Reflections on a Dow

The Dow Jones Industrial Average (DJIA) went down 250 points today closing at 7115. By now the bets are out, will it dip below 7000, will it actually touch the sixes? It seems to be all a game now. My retirement savings are tied up in this one market where I am supposed to stake my future economic survival and Wall Street is marginalizing its components, its rationale and by extension, its very being. It is betting on losers to survive e.g. GM with a market cap of less than $1 billion now wants to borrow up to $30 billion, that is the same type of leverage that caused this whole card house to fall.

The DJIA used to be based on something - a small group of well-run firms that have a great product, steady earnings and reasonable growth; a metric by which we could gauge the performance of all companies trading on the stock market. But over the last decade, the more we hailed the quarterly earnings, the more we zoomed in on government reports on various sectors of the economy i.e. gdp, unemployment, and indices for consumer spending, housing and inflation was the more we staked on the Dow telling us on a daily basis where we were. If those numbers changed, the Dow had to change and those underlying companies on which the Index is based had better report good numbers or risk the worst kind of scrutiny and derision.

Others said the Dow wasn't enough to portend the market, the S&P 500 was a better guide. It doesn't really matter now, though. Somehow, the greedy ones raced over to a rainbow that disappeared; a pot of gold that really wasn't there so they faked the numbers and kept on going. Now we all have to give it all back in the numbers - our house values continue to fall, our stock portfolios are off 50% and we can't get any more credit to buy anything. Now the Dow is left to swing wildly 100s of points at a time back and forth between Investor Fear and Investor Confidence making it very difficult to have any faith in it for it truly looks to have separated completely from the fundamentals that made it a reliable bellwether.


P.S. The Dow will not break six tomorrow because the market won't allow it. They (investors) are not ready for that kind of shock though it is not impossible that the 6000 level cannot be reached on a later date.