rssDow Jones Crosses Intrinsically Meaningless Milestone
Friday, April 09, 2010 at 5:30 pm
- 26 Comments
Investors, rejoice! The Dow Jones Industrial Average has crossed the 11,000 mark for the first time since September 26, 2008. The news has caused much breathlessness in a financial blogosphere hungry for good news. But, to throw some cold water on the situation, the number 11,000 is no more meaningful than, say, 7 or 912,384. Rising stock prices make money for investors and bring new entrants into the stock market. But they have only a tangential relationship to macroeconomic fundamentals. And, soberingly, having the Dow at 11,000 puts us precisely where we were in May 1999.
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26 Comments
Pingback posted April 9, 2010 @ 6:59 pm
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Comment posted April 10, 2010 @ 3:35 pm
Not only are these round number milestones meaningless, the more fundamental error is that it's a good thing for investors when the market goes up. That depends on where you sit. It is good if you are “long” the market and a net seller, but it's a bad thing if you are “short” — and anyone who is a net buyer of stocks — such as a young person investing for retirement — is effectively “short” the market. If anyone in the financial media gets this he is not letting on, because all of them, all the time, treat a rising market as the best of good news for everyone. Advice to investors: pay no attention whatsoever to the financial media; get a few good books and study the actual financial reports of corporations.
Comment posted April 10, 2010 @ 4:03 pm
To say it isn't more meaningful than 7 or 912,384 isn't entirely true. Yes, the number in and of itself isn't any more or less meaningful, but humans being what they are often make decisions based on numbers of particular values.
For example, if a large enough group of people says, “I'm waiting for the market to hit 11,000 before I feel confident enough in economic fundamentals to start hiring again” then indeed, the number 11,000 suddenly has a great deal more significance than 7 or 912,384.
You can't completely overlook the psychological factors in play with the market, silly as they might be, because these are still human beings influenced by emotion and nostalgia who are making it work.
Comment posted April 10, 2010 @ 7:16 pm
Transcending the question of intrinsic vs symbolic meaning of these numbers is one stone cold fact:
Despite the doom & gloom prognostications of Obama/HCR critics, the market has continued to trend up & up & up in the wake of passage of the HCR bill.
Pingback posted April 11, 2010 @ 11:59 am
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Comment posted April 11, 2010 @ 4:31 pm
“Dow Jones crosses intrinsically meaningless milestone.”
Actually, it's a healthy reminder that the Goldbugs and all the so-called experts who've been predicting a 'major correction' month after month since Obama took office are complete wrong.
Either Annie Lowrey doesn't know of these people or doesn't care.
Comment posted April 12, 2010 @ 3:41 pm
This news is actually double-meaningless, since if you apply the BLS inflation calculator, todays 11,000 is equivalent to 8,740 in 2000. Toactually match 2000, the Dow needs to break 13,845
Pingback posted April 12, 2010 @ 7:31 pm
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