Dow Pushes 10,000 as Dollar Slide Continues

So long as Bernanke keeps interest rates close to zero, we will probably see the Dow skyrocket. Meanwhile the dollar continues to fall. So you can make money in equities, even though their value is fast becoming worthless. I shudder to think what is around the corner.

The Austrian School is highly critical of econometrics or the attempt to explain or prove economic theory based on quantitative measurements.

What distinguishes the Austrian School from other classical economic thought is that you cannot conduct economic experiments because the actors are individual people who make their own choices. As the person conducting the experiment you have no way to control or account for the range of reasoning used to make decisions and take certain actions. Experiments are possible in other sciences because they are conducted on inanimate objects. Biological experiments are problematic in this regard and are less definitive the more intelligent the species being experimented on.

Social experiments, are not possible with any degree of confidence in their repeatability or explanation. There can be no pure control group when dealing with human action.

The DJIA as a metric has serious flaws and is not consistent throughout its history. The S & P 500 is little better in this regard, and is rather new with not much in the way of historical data. The Wilshire 5000 is certainly a more comprehensive metric, but like the Dow, is manipulated and inconsistent over time as to exactly what each "point" is worth.

As an example of inconsistency, had Chevron not been removed as a Dow component in exchange for other stocks that lost value over that period, then it is possible that the Dow would have reached a high over 15,000. (Chevron has been recently restored to the Dow) Manipulating what stocks are in the average has a huge effect on the average itself. Thus it is not a reliable measure of economic health.

Additionally, the DJIA is a misnomer. For one, few if any of the component companies are industrial in nature. Some are telco's other financial or service based. Second, the DJIA is no longer an "average" of the prices of the component stocks as it originally was. The divisor currently, and has been for some time, less than one. Originally it was 12 which was the number of companies on the index. Today there are 30 companies listed. Yet the divisor is less than one. (about 0.132319125 currently I think) Therefore, it is easy to manipulate the Dow higher by finding an excuse to change the divisor to a lower number. This combined with swapping out companies on the index makes it a poor measure of performance over time and at best is a "snap shot" feature with no relation between individual snapshots.

There is also the not so small problem that the very existence of the various indices has an effect itself on human action. How many decisions are influenced just on the aggregate measures of the various market indices? Would those decisions have been the same if those metrics were not available or in existence?

The Austrian School focuses more on the process of making decisions in its study of economics more than on any quantifiable data point. In that respect the Dow may only be useful because so many people act on it, and thus an up or down movement may herald future actions based on this measure. (albeit flawed actions)

While the Austrian School has gained much criticism for this approach, history is proving them correct. Traditional economists of any school that employ econometrics have repeatedly failed to explain economic trends and fail to foresee future outcomes to a startling degree. Austrians on the other hand can not only tell you what to expect, but WHY, and how to avoid it if it is something bad. Their focus is on why people take certain action, not a number that says at what point they took it or how many took the action at all.

...to 15,000 they will achieve a 'break-even' mark!

Then everyone realizes that this still can't buy anything with the extra money they made!

I may not know the truth, but I know when I'm being lied to...

U.S. Stocks Rally as Dow Hits 10,000 for First Time in Year
By Sapna Maheshwari and Daniel Hauck

Oct. 14 (Bloomberg) -- U.S. stocks rallied, sending the Dow Jones Industrial Average above 10,000 for the first time in a year, on better-than-estimated earnings at JPMorgan Chase & Co. and Intel Corp. Oil climbed, while the Dollar Index slid to the lowest level since August 2008 and Treasuries fell.

JPMorgan added 2.8 percent as a surge in fixed-income revenue helped the bank increase profit almost sevenfold. Intel, the world’s largest chipmaker, rose 2.2 percent after its sales forecast topped estimates by as much as $1 billion. Macy’s Inc. and Nordstrom Inc. gained on a government report that showed retail sales fell less than economists forecast last month.

The Dow jumped as much as 130.52 points, or 1.3 percent, to 10,001.58 for its first advance above 10,000 since Oct. 7, 2008. The Standard & Poor’s 500 Index increased 1.4 percent to 1,087.63 at 1:25 p.m. in New York as financial and technology shares led gains. The MSCI World Index of 23 developed countries added 1.6 percent.

http://www.bloomberg.com/apps/news?pid=20601087&sid=amsnf8SE...

"There can be only one permanent revolution - a moral one: The regeneration of the inner man."
—Tolstoy

gold and silver are parting ways. That is unusual because usually when gold goes up so does silver and when it goes down so does silver. This time gold is down and silver is up. Could this be average people keeping the price of silver up are the big boys going to buy it all up to keep the little people out of the market.

Its doublethink. We are in the midst of our dollar going belly up and the stock market rallies? How can or dollar loosing its top place in the world bring the stock market back to 10k? No new jobs have been created. No public works. People are still being laid off. Businesses are still going bankrupt. Housing is still in free fall status. Healthcare is looking like its going to go through. The FED is still manning the printing press.

Where does a market rally in all this mess? Where are the investors coming from? Who is investing?

If the FED has the printing press and the market is rallying could it not be that the FED it the only institution propping up the ponzi scheme? They'll do it long enough so that they can move their people out from underneath the falling tent.

It's going to be a dark Christmas.

http://globaleconomicanalysis.blogspot.com/

Should have jumped on some big name stocks down at 6600, oh well. I would not touch the big boys now, this is nothing but one last gasp. Iif this continues we see oil spike and interest rates go up. That means it all comes crashing back down.

What a heck of a game the Wall Street crowd is playing. They aren't getting a cent of my savings!

Getting Ready for 2012!
http://garyjohnson2012.blogspot.com/

I was under the impression that with the dollar devaluing due to inflation that the DOW would in fact go up on inflated numbers. Is this not true?