Overhauling the Dow Jones

I read today about a debate that’s been going on about whether or not the Dow Jones Industrial average should be overhauled to show a more “accurate” picture of the nation’s economy. As far as I can tell, the argument is that since the long established names like GE, GM and Alcoa are all having such a miserable time, the analysts feel as though they may no longer be good indicators of the market as a whole. This may in fact be the case or it may not be, but either way it leads me to think. Is this a “slippery slope”?

One of the reasons that we establish indexes in the first place is so that we have a free-standing measure to gauge things by. The companies that are a part of the DOW are companies that, when you really think about it, represent a broad sector of the greater economy. For instance, in addition to the aforementioned three which are in the electronics, automotive and Aluminum fields, there are banks like B-of-A and Citigroup, the oil and gas companies Chevron and Exxon, technology companies like Microsoft and Intel and miscellaneous food, entertainment and retail companies like Kraft, Disney and Wal-Mart. (You can find the entire listing here). So you can see it pretty much covers all the big components of our economic picture. So here’s the 10 million dollar question (Read: 800 billion dollar question.) Is the Dow outdated, or are we really just that bad off right now?

I submit that I think it's no more logical to “overhaul”, “revamp” or “update” the Dow Jones Industrial average than it is for one of my kids teachers decide to re-define course requirements because too many of the students are failing. (This is something I’ve seen as a matter of fact and thought to be incredibly shortsighted.) The poor performance, whether it is students or economic entities, is not due to the measure being used it is due to some systemic problem that has revealed itself by way of that measure. The grades and the stock ticker numbers are only indices. They don’t make the problem, they only report it. To take away or change the method that the index is pulled from immediately weakens the entire process. How are we supposed to have confidence that the market is really getting better in the future if we know that when it got really bad the powers that be decided to “tweak” the numbers. Who’s to say that in another ten years Google (which is one of the companies being tossed around as a new member of the index) won’t be defunct and irrelevant?

Now I’m no great economic thinker mind you; in fact I’m novice at best. The thing that gets me so spun up about this stuff is that we seem to be continually moving in this direction and with so many things. I don’t know where it can lead us but to ruin. The facts as I see them are irrefutable and constant. We can’t have a gain without a loss like we can’t have light without dark; the higher the gain, the greater the equivalent loss. If you look at the history of our money with respect to the Dow Jones you’ll see something interesting. For the 39 yr period from Jan. 1930 thru Jan. 1969 the Dow rose from 286 to 935, a gain of over 300%. Great right? Now look at the period from Jan. 1969 to Jan. 2007. In that period the Dow soared from that 935 number to 12,354, a gain of over 1300%! How? Did we suddenly have more money? Did we enter a golden age of phenomenal wealth building? Well yeah, kind of, we changed the way we counted our money in 1971 when we completely pulled it off the gold standard. Once that pesky physical limitation was lifted we were only dealing with numbers. Credit use soared, personal savings dwindled and the market went through the roof.

Unfortunately for us, I think we're in the hangover phase right now. The Dow has dropped something like 49% from October 2007. That's 3% per month. So should we change the way we measure it? No, I don't think so. What I do think may be good for us is to really take a hard look at the decisions we make, how we save our money and how we spend it. The Dow is just one of our indicators. It doesn't need to be changed with breezes it just needs to be seen for what it is. Our economy is not healthy right now and there's no reason to change things just to make us feel better, or worse yet to make us complacent enough so that we go out and spend again.

That's about all I have to say on the matter before I start rambling so I'll check out now. Hope you all have a great day tomorrow.
Namaste
P~

What do you think?

I was thinking to myself yesterday, as I checked in on the news about the potential bailout...err credit availability and liquidity security measures (my words, not theirs.) that are pending approval of the Congress currently, what would happen if they didn't bail them out?

Let me first say that this is a thought process, not an opinion piece. I haven't made up my mind on this whole thing yet, whether I think it's a good idea or not that is. My first instinct tells me to say no, don't do it. I believe in the power of the free-market and that it can correct itself and fill a vacuum when it exists. If a business doesn't manage itself well or provide a product that is in demand, it goes away. But can a single industry be so integral to a nation's survival that allowing it to dissolve would surely doom the nation itself to mass economic suffering or would it's failure merely set the nation on a new and different path - one that could benefit it in the long run?

As I said, I don't have the answers, I won't even pretend that I do, but I do have some ideas that I'm trying to weigh as I come to grips with things. For instance, let's say the big 3 don't get the billions they are asking for. Now we have potentially a million people out of work, what do they do? What did people in that part of the country do before cars came along? Could they potentially fill the labor shortage we keep hearing about? You know, the one that warrants all of the undocumented laborers coming into the country because "no-one else will do these jobs." Maybe. And maybe with that kind of mass labor pool available to us, we could start to get some of our farms in that part of the world producing actual food, since one of the big arguments against sustainable agriculture is that it takes too much labor to do.

But would they be able to live in such a way? Are we headed for a deflationary spiral, that's what the Great Depression was thought of as, where the cost of goods will "reset" itself to a low enough level that a person could live respectably on less? Or perhaps the changes and challenges facing us will bring us through to a new place, where we don't think we need as much to feel like we're living respectably?

Another thought, the one that really ruffles my feathers, is that even though I, as previously mentioned, believe in the free-market I don't know how long I can continue it? Is it still free? I mean have we gotten to a point where politicians need so much money to get into position that the only way they can get it is by getting in bed with big corporations which by default makes them beholden to them later? How skewed are the rules when the bigger a corporation is, the more it is potentially able to get bailed out by the gov? Mom and pop don't get bailed out if they can't compete with Big box "X". How is that free market?

What's your opinion of these bailouts, both past and potential? I'm still agnostic on them. There's too much to take into consideration. I guess I'm just glad to have a good job, and to have a great bunch of "sounding boards" like you all out there...

I guess I've rambled on enough for one night... till next time.

I'm so sick and tired of this...

Really, I swear I am going to scream and begin to pull out my ha…. well, I don’t have much hair, but if I did I’d pull it out I swear! Ok, Ok, so what am I losing it about? This whole debate we just had over the $700 billion “bailout” or “rescue” or “economic life raft” that just passed. It’s not the fact that they debated it that’s bugged me, it’s HOW they debated it!

When I hear a politician interviewed from one side or the other, I don’t hear about the pro’s or con’s of the package; the merits versus the liabilities. What I kept hearing was this partisan crap about how “This was the result of poor regulation by the Republican administration”, or “In January 2005 the Republicans and John McCain warned about the need for more oversight and regulation of Fannie and Freddie and the Democrats killed it. It’s their fault.” I’m tired of it! What do I think caused this problem? To a great degree I agree that inaction and wrong decisions on both side of the isle allowed us to get to the point we are, but I don’t believe it caused it. That, I believe, came primarily from greed and complacency. And now we have a $700 billion, pork laden mess to reckon with and for our kids to pay off. Thanks guys... but is it all their fault?

We live in a society that for the large part espouses more and more, faster and faster and looks poorly on you if you can’t keep up. It’s true whether we like it or not. It’s no different from the root of many of the problems that face us today, I don’t think. Basically, greed and desire got the better of us as a nation. I mean who can blame us, we’re bombarded at nearly every corner by something that we need to have, and if we do manage to resist, our kids come home with all the stuff they need to have to "complete them". (At least in their eyes and the eyes of their peers.) So of course when companies start offering loans with all kinds of “perks” like no money down, no need for verifiable income, interest only ARM’s etc. a lot of us that are not economists and tend to trust the establishment at large are going to take advantage of it. Or better yet we can take the “equity” that we have in our now artificially inflated home prices and use that to get the new toy du jour that we need to have. Now we can have our cake, eat it, and pay for it over the next thirty (and sometimes even 50!) years with simple small installments. Oh yeah, but wait, wasn’t that kind of what happened just before the Great Depression? Paper money income, that is not to say actual FIAT currency but rather “investment” income from the stock market was so high that wall street and even the public at large felt it had reached a permanent plateau. Banks even began lending money to people to buy stocks at a rate of nearly two thirds the price of the stock. It was considered a totally safe practice. Sound familiar? So here we are, facing an economy that has basically forced the government to come to us with hat in hand, strike that…BAT in hand to scare us into approving this massive bail out that will possibly fix the problem in the very short term but opens a can of worms that could cause much more serious ones in the future.

So back to the crux of this problem. Who caused it? Who’ll save us from it? Well, I think that's going to rest pretty squarely on the shoulders of the same people that I just blamed for a majority cause in the problem... we the people. Oh sure, I totally agree that some serious regulatory oversight needs to be put in place, but I also think that we need to rethink a few of the things that have been driving us for the last 20 or so years. For many of us, a good majority of our adult lives. On the up-side, I think we're starting to get there. I hear more and more about people choosing to "live more simply", or making choices about what they consume, rather than just running on autopilot. It's a good thing. The more dialogue we can get started about this stuff, the more acceptable it will become and the more people will start paying attention.

As for the politics of the issue, well I'm sorry to say I've become a pretty big pessimist in the last couple of years. As of right now, I'm not voting for either of the candidates. I've seen no specific economic plans, short of more hand outs, from either of them, no energy plan other that to say they'll drill more and expand alternatives (A nice soundbite, but HOW? That's what I want to know.). Basically it just seems that both the candidates are leaving me with the old lesser of two evils choice, and I'm so sick and tired of that too! I am, my family is, my readers are, our nation is more important that the lesser of two evils.

Just my opinion...Care to share yours?
P~