Reply #8: As a gauge of how well our economy is doing, the DOW sucks

[MadHound]

First off, the DOW isn't even a reliable bell weather of the markets, its sample size is too small. The DOW is only a composite look at thirty companies, that's it, thirty. Compare this to the S&P 500, or the Russel 3000.

With such a statisticly small sample, no wonder we see such wild swings in the market. Whereas a big day on the DOW involves swings of tens or even hundreds of points, on other indexes, the swings are in the single digits most of the time.

Also there is the matter of the Plunge Protection Team. This is a small cadre of financial bigwigs that was established by Reagan in 1988 as a reaction to the 1987 "Black Monday" market crash. Here's the relavent portion of that executive order:

Executive Order 12631 - Working Group on Financial Markets - Mar. 18, 1988; 53 FR 9421, 3 CFR, 1988 Comp., p. 559.

"By virtue of the authority vested in me as President by the Constitution and laws of the United States of America, and in order to establish a Working Group on Financial Markets, it is hereby ordered as follows:

Section 1. Establishment. (a) There is hereby established a Working Group on Financial Markets (Working Group). The Working Group shall be composed of:

(1) the Secretary of the Treasury, or his designee;
(2) the Chairman of the Board of Governors of the Federal Reserve System, or his designee;
(3) the Chairman of the Securities and Exchange Commission, or his designee; and
(4) the Chairman of the Commodity Futures Trading Commission, or her designee.

Section 2. Purposes and Functions. (a) Recognizing the goals of enhancing the integrity, efficiency, orderliness, and competitiveness of our Nation's financial markets and maintaining investor confidence, the Working Group shall identify and consider:

(2) the actions, including governmental actions under existing laws and regulations (such as policy coordination and contingency planning), that are appropriate to carry out these recommendations.

(b) The Working Group shall consult, as appropriate, with representatives of the various exchanges, clearinghouses, self-regulatory bodies, and with major market participants to determine private sector solutions wherever possible.

Section 3. Administration. (c) To the extent permitted by law and subject to the availability of funds therefore, the Department of the Treasury shall provide the Working Group with such administrative and support services as may be necessary for the performance of its functions."

So, instead of the "Invisible Hand" of the markets setting prices, we have political and corporate cronies guiding the markets, especially the DOW, since it is that index which gets the most publicity. This sort of meddling has turned the DOW from an educated crapshoot into an entirely rigged game, complete with loaded dice. I think that it is due to the actions of the PPT that we got the high priced bubble markets of the late ninties, and I think that it is the work of the PPT that is, at least in part, driving up the prices now. Bushco and Corporate America are desperate for people to suspend their disbelief and buy into the line that this is a great economy, when it really is a hollow shell getting ready to crumble.

And then there is the peculiar, inverse nature of the market itself. It's become an axiom that if a company wants their share price to go up, all they need to do is cut a few thousand jobs. Same thing with mergers, acquistions, busting labor unions, etc. Things that are good for the share price, good for corporate health are inversely bad for workers and the rest of us. Thus tying the real health of our economy, plentiful good jobs with decent wages, high purchasing power, low debt, etc, to the DOW becomes a futile exercise in hypocrisy and paradox. You simply can't tie the two together, now matter how many neo-con Friedman school economists try to do so.

The touting of the DOW as a barometer of our country's economic health is nothing more than a bad piece of propaganda. It was the Reagan/Bush cabal that started this false meme during the eighties, and sadly Clinton kept up that drumbeat during the ninties. Don't buy into it, because it will let you down everytime.