevitable recovery was a direct consequence of Bush’s 2000 tax cuts).
February 24th, 2009 at 10:35 am
To expand on my previous comment. The reason no index is a good indicator of the effect of the stimulus is, again, speculation. The stimulus had an effect on the market long before any particular was announced. To make money, you needed to guess what the effect of the stimulus would be. The after effects merely reflect what speculators think of the quality of their pre-passage bets.
The best indicators of the end of a recession are growth, which is hard to measure in the present, and the second derivitive of unemployment. Unemployment tends to increase even after the end of a recession, but it usually experiences a sign change in the second derivitive within a month or two of a switch from economic contraction to expansion.
February 24th, 2009 at 10:35 am
2001 tax cuts, rather…
February 24th, 2009 at 10:35 am
60 years ago, ben graham wrote, in the intelligent investor, that “mr. market” was manic depressive, and the intelligent investors job was to take advantage of that quality (and otherwise ignore it).
i believe the reason that JT and superdestroyer don’t understand this is embodied in the second word of graham’s title.
February 24th, 2009 at 10:35 am
Ted,
I guess I am just trying to show the hypocrisy in Matt’s (perhaps ad hominem) attack on the media over the use of trivial financial semantics when he himself does the same with the term “income.” In one previous post it was even titled, “income not investment” which makes absolutely no sense given the traditional definition of income.
But my broader point is we shouldn’t fear income from profits. Equity ownership doesn’t have to be exclusively for the rich and there are many ways we could make it more egalitarian.
February 24th, 2009 at 10:38 am
Honestly, do you think making stuff up like this does anything more than make you look like a raving lunatic?
February 24th, 2009 at 10:44 am
Re Matthew’s comment “Back in the real world, the key issues are the trajectory of employment and income. Right now, they’re heading down. The hope is for that trend to turn around. First, employment starts trending up. Then incomes start treading up. And with incomes and employment moving upward, asset prices increase. But to expect the White House to pull a stock boom out of its ass in the midst of falling employment doesn’t even begin to make sense.”
—————-
I disagree. The key issue is investment. The US economy requires $1 Trillion in investment every year to keep going. Just as an airliner requires a minimum amount of speed. Ask pilots what happens when that need isn’t met.
I’m not a Republican capitalist. I say regulate the fucking shit out of the market if that what is needed to maintain order and keep investors confidence. I would have lined up several CEOS on Wall Street and shot them at this point if I was in charge.
But without investment –or more accurately, continual reinvestment — we’re dead. It’s that simple.
February 24th, 2009 at 10:45 am
The problem for market watchers is that stocks have been functioning like a hot air balloon for much of the last 20 years. The more you heat the air in the balloon, the higher it goes. The more money is poured into a market, the higher stock prices goes…no matter what the underlying economic reality happens to be. The health of the market has been disconnected from the overall health of the economy for so long, a lot of folks have forgotten the two are supposed to be inextricable linked. Which is how we’ve ended up following the dot.com implosion of the late 90s with an even worse financial catastrophe less than a decade later.
Mike
February 24th, 2009 at 10:47 am
We are required to accept multipliers for stimulus but not allowed to accept dividers?
Matt Yglesias wants a double standard.
February 24th, 2009 at 10:48 am
You can maintain the illusion of security for a few months by doling out the seed corn.
But what happens when the granary runs empty and there’s no harvest to collect?
February 24th, 2009 at 10:50 am
Ask George Soros where this is fucking heading.
From http://www.reuters.com/article/newsOne/idUSTRE51K0A920090221
“Soros sees no bottom for world financial “collapse”
Sat Feb 21, 2009 4:19pm EST
NEW YORK (Reuters) – Renowned investor George Soros said on Friday the world financial system has effectively disintegrated, adding that there is yet no prospect of a near-term resolution to the crisis.
Soros said the turbulence is actually more severe than during the Great Depression, comparing the current situation to the demise of the Soviet Union.”
———-
But by all means, let’s watch Penguin movies.
February 24th, 2009 at 10:53 am
“The private sector is signaling that they do not believe that the Obama Administration is going to be good for them. ”
We don’t really know that- the private sector is made of way too many individual actors, each with their own interests, each responding to their own seperate stimuli, that we really can’t say it’s got one consensus view.
But even if we COULD, that wouldn’t mean it’s view is RIGHT- just ’cause they don’t “believe” Obama’s going to be good for them doesn’t make it so. For that matter, just because Obama’s not going to be good for Wall Street doesn’t mean he won’t be good for America.
But in terms of pundits using this, Democrats have no one but themselves to blame- they used stock drops during the Reagan and Bush years as a cudgel, and jumps during the Clinton years as a validation. It was wrong then, too, and what comes around goes around…
February 24th, 2009 at 10:53 am
If you take the CBO report as gospel, as our nigh-illiterate right-wing trolls seem to do, then you simultaneously have to accept that the stimulus package will, in fact, be effectively in significantly boosting short-term growth (and certainly, one would think this is of much greater interest to investors now). A fractional drop in the rate of growth a decade down the line (one that will be far balanced out by overall greater output during that decade, as well as long-term benefits of infrastructure and education investments) is hardly a concern for anyone except the propagandists cooking up sensational and misleading headlines for the Drudge Report.
As always, the wingnuts put themselves in a logical behind. Of course, they don’t care, but the fundamental dishonesty of their arguments (as laughably demonstrated in the comments to the article below this one) makes it hard to take you guys as serious interlocutors. These comments are a forum for discussing policy, not posting Republican Fan Fiction.
February 24th, 2009 at 10:59 am
I don’t think any stimulus is going to put Humpty Dumpty together again. The great monster of neo-liberalism was the connection between credit and speculation, with the government and the private sector using a source of money – the retirement money accrued by workers – to flood the financial sector and thus create cheaper and cheaper credit.
We are seeing that system collapse. This is why the Schizo nature of Obama’s economic policy is worrying. The big banks are probably in ruins, and the best policy to get credit flowing to the commercial sector would be a completely U.S. owned bank. Which would give the U.S. government inordinate political control over the economy – Good! At the moment, command and control is going to be the way this economy rises to a new manufacturing plateau – green tech and all.
But the savings of your median household have been burned up.
Of course, this could be wrong. Perhaps there will be a perky new bubble that arises out of the wreck of the current private sector. I doubt it, though. Instead, the next wave of bankruptcies, coming from Eastern Europe, are again going to knock the financial markets. At that point, Americans will have to confront reality – thirty years of trying to privatize social insurance has failed. The real social security crisis is coming up – the payments are much too small to take care of the affected.
What Obama has done far has been good, but he – like every D.C. politician – still harbors the old neo-liberal template in his head. The rightwingers are talking about how Obama is a communist, but they ain’t seen nothing yet.
February 24th, 2009 at 11:03 am
Re duBois’s comment “Investment hasn’t proved very capable of producing demand out of thin air. People need money to spend. From 2001 until this past Fall, they were getting it out of houses because their incomes were flat. The Republican mantra is tax cuts for the wealthy, but with lots of investment but spit for jobs and you get the auto industry. All those plants making all those unsold cars.”
—————-
Oh, bullshit. There’s a huge amount of demand out there. The problem is the maldistribution of wealth and income caused by 28 years of Reagan-George H -Clinton -George W rule. Look at
http://en.wikipedia.org/wiki/File:United_States_Income_Distribution_1967-2003.svg
The people with the money have sated appetites and the ones with the demand don’t have money.
The fix? Undo the Reagan Con and redistribute the income/wealth.
Do what I proposed 5 months ago and
Impose a $2 TRILLION Emergency Economic Crisis Surtax on the wealthiest 2 percent of the population
Collect it with fucking bayonets if need be.
Raise the marginal income tax rate to 70 percent and raise the capital gains rates to half that.
February 24th, 2009 at 11:13 am
The economic problem can be fixed — but the real problem is political: Because of our campaign finance system, our Democratic politicians are just as captive to the Forbes 400 plutocrats are are the Republicans.
And what the plutocrats are focused on is not the survival of the United States as a nation — if they were that responsible , this crisis would never have happened.
Rather, the plutocrats are trying to drag as much of their loot as possible into safe havens –gold, secret foreign bank accounts, foreign real estate. And fuck the rest of us.
From a survivalist site:
“Two of my consulting clients are hedge fund managers. Both of them are looking for extremely safe, remote, and self-sufficient rural retreats. Who can blame them? More than most other observers and certainly more that the still clueless talking heads on CNBC, hedge fund managers can see the enormity of the economic crisis, its full implications and the most likely final outcome.”
February 24th, 2009 at 11:13 am
Do what I proposed 5 months ago and
Impose a $2 TRILLION Emergency Economic Crisis Surtax on the wealthiest 2 percent of the population
Collect it with fucking bayonets if need be.
I think you are in the wrong country.
February 24th, 2009 at 11:24 am
Using the DJIA to track the economy is especially problematic now, because it’s overweighted with “bubble” firms such as financials. Last time I looked, something like one-third of the Dow-indexed companies actually make stuff. (People got a comparably distorted view of the economy by tracking the NASDAQ when the dot.coms crashed in the late ’90s.)
February 24th, 2009 at 11:41 am
Re allbetsareoff’s comment “Using the DJIA to track the economy is especially problematic now”
———-
Then how about checking with Bernanke, Sherlock?
From http://news.yahoo.com/s/ap/20090224/ap_on_bi_ge/bernanke
————–
“Bernanke: economy suffering ’severe contraction’
WASHINGTON – Federal Reserve Chairman Ben Bernanke told Congress Tuesday the economy is suffering through a “severe contraction” and pledged to use all available tools to lift the country out of the recession that already has cost millions of Americans their jobs.
In testimony to the Senate Banking Committee, Bernanke said the economy is likely to keep shrinking in the first six months of this year. Housing, credit and financial crises — the worst since the 1930s — plunged the economy into its worst slide in a quarter-century at the end of last year.
Bernanke hoped that the current recession will end this year, but said there were significant risks to that forecast. Any economic turnaround will hinge on the success of the Fed and the Obama administration in getting credit and financial markets to operate more normally again.”
February 24th, 2009 at 11:44 am
If deficit spending supposedly means insanely higher taxes in the future, as superdestroyer and people like him claim, how come Clinton (with some help from Bush 41) managed to balance the budget after the Reagan deficits without cranking taxes back up to 1950s levels?
February 24th, 2009 at 11:48 am
Not really bad. Economists equate demand with money to be spent on consumption. Don Williams has the correct analysis, but uses demand in a way most people would use it rather than the way an economist would. The idea that people have demand but don’t have money wouldn’t make sense to most economists. Some might consider that the demand would take form in the adoption of an alternative currency, such as barter or violence.
February 24th, 2009 at 12:04 pm
The article you cite supports what allbetsareoff says. Bernanke isn’t making any statements based on the DJIA. He isn’t claiming the stimulus had a good or bad effect. Yes, the economy is still in the crapper, but nobody who supported the stimulus expected it to be out less than a week after the bill was signed.
February 24th, 2009 at 12:34 pm
“Not only is it obviously stupid for political commentators to be assessing the quality of economic policy by tracking the ups-and-downs of the stock market but . . ”
This is a surprisingly vicious slam against Obama, who spent much of last year assessing the quality of economic policy by tracking the up-and-downs of the stock market. See http://jeffmiller.tumblr.com/post/80127342/still-not-change
February 24th, 2009 at 12:34 pm
“@16: No one said that profits don’t count. They do count. But corporate profits are 10-12% of GDP. Wages are 45% of GDP. Which should we pay more attention to?”
Why are liberals so innumerate and ignorant? Corporate profits are what is left over after the company pays its wages and other expenses. If corporate profits are dropping, or are a negative, the wages and jobs of the majority of Americans that works in the private sector are at risk.
You can’t have a healthy economy if corporate profits are tanking. That means jobs are disappearing and tax revenues are dropping too. The stock market is a bet on that, by millions of people with skin in the game. It doesn’t look good.
February 24th, 2009 at 12:38 pm
actually, fred, that’s not really true: free-market theory tells us that profits should be low as sellers compete.
actual existing oligopolies make it hard for the economy to be healthy if corporate profits are tanking….
February 24th, 2009 at 12:43 pm
neff,
The Clinton Administration was as close as the U.S. has ever gotten to having a libertarian president. From 1995-2001, Clinton could start no new spending program, could start no new regulatory program, and could not make major changes to th tax laws. The U.S. went six years with the rules and taxes staying the same. Business had six years of low uncertainity because nothing changed.
Since President Obama has Nancy Pelosi as the speaker of the house, I suspect that new spending and regulatory changes will be an annual occurance and something that business cannot anticipate. Look at how many industries are going to have to sit and wait for the Obama Administration and the Democrats in Congress to make major changes. Until the changes are know, there is no point to private sector investment.
February 24th, 2009 at 12:43 pm
This shilling-for-Obama job isn’t turning out to be the piece of cake Matt expected.
Poor Matt, it’s going to be a long four years…
February 24th, 2009 at 1:12 pm
Just caught this:
“First, employment starts trending up.”
Employment is a lagging indicator, Matt. Economics 101. Geez.
“actually, fred, that’s not really true: free-market theory tells us that profits should be low as sellers compete.”
Howard, you’re being deliberately obtuse. The precipitous drop in S&P 500 profits we’re seeing now isn’t due to increased competition (it can’t be, when companies are going out of business, which reduces competition) but to the worsening economy.
February 24th, 2009 at 1:30 pm
Nobody who looks seriously at investments for institutional investors ever uses either the Dow or the NASDAQ as proxies to measure performance. You look at the S&P 500 or the Wilshire 5000. That’s just a fact.
As for stock market performance as a proxy for presidential tending of the economy, I think it is generally a dubious measure, but if the right wingers want to go down that road, it’s worth noting that the S&P 500 has been negative 24 times in the last eighty years, 15 times during Republican administrations and 9 times during Democratic administrations. The parties both held the White House for 40 years of the last eighty (which is kind of a cool statistic). The S&P 500 has had double digit negative returns in 12 of those 80 years, 8 of which were under Republican presidents. The three worst comulative declines in the markets — 1929 – 1932; 1973-74; and 2000-2002 — all occurred under Republicans (with the exception of the 9% drop under Clinton in 2000). The two single year declines that were worst were -43.4% in 1932 under Hoover and -37% in 2008 under Bush.
February 24th, 2009 at 1:38 pm
Yesterday the Dow went down 250 points, over 3%.
Yet everyone on MSNBC was attributing it to talk over bank nationalization.
Somehow they didn’t notice that Citigroup, part of the Dow, was up over 11% yesterday.
The stock market was down yesterday based upon reports from chip makers who have figured out that chip production will decline due to falling demand. Software companies also fell (Microsoft and Oracle) for the same reason.
OTHO, airline stocks were up on news that oil fell below $40, even as production was cut.
Yet, still today, MSNBC is wondering why the President isn’t doing more to reassure the “markets”. Apparently they need a message to settle them down.
February 24th, 2009 at 1:51 pm
With the proper analysis, unemployment or employment are the earliest observable indicators of the end of a recession. When the second derivitive begins declining (using a seasonally adjusted 4 week moving average), and continues to decline for about 4 weeks, the recessoin is almost always over.
Employment numbers are a more accurate indicator than unemployment numbers, since the size of the workforce changes, however, unemployment numbers are usually easier to obtain quickly.
Accurate measurments of GDP are not really possible until about a year after the fact. Analysis of employment can detect the end of a recession about 45 weeks earlier.
Note:I think I inadvertantly said “when the second derivative changes sign” earlier. It is when the second derivative has peaked, or the third derivative changes sign.
February 24th, 2009 at 1:55 pm
fred, yes, i’m being obtuse, but for a reason: you were being overly broad. a “healthy market economy” does not rely upon high corporate profits; the kind of economy we actually have does.
tomj, it’s not as complicated as you think: to the market in general, the uncertainty over the future of the financial industry is a fearsome matter. to citigroup in particular, a reinforced message that the administration doesn’t want to nationalize is good news for shareholders, who don’t get wiped out.
February 24th, 2009 at 2:06 pm
I don’t think anyone doubts that broad movements in the stock market tell us something about the health of the general economy: clearly the 7,000 point Dow drop in 6 months or so is telling us we’re in a bit of dog doo. The bit that irritates the hell out of me is the day-to-day, “the Dow moved 80 points today on fears of blah blah” that fills CNBC and other financial channels.
February 24th, 2009 at 3:07 pm
S&P 500 companies account for about 9% of employment. All publicly traded companies combined account for about 27% of employment.
If circumstances change such that investors lose faith in the market, but don’t lose faith in business, you’d see more investing via loans. You’d see a decline in investment in publicly traded companies, but an increase in investment in privately held companies. You could have growth with a declining stock market.
This would not be so strange. Right now, a fair number of stocks are worthless. Many banks will see their shareholders wiped out, but their creditors will be paid something and their depositors will be paid in full.
February 24th, 2009 at 4:10 pm
If Austria’s banks do go down, due to collapsing Eastern European economies, it just might signal a wave of selling taking the Dow down into the six thousands. This will be interesting, as, essentially, we will be watching the explosion of America’s retirement at that point.
The two big supporters and generators of the right in the U.S. have been the gas companies and the financial sector. This is why the right wingers went apeshit about Theresa Ghilarducci’s suggestion that we can the tax breaks for 401(k)s and substitute government sponsored retirement accounts. Was it rush limbaugh who labeled her the most dangerous woman in America for that? I can’t remember the hired nut who did that. However, it will come to pass that the whole 401k system will be looked at, and not pleasantly, by a burned populace. The righwing thinks it is riding high at the moment cause it has consoldiated and has this wondrous Dixie base. But a state like South Carolina, with one of the highest percentages of unemployment and manufacturing in the sick bay, is unlikely to be backing up their libertarian guv’nor for much longer. Given the way the right has laid out its political plan, which could only appeal to a country club nitwit or one of the campfollowers, I dont think they are as secure in the South as they think they are. Hopefully, the Dems are following Dean’s old strategy and looking to run people in the South, because that country will be much more open in 2010.
February 24th, 2009 at 7:37 pm
So the Dow and the S&P gained today. That means that they like what Obama’s doing, right?
February 26th, 2009 at 8:55 am
“With the possible exception of things like box scores, race results, and stock market tabulations, there is no such thing as Objective Journalism. The phrase itself is a pompous contradiction in terms.”
-Hunter S. Thompson
March 1st, 2009 at 9:57 pm
In searching for sites related to web hosting and specifically comparison hosting linux plan web, your site came up.
March 15th, 2009 at 11:01 pm
Yeah, Sometimes it will happen.
April 6th, 2009 at 12:46 pm
Well said, finally a good report on this stuff