If the market hits 12K do I get a bonus?
October 19, 2006 1:20 PM Subscribe
EconomyFilter: I have a difficult time figuring out why the Dow Index breaking 12,000 translates into anything good for the average person on the street. Help me understand!
I don't know any better way to say this - but even if the market is doing really well, that doesn't necessarily mean people are the direct beneficiaries of company profit or growth. Companies record profit and distribute back those gains into their own chosen vehicles whether employees, debt, savings etc...
Following that logic - no matter how great the market is doing it has no reflection on what (pardon the 80s lingo) what "trickles down" to the average Joe or Jane.
Also, the Dow Index is now labelled as "psychological" indicator which to me means it has no relevance. Is this the case?
Can anyone give me a quick market lesson?
I don't know any better way to say this - but even if the market is doing really well, that doesn't necessarily mean people are the direct beneficiaries of company profit or growth. Companies record profit and distribute back those gains into their own chosen vehicles whether employees, debt, savings etc...
Following that logic - no matter how great the market is doing it has no reflection on what (pardon the 80s lingo) what "trickles down" to the average Joe or Jane.
Also, the Dow Index is now labelled as "psychological" indicator which to me means it has no relevance. Is this the case?
Can anyone give me a quick market lesson?
Because "the average person on the street" does, in fact, own some stock--often in a retirement account. Stock ownership is not limited to the rich. So when stocks are up, that benefits much of the middle class.
posted by DevilsAdvocate at 1:26 PM on October 19, 2006
posted by DevilsAdvocate at 1:26 PM on October 19, 2006
To me, it means that if current trends continue I actually will be able to retire in 35 years, when I reach my mid-60s.
To my parents, it indicates they'll probably get bigger dividend payouts than they would have gotten otherwise.
To my grandparents, it means they'll continue to stay in their swanky retirement home instead of selling everything and moving into a much more basic facility.
OK, the 12,000 number itself doesn't mean those things. 12,000 is just symbolic. But it symbolizes something important: that publicly-traded companies are doing well, earning good profits, and probably hiring new staff and buying capital equipment -- good things for the overall health of the economy.
posted by croutonsupafreak at 1:32 PM on October 19, 2006
To my parents, it indicates they'll probably get bigger dividend payouts than they would have gotten otherwise.
To my grandparents, it means they'll continue to stay in their swanky retirement home instead of selling everything and moving into a much more basic facility.
OK, the 12,000 number itself doesn't mean those things. 12,000 is just symbolic. But it symbolizes something important: that publicly-traded companies are doing well, earning good profits, and probably hiring new staff and buying capital equipment -- good things for the overall health of the economy.
posted by croutonsupafreak at 1:32 PM on October 19, 2006
it's an indicator telling you how a group of the most important publicly traded companies are doing. the better they do, the more confident they are, the more they spend and hire... it's a circular motion.
and yeah, my portfolio is 20% up from 15 months ago, which makes me very, very happy.
posted by krautland at 1:34 PM on October 19, 2006
and yeah, my portfolio is 20% up from 15 months ago, which makes me very, very happy.
posted by krautland at 1:34 PM on October 19, 2006
...even if the market is doing really well, that doesn't necessarily mean people are the direct beneficiaries of company profit or growth.
This is, of course, correct, and for people who are stuck in low-wage jobs and who do not participate in the equity markets, it is likely going to be especially difficult to identify any direct benefits from a rising Dow.
However, consider this - according to the Securities Industry Association (SIA) - [PDF link], roughly half of US households own stock shares either directly or through a mutual fund (this figure includes stock held in pensions, IRAs and 401(k)s.)
So a rising DJIA indicates that the value of investments held by investors--who really constitute a much larger percentage of Americans than most people realize--is going up.
posted by enrevanche at 1:36 PM on October 19, 2006
This is, of course, correct, and for people who are stuck in low-wage jobs and who do not participate in the equity markets, it is likely going to be especially difficult to identify any direct benefits from a rising Dow.
However, consider this - according to the Securities Industry Association (SIA) - [PDF link], roughly half of US households own stock shares either directly or through a mutual fund (this figure includes stock held in pensions, IRAs and 401(k)s.)
So a rising DJIA indicates that the value of investments held by investors--who really constitute a much larger percentage of Americans than most people realize--is going up.
posted by enrevanche at 1:36 PM on October 19, 2006
I do not agree that the "Average" person owns stocks, or for that matter has a retirement account.
The stock market in the long run does have some ties to the unemployement and inflation rate, so if thing are good there, then hopefully the numbers on those two index's which do directly effect the "average" person would be more beneficial
posted by crewshell at 1:36 PM on October 19, 2006
The stock market in the long run does have some ties to the unemployement and inflation rate, so if thing are good there, then hopefully the numbers on those two index's which do directly effect the "average" person would be more beneficial
posted by crewshell at 1:36 PM on October 19, 2006
It doesn't. The Dow Jones is a pretty meaningless stat when it comes to determing anything of substance. The Cruncher article in the last Newsweek explains why.
posted by absalom at 1:37 PM on October 19, 2006
posted by absalom at 1:37 PM on October 19, 2006
The Dow is actually just 30 companies, but here's why it breaking record highs is good:
1) The 30 companies are chosen to represent a crossesction of all major industries. If these companies are doing well, usually their competitors are doing well also. It's a general sign that business and economy is doing well.
2) I recently heard that 75% of all American families have a direct financial interest in the stock market. Obviously, when stocks are roaring these folks benefit.
3) If corporate profits are up, they're likely to reinvest in R&D or hire new labor to expand. This is where the trickle-down effect really happens.
4) When the stock is up, companies may sell their own shares to raise money, also for R&D, labor, etc.
I know it seems like its just the Wall Street fat-cats that benefit, but in the last 20 years Joe Blow has really taken an interest in the stock market. It really is a good thing, for almost everyone!
posted by b_thinky at 1:39 PM on October 19, 2006
1) The 30 companies are chosen to represent a crossesction of all major industries. If these companies are doing well, usually their competitors are doing well also. It's a general sign that business and economy is doing well.
2) I recently heard that 75% of all American families have a direct financial interest in the stock market. Obviously, when stocks are roaring these folks benefit.
3) If corporate profits are up, they're likely to reinvest in R&D or hire new labor to expand. This is where the trickle-down effect really happens.
4) When the stock is up, companies may sell their own shares to raise money, also for R&D, labor, etc.
I know it seems like its just the Wall Street fat-cats that benefit, but in the last 20 years Joe Blow has really taken an interest in the stock market. It really is a good thing, for almost everyone!
posted by b_thinky at 1:39 PM on October 19, 2006
Approximately half of US households own some stock, according to the Federal Reserve.
posted by blue mustard at 1:39 PM on October 19, 2006
posted by blue mustard at 1:39 PM on October 19, 2006
Is this about the Dow, or about stock market reporting in general? As has been mentioned, the Dow is not particularly representative of the market as a whole. Not many people own Dow index funds. And recently it's been going up because its components have been doing well indvidually, like IBM or Intel.
But it seems like you don't see the point of reporting any any stock info, because most people don't have any stock. I would disagree and assert that enough people do care for them to report it.
posted by smackfu at 1:44 PM on October 19, 2006
But it seems like you don't see the point of reporting any any stock info, because most people don't have any stock. I would disagree and assert that enough people do care for them to report it.
posted by smackfu at 1:44 PM on October 19, 2006
Best answer: The increase is artificial, geared to the election - surely you realize that? It's hardly a coincidence that the market is going up and the cost of gas is going down just weeks before a very critical election, when those things are controlled - to a certain extent - by the Republicans. No one has made a dime unless they have stock and sell it to take the profit. Wait a year and see what the economy is doing then. The country's debt hasn't gone away. Unemployment and insecurity are rising. Pay no attention to the man behind the curtain at your peril.
I'm a deeply disenchanted Republican - one who DOES profit when the market goes up. I know better.
posted by clarkstonian at 1:57 PM on October 19, 2006
I'm a deeply disenchanted Republican - one who DOES profit when the market goes up. I know better.
posted by clarkstonian at 1:57 PM on October 19, 2006
If companies tend to be doing well, they are less likely to focus on cutting costs, and more likely to focus on growing the business. That's good for even the average worker, because cost cutting is most likely to land on them, either through reduction of benefits, or layoffs/restructuring.
posted by Good Brain at 1:59 PM on October 19, 2006
posted by Good Brain at 1:59 PM on October 19, 2006
Funmonkey1, I admit I am reading into your question a bit, but I'm guessing you don't have any investments in the stock market, reasoning that "the average man" doesn't invest. Others on this thread have already shown this to be a false assumption.
If you haven't yet begun investing or planning for retirement, I think it would serve you well to get educated in this area. You are missing out on a huge opportunity to build wealth over time. Looking at your blog, I am guessing you are in your early to mid twenties, which is a perfect time to start, and a really bad time to be rationalizing that you can always start later.
Many many people will tell you that they heartily wish they had begun investing far younger. Compound interest is magical, almost shocking when you start young. Getting reasonable returns is honestly not that difficult. Getting 10x returns is, and that's what gets the press, but getting decent year over year growth in the long run is all but assured for a reasonably diverse portfolio.
Apologies for all the assumptions. If they aren't true for you, they certainly are for some of the readers of this post.
posted by Invoke at 2:04 PM on October 19, 2006
If you haven't yet begun investing or planning for retirement, I think it would serve you well to get educated in this area. You are missing out on a huge opportunity to build wealth over time. Looking at your blog, I am guessing you are in your early to mid twenties, which is a perfect time to start, and a really bad time to be rationalizing that you can always start later.
Many many people will tell you that they heartily wish they had begun investing far younger. Compound interest is magical, almost shocking when you start young. Getting reasonable returns is honestly not that difficult. Getting 10x returns is, and that's what gets the press, but getting decent year over year growth in the long run is all but assured for a reasonably diverse portfolio.
Apologies for all the assumptions. If they aren't true for you, they certainly are for some of the readers of this post.
posted by Invoke at 2:04 PM on October 19, 2006
EconomyFilter: I have a difficult time figuring out why the Dow Index breaking 12,000 translates into anything good for the average person on the street.
The Dow Index breaking 12,000 does not translate into anything good for the average person on the street.
This has been another edition of simple answers to common questions.
(Longer answer: The business section of newspapers is written to appeal to a very narrow market segment which doesn't really exist anymore. In the pre-electronic era, the newspaper was how you learned about market-affecting news. Thus the "Business" section, with its pages of tiny-print stock market info for the previous day and market moving and shaking. Now, in the era of 24-hour news channels, the news people need as much filler as possible, which is why every newscast includes extensive sports scores, business blurbs, and the weather. All of this is filler, with almost zero production costs. The problem is, reading/viewing this every day, you get infected by the attitude of business reporters that what is good for business is also good for you. What's good for business is often bad for individuals - for instance, when average wages go up, business reporters report it as it if was a bad thing, even though it is a good thing for individuals. This is a long-term, pernicious bias in the capitalist world for the owners of capital and against labor.)
There are many more unemployed people in the United States today than when GWB took office. Average wages are flat over the past six years. The average person in the U.S. is sucking wind, as far as the economy goes.
posted by jellicle at 2:25 PM on October 19, 2006 [1 favorite]
The Dow Index breaking 12,000 does not translate into anything good for the average person on the street.
This has been another edition of simple answers to common questions.
(Longer answer: The business section of newspapers is written to appeal to a very narrow market segment which doesn't really exist anymore. In the pre-electronic era, the newspaper was how you learned about market-affecting news. Thus the "Business" section, with its pages of tiny-print stock market info for the previous day and market moving and shaking. Now, in the era of 24-hour news channels, the news people need as much filler as possible, which is why every newscast includes extensive sports scores, business blurbs, and the weather. All of this is filler, with almost zero production costs. The problem is, reading/viewing this every day, you get infected by the attitude of business reporters that what is good for business is also good for you. What's good for business is often bad for individuals - for instance, when average wages go up, business reporters report it as it if was a bad thing, even though it is a good thing for individuals. This is a long-term, pernicious bias in the capitalist world for the owners of capital and against labor.)
There are many more unemployed people in the United States today than when GWB took office. Average wages are flat over the past six years. The average person in the U.S. is sucking wind, as far as the economy goes.
posted by jellicle at 2:25 PM on October 19, 2006 [1 favorite]
A few issues, here:
1) The Dow Jones is, for the reasons mentioned above, a far-from-perfect indicator of how stocks in general are performing. The S&P 500 average has roughly 470 more stocks in it than does the DJIA.
2) While it's a common talking point that about half of all households own some stock, "In 1998, while 48 percent of households owned some stock, only 36 percent had total stock holdings worth $5,000 or more and only 32 percent owned stock worth $10,000 or more." (Yeah, that's a bit of an old stat, but things haven't changed drastically, and I didn't feel like Googling around any more on it). So, the direct impact of a rising stock market on the average guy in the street might be minimal.
3) But, a rising stock market generally indicates that businesses are doing well, and that there's optimism about business performance in the near term. So there's more money out there being invested, more economic activity going on, and more jobs out there to be had.
So, even though the correlation is imperfect and may be removed at a couple steps, a rising market is good news for the average person. The exact amount of its goodness can be debated, and has varied in different circumstances. But surely a rising Dow Jones is preferable to a declining one.
posted by ibmcginty at 2:31 PM on October 19, 2006
1) The Dow Jones is, for the reasons mentioned above, a far-from-perfect indicator of how stocks in general are performing. The S&P 500 average has roughly 470 more stocks in it than does the DJIA.
2) While it's a common talking point that about half of all households own some stock, "In 1998, while 48 percent of households owned some stock, only 36 percent had total stock holdings worth $5,000 or more and only 32 percent owned stock worth $10,000 or more." (Yeah, that's a bit of an old stat, but things haven't changed drastically, and I didn't feel like Googling around any more on it). So, the direct impact of a rising stock market on the average guy in the street might be minimal.
3) But, a rising stock market generally indicates that businesses are doing well, and that there's optimism about business performance in the near term. So there's more money out there being invested, more economic activity going on, and more jobs out there to be had.
So, even though the correlation is imperfect and may be removed at a couple steps, a rising market is good news for the average person. The exact amount of its goodness can be debated, and has varied in different circumstances. But surely a rising Dow Jones is preferable to a declining one.
posted by ibmcginty at 2:31 PM on October 19, 2006
The increase is artificial, geared to the election - surely you realize that?
Ah, yes, the grand conspiracy. Even in something as complex as the stock exchange, there's a mass, coordinated effort to keep stocks high (which, of course, involves people willing to sell and others willing to buy -- both sides of the equation being on the same *wink wink* page as far as the desired outcome, even though the buyer is agreeing to buy artificially high -- exposing himself to a future loss -- in your fevered imagination).
Funmonkey1, please ignore clarkstonian's baseless speculation. The truth is that the Dow being high suggests, in broad terms, that the companies in the Dow index are doing well. One can, to a certain degree, extrapolate from that to say companies on a whole are doing well. If companies on a whole are doing well, they make more money available for investment (circulating money in the economy), and if they are in a growth phase, they will create more jobs.
posted by pardonyou? at 2:46 PM on October 19, 2006 [1 favorite]
Ah, yes, the grand conspiracy. Even in something as complex as the stock exchange, there's a mass, coordinated effort to keep stocks high (which, of course, involves people willing to sell and others willing to buy -- both sides of the equation being on the same *wink wink* page as far as the desired outcome, even though the buyer is agreeing to buy artificially high -- exposing himself to a future loss -- in your fevered imagination).
Funmonkey1, please ignore clarkstonian's baseless speculation. The truth is that the Dow being high suggests, in broad terms, that the companies in the Dow index are doing well. One can, to a certain degree, extrapolate from that to say companies on a whole are doing well. If companies on a whole are doing well, they make more money available for investment (circulating money in the economy), and if they are in a growth phase, they will create more jobs.
posted by pardonyou? at 2:46 PM on October 19, 2006 [1 favorite]
Dean Baker addressed this in a recent blog post titled The Stock Market Is Not the Home Team.
posted by gsteff at 2:51 PM on October 19, 2006
posted by gsteff at 2:51 PM on October 19, 2006
It has, or could have, at least one absolutely, massively important benefit for the average person on the street.
It gives those foreigners who have grown tired of losing so much money from the decline of the dollar brought on by the unprecedentedly enormous Bush deficits, and from making the dollar their exclusive reserve currency, something to do with the dollars they are now increasingly replacing with euros, other than the constant and constantly growing temptation they have been facing till now of selling them suddenly on the open market.
If they sold them abruptly on the open market it could very well (probably?) cause a catastrophic drop in the dollar such as we saw in the ruble after the collapse of the Soviet Union, but intensified in the case of the dollar because it would be followed instantly by an influx into the US of foreign holders of US debt, currently amounting to more than $2 trillion, frantically looking for something tangible to convert their dollars into before they lost most of their value.
In this dire scenario, the average person could wake up one day into a nightmare in which necessities of life had gone up in price by some multiple, and the very fabric of the country was owned by foreigners (much more than it is now, that is).
I can only wish I knew how inevitable such a day of reckoning might be, but a rapidly rising stock market does offer the prospect of postponing it, whatever the case.
posted by jamjam at 2:58 PM on October 19, 2006
It gives those foreigners who have grown tired of losing so much money from the decline of the dollar brought on by the unprecedentedly enormous Bush deficits, and from making the dollar their exclusive reserve currency, something to do with the dollars they are now increasingly replacing with euros, other than the constant and constantly growing temptation they have been facing till now of selling them suddenly on the open market.
If they sold them abruptly on the open market it could very well (probably?) cause a catastrophic drop in the dollar such as we saw in the ruble after the collapse of the Soviet Union, but intensified in the case of the dollar because it would be followed instantly by an influx into the US of foreign holders of US debt, currently amounting to more than $2 trillion, frantically looking for something tangible to convert their dollars into before they lost most of their value.
In this dire scenario, the average person could wake up one day into a nightmare in which necessities of life had gone up in price by some multiple, and the very fabric of the country was owned by foreigners (much more than it is now, that is).
I can only wish I knew how inevitable such a day of reckoning might be, but a rapidly rising stock market does offer the prospect of postponing it, whatever the case.
posted by jamjam at 2:58 PM on October 19, 2006
The Baker piece is funny. He essentially lays out three reasons why the stock market might rise: (1) the overall economy is improving, (2) businesses are taking advantage of corporate tax breaks, etc., or (3) there is "irrational exuberance" in the market. He then makes the huge leap that -- ignoring number (1), which is usually the best explanation -- the stock market has "no general public interest." I would argue that (2) is very rare, since those things would have to be new, and would be well known (since they would have to apply broadly to really influence the movement of the stock market). It also would be highly unlikely to explain rising trends of any length of time, since markets absorb and adjust to new regulatory changes almost immediately. (3) is also fairly rare, although it certainly does happen, and is something that the average person should be concerned about. But to state categorically that the market has "no general public interest" is hilarious. It's pretty hypocritical for Baker to criticize reporters for showing bias.
posted by pardonyou? at 3:04 PM on October 19, 2006
posted by pardonyou? at 3:04 PM on October 19, 2006
I think it's annoying that people point to "class bias" and say the stock market has no affect on the "average man."
By definition half of us are above average, and the above average population will include both Republican and Democrats. Let's try to remove politics from the discussion of whether or not the stock market increases are good for the average person, and just recognize that higher markets are generally a good thing.
Sure, people directly invested in increasing stocks will benefit more, but even if you're not invested you'll eventually gain some (smaller) benefit when people spend their profits.
The Dow is up about 14% YTD and that's not including dividends. This is a great thing. Now, injecting politics back into the discussion, the markets will probably sell off if Democrats take control of the House and the Senate, as people will want to book profits before taxes are raised.
posted by b_thinky at 3:22 PM on October 19, 2006
By definition half of us are above average, and the above average population will include both Republican and Democrats. Let's try to remove politics from the discussion of whether or not the stock market increases are good for the average person, and just recognize that higher markets are generally a good thing.
Sure, people directly invested in increasing stocks will benefit more, but even if you're not invested you'll eventually gain some (smaller) benefit when people spend their profits.
The Dow is up about 14% YTD and that's not including dividends. This is a great thing. Now, injecting politics back into the discussion, the markets will probably sell off if Democrats take control of the House and the Senate, as people will want to book profits before taxes are raised.
posted by b_thinky at 3:22 PM on October 19, 2006
jamjam: if the foreigners owning dollars suddenly sold all their dollars in a panic, they'd only be hurting themselves as it would further decrease the value of their own investment.
The purpose for investing in the dollar is not necessarily to make a profit, but rather to change to a stable currency. The dollar is historically a very stable currency as our economic model has thus far proven resistant to massive unrest.
It should also be noted that dollar investors purchase dollars every day at market prices, which protects them somewhat from gradually falling prices.
The dollar is a very strong currency and has lost little/no value versus other currencies (like yen) over the past 5 years. The dollar has lost value to the Euro, but for many obvious reasons, most of them not Bush-related in the least.
posted by b_thinky at 3:32 PM on October 19, 2006
The purpose for investing in the dollar is not necessarily to make a profit, but rather to change to a stable currency. The dollar is historically a very stable currency as our economic model has thus far proven resistant to massive unrest.
It should also be noted that dollar investors purchase dollars every day at market prices, which protects them somewhat from gradually falling prices.
The dollar is a very strong currency and has lost little/no value versus other currencies (like yen) over the past 5 years. The dollar has lost value to the Euro, but for many obvious reasons, most of them not Bush-related in the least.
posted by b_thinky at 3:32 PM on October 19, 2006
Response by poster: I have worked both stateside and across the pond. It may be a small point, but all of my work has been for large multi-nationals.
Watching CNBC Nordic and Sky News this evening, opnions ranged on the brink of downright stupidty, i.e. "Dow saves the world" to the sublime, "We can win a war with a rally like this".
Where I fail, completely so, is to understand how an index relates to you and me. Yes, holding stocks are god given right in the states and we all do, but as far as I can see, it's not the best number to boast of economic nor individual prowness. Remember Enron?
I feel like investor confidence and numerous other buzz words have no direct relation to the actual bottom feeding consumer. My question, although hastly put together, betrays a disbelief that 12K on the DJIA means shit to all the posters here (aside from the 401k plans which will fluctuate like a crab boat in the north sea).
posted by Funmonkey1 at 3:42 PM on October 19, 2006
Watching CNBC Nordic and Sky News this evening, opnions ranged on the brink of downright stupidty, i.e. "Dow saves the world" to the sublime, "We can win a war with a rally like this".
Where I fail, completely so, is to understand how an index relates to you and me. Yes, holding stocks are god given right in the states and we all do, but as far as I can see, it's not the best number to boast of economic nor individual prowness. Remember Enron?
I feel like investor confidence and numerous other buzz words have no direct relation to the actual bottom feeding consumer. My question, although hastly put together, betrays a disbelief that 12K on the DJIA means shit to all the posters here (aside from the 401k plans which will fluctuate like a crab boat in the north sea).
posted by Funmonkey1 at 3:42 PM on October 19, 2006
It doesn't really matter if the Dow hits 12,000, what really matters is its rate of growth. 12k probably has some positive morale effect--it makes for a good headline, of course--but if it would matter much less if the Dow began the year at 11,500 instead of 10,700.
Anyway, as others have already said, the Dow isn't very representative. Year-to-date the Dow is outperforming broader indexes like the NASDAQ composite, the Wilshire 5000, the Russel 3000 and S&P 500 (11.9% vs. 6.3%, 9.4%, 9.3%, 9.6%, respectively based on opening price Jan 3rd to yesterday's close).
I suppose I agree with the sentiment that a rising stock market doesn't mean much to the average person who doesn't own stock. But the stock market does influence corporate behavior, especially mergers and acquisitions activity and organic expansion. If your company uses its high-flying stock to make ill-advised acquisitions, it could cause the company to fail down the road. Or a thousand other variations on that theme--but all things that could affect every employee.
But, overall, a rising market should affect the average guy less than a falling market. Perhaps only a few see the benefit of a good market, but just about everyone feels the pain of a shitty market.
posted by mullacc at 3:43 PM on October 19, 2006 [1 favorite]
Anyway, as others have already said, the Dow isn't very representative. Year-to-date the Dow is outperforming broader indexes like the NASDAQ composite, the Wilshire 5000, the Russel 3000 and S&P 500 (11.9% vs. 6.3%, 9.4%, 9.3%, 9.6%, respectively based on opening price Jan 3rd to yesterday's close).
I suppose I agree with the sentiment that a rising stock market doesn't mean much to the average person who doesn't own stock. But the stock market does influence corporate behavior, especially mergers and acquisitions activity and organic expansion. If your company uses its high-flying stock to make ill-advised acquisitions, it could cause the company to fail down the road. Or a thousand other variations on that theme--but all things that could affect every employee.
But, overall, a rising market should affect the average guy less than a falling market. Perhaps only a few see the benefit of a good market, but just about everyone feels the pain of a shitty market.
posted by mullacc at 3:43 PM on October 19, 2006 [1 favorite]
b_thinky: the markets will probably sell off if Democrats take control of the House and the Senate, as people will want to book profits before taxes are raised.
Why do you think that President Bush will sign tax sincreases into law, b_thinky? It seems to me that any tax increases would be vetoed.
posted by ibmcginty at 3:55 PM on October 19, 2006
Why do you think that President Bush will sign tax sincreases into law, b_thinky? It seems to me that any tax increases would be vetoed.
posted by ibmcginty at 3:55 PM on October 19, 2006
Dow 12,000 has no impact on the common man.
The dow is an outdated and piss-poor indicator of the economy in general. Nobody in the finance industry uses it as a comparison to anything. It is a historical remnant and it should be burned.
The Russell 3000 is probably far more newsworthy, as are a number of other major indices.
posted by Tacos Are Pretty Great at 4:04 PM on October 19, 2006 [1 favorite]
The dow is an outdated and piss-poor indicator of the economy in general. Nobody in the finance industry uses it as a comparison to anything. It is a historical remnant and it should be burned.
The Russell 3000 is probably far more newsworthy, as are a number of other major indices.
posted by Tacos Are Pretty Great at 4:04 PM on October 19, 2006 [1 favorite]
jellicle speaks the truth and nobody seems to notice :-)
Apologies in advance for my pontification here. If I understand, a market index indicates the total price of a pool of "representative" shares. Well then, in order to understand what effect this has on the average person on the street (APOTS), we'd have to know what stock the index is based on.
It would seem to follow that the people to whom an index makes a difference are those who have invested in the stock that the index traces, or in stock affected by the prevailing "market mood"; those who want to see that stock do well (or poorly); those whose income or wellbeing depends on the relevant companies or who are employed by subsidiary companies etc...
All in all, this is quite a complex web. And I'd suggest it's far more complex than simply saying "50% of Americans own shares".
But. The thing that puzzles me, is this:
Does the market deal with a roughly fixed amount of stock in an average day (option A)? Or is it a renewable resource (option B)? (I know very little about stock re-issuing). If the amount is fixed, i.e. it's a finite resource, then isn't an equal amount of "money" lost in falling shares, to balance the amount gained by those rising? The index could still show a rise, since it selectively monitors particular stock. Conversely, if the amount is not fixed, i.e. it's an effectively infinite resource, which seems to me to render the index meaningless.
With option A, the index simply tells us the performance of one group of stocks relative to another. So altering the group of shares that are indexed alters the index. This seems very arbitrary to me.
With option B, the index is daft, since it's a measure in arbitrary units on an infinite scale: an exercise in futility. Sure, an exercise where people get very rich and very poor, but still.
Personally I'd suggest that the main impact on the APOTS is the "mood" the financial media project as an interpretation of the index in question. This would probably have consequences reaching beyond the stock directly indexed. Others here, with far more savvy on the matter than I, have said similar.
Market economics always seems daft to me; in the run-up to any sort of market crash I get the impression that everyone concerned is probably muttering "how long can we get away with this???" to each other.
But then I - quite clearly - know very little about the matter.
posted by ajp at 4:35 PM on October 19, 2006
Apologies in advance for my pontification here. If I understand, a market index indicates the total price of a pool of "representative" shares. Well then, in order to understand what effect this has on the average person on the street (APOTS), we'd have to know what stock the index is based on.
It would seem to follow that the people to whom an index makes a difference are those who have invested in the stock that the index traces, or in stock affected by the prevailing "market mood"; those who want to see that stock do well (or poorly); those whose income or wellbeing depends on the relevant companies or who are employed by subsidiary companies etc...
All in all, this is quite a complex web. And I'd suggest it's far more complex than simply saying "50% of Americans own shares".
But. The thing that puzzles me, is this:
Does the market deal with a roughly fixed amount of stock in an average day (option A)? Or is it a renewable resource (option B)? (I know very little about stock re-issuing). If the amount is fixed, i.e. it's a finite resource, then isn't an equal amount of "money" lost in falling shares, to balance the amount gained by those rising? The index could still show a rise, since it selectively monitors particular stock. Conversely, if the amount is not fixed, i.e. it's an effectively infinite resource, which seems to me to render the index meaningless.
With option A, the index simply tells us the performance of one group of stocks relative to another. So altering the group of shares that are indexed alters the index. This seems very arbitrary to me.
With option B, the index is daft, since it's a measure in arbitrary units on an infinite scale: an exercise in futility. Sure, an exercise where people get very rich and very poor, but still.
Personally I'd suggest that the main impact on the APOTS is the "mood" the financial media project as an interpretation of the index in question. This would probably have consequences reaching beyond the stock directly indexed. Others here, with far more savvy on the matter than I, have said similar.
Market economics always seems daft to me; in the run-up to any sort of market crash I get the impression that everyone concerned is probably muttering "how long can we get away with this???" to each other.
But then I - quite clearly - know very little about the matter.
posted by ajp at 4:35 PM on October 19, 2006
The Clinton era was hardly perfect, but there was a budget surplus, there was no pointless, relentless and expensive war, and we hadn't yet sold our soul to China. The auto industry was not on the verge of collapse or the housing industry, either.
Tech stocks were obviously overvalued, so I didn't invest much there. I did pull out before the crash, having predicted it. I've made pots of money in the past few months. I intend to sell in the near future and keep it.
I'm not a conspiracy theorist, just a pragmatist. There is no more oil than there was 4 months ago, so why has the price dropped dramatically?
You haven't made a dime in the stock market until you've sold your stock and locked in your profit. Haven't lost a dime either, for that matter.
The problem with the average Joe or Jane is that he/she will invest NOW because the market is soaring, rather than doing it several years ago when the market crashed. It happens every time. I haven't figured out why.
posted by clarkstonian at 4:50 PM on October 19, 2006
Tech stocks were obviously overvalued, so I didn't invest much there. I did pull out before the crash, having predicted it. I've made pots of money in the past few months. I intend to sell in the near future and keep it.
I'm not a conspiracy theorist, just a pragmatist. There is no more oil than there was 4 months ago, so why has the price dropped dramatically?
You haven't made a dime in the stock market until you've sold your stock and locked in your profit. Haven't lost a dime either, for that matter.
The problem with the average Joe or Jane is that he/she will invest NOW because the market is soaring, rather than doing it several years ago when the market crashed. It happens every time. I haven't figured out why.
posted by clarkstonian at 4:50 PM on October 19, 2006
"By definition half of us are above average, and the above average population will include both Republican and Democrats."
By definition half of us are above median. There is no guarantee whatsoever as to the percentage above and below average.
posted by websavvy at 4:56 PM on October 19, 2006
By definition half of us are above median. There is no guarantee whatsoever as to the percentage above and below average.
posted by websavvy at 4:56 PM on October 19, 2006
There is no more oil than there was 4 months ago, so why has the price dropped dramatically?
Supply and demand. Just off the top of my head: (1) The normal drop in gas prices in the fall and winter; (2) the high rates were partially anticipating hurricane-related supply disruptions in refinery capacity in the Gulf of Mexico; no hurricanes struck; (3) new sources of supply came on-line; (4) OPEC raised their supply rates. Note that now that Saudi Arabia has indicated they may support a supply cut, the prices have risen in the last few days.
I think the notion that the global market for oil is being driven by U.S. midterm elections is laughable.
posted by pardonyou? at 5:34 PM on October 19, 2006
Supply and demand. Just off the top of my head: (1) The normal drop in gas prices in the fall and winter; (2) the high rates were partially anticipating hurricane-related supply disruptions in refinery capacity in the Gulf of Mexico; no hurricanes struck; (3) new sources of supply came on-line; (4) OPEC raised their supply rates. Note that now that Saudi Arabia has indicated they may support a supply cut, the prices have risen in the last few days.
I think the notion that the global market for oil is being driven by U.S. midterm elections is laughable.
posted by pardonyou? at 5:34 PM on October 19, 2006
(Should have said that number (1) is an example of lowered demand -- fewer miles driven in fall/winter compared to spring/summer.)
posted by pardonyou? at 5:35 PM on October 19, 2006
posted by pardonyou? at 5:35 PM on October 19, 2006
Former employee of a Very Large Mutual Fund Company here. We average employees did get bonuses depending on where the stock market was.
IIRC, there were three levels. If the Dow was above X, my bonus would be 100% of total possible bonus, if it was between X - Y, the bonus would be 95% of total possible, if it was below Z it would be 85% percent. Of course, my overall performance also factored in, but you get the picture.
posted by cocoagirl at 5:52 PM on October 19, 2006
IIRC, there were three levels. If the Dow was above X, my bonus would be 100% of total possible bonus, if it was between X - Y, the bonus would be 95% of total possible, if it was below Z it would be 85% percent. Of course, my overall performance also factored in, but you get the picture.
posted by cocoagirl at 5:52 PM on October 19, 2006
Cocoagirl, that is a truly surprising incentive bonus. As if anything the employees could do would have any influence on the Dow. They may as well have flipped a coin.
posted by JackFlash at 7:44 PM on October 19, 2006
posted by JackFlash at 7:44 PM on October 19, 2006
Funmonkey: did you know that the average monkey on the streets is a currency speculator?
True! Since the collapse of Bretton Woods in 1971, you've been speculating in currency every time you possessed a dollar and held it for more than a few seconds. How is this possible?
Well, the dollar is traded on the open currency markets against other currencies, same as other currencies are. Goods and services flow back and forth between countries, and monies flow back and forth too. And sometimes the dollar will buy lots of Chinese products for you to use, and sometimes it will only buy a few. That's because its value fluctuates.
When the dollar becomes weaker against every currency, and the Treasury prints more dollars to keep capital cheap and flowing, you can have inflation. That means that the value of your dollar in terms of how much goods it can purchase is steadily eroded.
And who worries about inflation? Ben Bernanke and the Federal Reserve. Those guys change the interest rates available to large banks. Large banks lend out money so that people can take money and use it try to do something that causes economic growth, like build a company that makes goods, or buy a home.
The Fed is screwing with the money supply this way, all the time. Even though it's your money, they're controlling how much it's worth, this way. If they make capital too easily available by lowering rates, inflation can increase and run away and eat up the value of the dollars in your bank account. But if they restrict capital too much by raising rates, companies and people take their money and put it in the bank to earn interest, which retards growth. No growth means Funmonkey and all the other monkeys lose their monkey jobs and everyone has no money to go around and the economy as a whole shrinks, which means that people's homes are worth less and food is more expensive and a lot of people lose their jobs and times are hard and oh Lawd, gonna get me on a Jalopy and leave this dust bowl, ride it all the way out to Californny (as happened during the Great Depression of the 1930's.)
Right now the Fed is doing a particularly tricky high-wire act with its rates and so on, and there's a bunch of Wall Street vultures trying to look over its shoulders and make money at the margin off predicting and anticipating their actions. That, and other things, makes it really hard for the Fed to know whether their actions have been good for the economy, or not. They may very well screw the pooch.
But at the moment, corporate earnings look good and inflation is more-or-less under control, depending on how you measure it. People are getting hopeful that the Fed didn't actually screw the pooch this go-round, and that we may be in for five or even ten years of job security and monetary stability for Funmonkey.
Why so-called economic prosperity has resulted in stagnant real wages for the last 3 decades is another question, and I could write you a book about the vigorous debates that go on as to the causes and proposed solutions to that problem.
posted by ikkyu2 at 8:00 PM on October 19, 2006 [1 favorite]
True! Since the collapse of Bretton Woods in 1971, you've been speculating in currency every time you possessed a dollar and held it for more than a few seconds. How is this possible?
Well, the dollar is traded on the open currency markets against other currencies, same as other currencies are. Goods and services flow back and forth between countries, and monies flow back and forth too. And sometimes the dollar will buy lots of Chinese products for you to use, and sometimes it will only buy a few. That's because its value fluctuates.
When the dollar becomes weaker against every currency, and the Treasury prints more dollars to keep capital cheap and flowing, you can have inflation. That means that the value of your dollar in terms of how much goods it can purchase is steadily eroded.
And who worries about inflation? Ben Bernanke and the Federal Reserve. Those guys change the interest rates available to large banks. Large banks lend out money so that people can take money and use it try to do something that causes economic growth, like build a company that makes goods, or buy a home.
The Fed is screwing with the money supply this way, all the time. Even though it's your money, they're controlling how much it's worth, this way. If they make capital too easily available by lowering rates, inflation can increase and run away and eat up the value of the dollars in your bank account. But if they restrict capital too much by raising rates, companies and people take their money and put it in the bank to earn interest, which retards growth. No growth means Funmonkey and all the other monkeys lose their monkey jobs and everyone has no money to go around and the economy as a whole shrinks, which means that people's homes are worth less and food is more expensive and a lot of people lose their jobs and times are hard and oh Lawd, gonna get me on a Jalopy and leave this dust bowl, ride it all the way out to Californny (as happened during the Great Depression of the 1930's.)
Right now the Fed is doing a particularly tricky high-wire act with its rates and so on, and there's a bunch of Wall Street vultures trying to look over its shoulders and make money at the margin off predicting and anticipating their actions. That, and other things, makes it really hard for the Fed to know whether their actions have been good for the economy, or not. They may very well screw the pooch.
But at the moment, corporate earnings look good and inflation is more-or-less under control, depending on how you measure it. People are getting hopeful that the Fed didn't actually screw the pooch this go-round, and that we may be in for five or even ten years of job security and monetary stability for Funmonkey.
Why so-called economic prosperity has resulted in stagnant real wages for the last 3 decades is another question, and I could write you a book about the vigorous debates that go on as to the causes and proposed solutions to that problem.
posted by ikkyu2 at 8:00 PM on October 19, 2006 [1 favorite]
Er, and my point, which I will finally get around to, is not that the DJIA 12K causes anything good to happen; rather, it's perceived as an indication that stock-owners have confidence that good things are happening. However, the things that make stock-owners happy (controlled inflation, no recession, earnings growth) benefit all monkeys to some extent.
I could probably have just written this paragraph and saved the above.
posted by ikkyu2 at 8:04 PM on October 19, 2006
I could probably have just written this paragraph and saved the above.
posted by ikkyu2 at 8:04 PM on October 19, 2006
It should be noted Dow components are chosen as a whole to provide a snapshot of the economy. So the sum 30 companies, in general, will provide you with an overall picture of our entire economy.
I used to live in a small town who's biggest employer was a Dow component. After 2000 the company fell on hard times and began massive layoffs thru 03/04. Everybody was on edge. Now the company is doing well and the layoffs have ended. I'm sure people in that small town fell a lot better about, say, going to dinner now.
Why do you think that President Bush will sign tax sincreases into law, b_thinky? It seems to me that any tax increases would be vetoed.
Correct me if I'm wrong, but certain parts of the Bush tax cut are set to expire, right? If Congress does not vote to extend the tax cuts we in effect have a tax increase, right? Seriously, I could be wrong though...
The Clinton era was hardly perfect, but there was a budget surplus, there was no pointless, relentless and expensive war, and we hadn't yet sold our soul to China. The auto industry was not on the verge of collapse or the housing industry, either.
During the Clinton era (and going back before that even) the auto industry was in the process of collapsing and we were in the process of (as you put it) selling our soul to China. We did have a budget surplus, but that was due mostly to over-taxation. Today we have a massive deficit because of relentless wasteful spending and the fucked up Iraq war. It rarely gets mentioned, but as a definition the Bush tax cuts worked. Tax revenues are actually up, which is a good thing. The problem is we're spending so damn much of it on the war and other shit. When it comes to elections, you have to ask yourself if Democrats would spend any less wastefully. I believe the answer is no. True, there would be no Iraq war but the fact is we're there now and we're going to continue to be there for a while.
posted by b_thinky at 8:25 PM on October 19, 2006
I used to live in a small town who's biggest employer was a Dow component. After 2000 the company fell on hard times and began massive layoffs thru 03/04. Everybody was on edge. Now the company is doing well and the layoffs have ended. I'm sure people in that small town fell a lot better about, say, going to dinner now.
Why do you think that President Bush will sign tax sincreases into law, b_thinky? It seems to me that any tax increases would be vetoed.
Correct me if I'm wrong, but certain parts of the Bush tax cut are set to expire, right? If Congress does not vote to extend the tax cuts we in effect have a tax increase, right? Seriously, I could be wrong though...
The Clinton era was hardly perfect, but there was a budget surplus, there was no pointless, relentless and expensive war, and we hadn't yet sold our soul to China. The auto industry was not on the verge of collapse or the housing industry, either.
During the Clinton era (and going back before that even) the auto industry was in the process of collapsing and we were in the process of (as you put it) selling our soul to China. We did have a budget surplus, but that was due mostly to over-taxation. Today we have a massive deficit because of relentless wasteful spending and the fucked up Iraq war. It rarely gets mentioned, but as a definition the Bush tax cuts worked. Tax revenues are actually up, which is a good thing. The problem is we're spending so damn much of it on the war and other shit. When it comes to elections, you have to ask yourself if Democrats would spend any less wastefully. I believe the answer is no. True, there would be no Iraq war but the fact is we're there now and we're going to continue to be there for a while.
posted by b_thinky at 8:25 PM on October 19, 2006
The problem is we're spending so damn much of it on the war and other shit. When it comes to elections, you have to ask yourself if Democrats would spend any less wastefully. I believe the answer is no.
I think this is less a Democrat/Republican issue than an oversight issue. Other than the war, the wasteful spending is also a result of having all 3 branches in the same political party. What reason would there be to "stay honest" as it were? If Democrats can win either/both the senate and house, I've a hunch you'll see better fiscal discipline, if only because it will force some true negotiation on budgetary issues.
One area where politics will play a role is certainly Iraq, and whether or not we're there for a long time, I have faith (misguided, perhaps, but we'll see) the Democrats would be a bit less likely to be pouring such staggering amounts of no-bid/no-oversight/no-accountability money into Dick Cheney's retirement... I'm sorry, Halliburton and other big contractor coffers.
As to the market - if you, as some here have mentioned, work in the financial sector, you'll benefit in a fairly direct way. But keep in mind the ways that the health of the corporation and the health of the employee are opposed - if company A's bottom-line and stock is up because they've saved X million dollars cutting payroll and/or offshoring jobs, you'll forgive the ex-employees (and the nervous remaining ones) from feeling peachy about it.
Conversely, wage growth is often driven by low unemployment levels, so the times when you're in the most demand and living high on the hog are often the times corporate profits are hurt by your (and your coworkers') salaries.
posted by jalexei at 9:55 PM on October 19, 2006
I think this is less a Democrat/Republican issue than an oversight issue. Other than the war, the wasteful spending is also a result of having all 3 branches in the same political party. What reason would there be to "stay honest" as it were? If Democrats can win either/both the senate and house, I've a hunch you'll see better fiscal discipline, if only because it will force some true negotiation on budgetary issues.
One area where politics will play a role is certainly Iraq, and whether or not we're there for a long time, I have faith (misguided, perhaps, but we'll see) the Democrats would be a bit less likely to be pouring such staggering amounts of no-bid/no-oversight/no-accountability money into Dick Cheney's retirement... I'm sorry, Halliburton and other big contractor coffers.
As to the market - if you, as some here have mentioned, work in the financial sector, you'll benefit in a fairly direct way. But keep in mind the ways that the health of the corporation and the health of the employee are opposed - if company A's bottom-line and stock is up because they've saved X million dollars cutting payroll and/or offshoring jobs, you'll forgive the ex-employees (and the nervous remaining ones) from feeling peachy about it.
Conversely, wage growth is often driven by low unemployment levels, so the times when you're in the most demand and living high on the hog are often the times corporate profits are hurt by your (and your coworkers') salaries.
posted by jalexei at 9:55 PM on October 19, 2006
Best answer: The dow hitting 12K does not benefit most people in this country; it benefits relatively few. Most stock is owned by the wealthiest ten or twenty percent of the population. Someone working for ten (or six) bucks an hour owns little or no stock. The companies they work for increase the value of their stock by cutting pay, benefits, and jobs. This, of course, hurts the average person but leads to higher stock prices. So when you see the Dow going higher, that means that working people are suffering that much more.
The media is celebrating the 12K event because they report news mostly for the benefit of that ten or twenty percent. Ask yourself: how many stories do they run about whether parents should allow doctors to put their child on ritalin? Then ask yourself, how many stories do they run that discuss the best ways to get as many calories as possible out of rice and beans when feeding a family of five on less than twenty four thousand a year?
Now, you may find them reporting the occasional story about Katrina survivors or needle exchanges, but when it comes to the stock market, the coverage is one hundred percent from the perspective of business.
posted by Clay201 at 1:46 AM on October 20, 2006 [1 favorite]
The media is celebrating the 12K event because they report news mostly for the benefit of that ten or twenty percent. Ask yourself: how many stories do they run about whether parents should allow doctors to put their child on ritalin? Then ask yourself, how many stories do they run that discuss the best ways to get as many calories as possible out of rice and beans when feeding a family of five on less than twenty four thousand a year?
Now, you may find them reporting the occasional story about Katrina survivors or needle exchanges, but when it comes to the stock market, the coverage is one hundred percent from the perspective of business.
posted by Clay201 at 1:46 AM on October 20, 2006 [1 favorite]
If you are intersting in a detailed look at the stock market from a leftist point of view(but not marxist or radical). I would recomend Wall Street by Doug Henwood. You can download the pdf for free on his website. There is quite a large discussion in it of how the markets effect the average person.
posted by afu at 3:50 AM on October 20, 2006
posted by afu at 3:50 AM on October 20, 2006
b_thinky-- it is incorrect to say that the tax cuts led to increasing revenue, according to the CRS, CBO, Treasury Department, and former Bush administration economists.
Recent WaPo article: "Federal revenue is lower today than it would have been without the tax cuts. There's really no dispute among economists about that," said Alan D. Viard, a former Bush White House economist now at the nonpartisan American Enterprise Institute. "It's logically possible" that a tax cut could spur sufficient economic growth to pay for itself, Viard said. "But there's no evidence that these tax cuts would come anywhere close to that."
I thought that only the estate tax was temporary, but I could be wrong.
posted by ibmcginty at 7:37 AM on October 20, 2006
Recent WaPo article: "Federal revenue is lower today than it would have been without the tax cuts. There's really no dispute among economists about that," said Alan D. Viard, a former Bush White House economist now at the nonpartisan American Enterprise Institute. "It's logically possible" that a tax cut could spur sufficient economic growth to pay for itself, Viard said. "But there's no evidence that these tax cuts would come anywhere close to that."
I thought that only the estate tax was temporary, but I could be wrong.
posted by ibmcginty at 7:37 AM on October 20, 2006
This thread is closed to new comments.
If I make more money, I am likely to spend more money, etc. back to the point where it's a basic economic lesson.
posted by mikeh at 1:24 PM on October 19, 2006