Has the Left ever been so excited? The Dow just touched 40,000! A new record!
The Left believes this means that the economy is doing great. We’re not in a recession, they figure, because the Dow is climbing!
It’s nice seeing them happy about good business news, for once, rather than salivating over the potential destruction of Israel, the potential incarceration of President Trump, or the potential transition of thousands of troubled children into permanently disfigured, permanently impotent patients.
So much that animates the Left these days is dependent on the destruction of something good, so their joy at economic vitality is a welcome change.
Unfortunately, in this case, their confidence in an economic recovery is premature.
First, there’s the issue of inflation.
The Dow (like all our stock exchanges) is measured in the US Dollar. It tracks the stocks of thirty important companies, based on the price each stock traded at, either the last split-second during trading hours, or at the last moment before the closing bell at the end of the afternoon.
That famous figure – which, for a moment, was an impressive 40,000 – is a price-weighted average, calculated by a magic number called a divisor that takes some important things into account, but not inflation.
This means that, as inflation devalues each individual dollar, you would expect the numbers to climb, at least by the inflation rate. And when you know that this inflation is considerable and rapid, it’s no longer impressive that the Dow is increasing by the minute.
A climb in the Dow (or any other such average) is therefore only good to the extent that the climb is superior to the rate of inflation.
Is it?
If the Dow goes up by 10% when inflation is only 2%, that’s probably good. On the other hand, if the Dow goes up by 2% when inflation is 10%, that’s awful. And if they’re even? Then the business sector is just treading water, like everybody else.
Imagine, for example, that a certain stock was worth $100 in 2021, and today, three years later, it’s trading at $120. That sounds impressive; a 20% gain in just three years.
But we must remind ourselves that the $100 value in 2021 was measured in 2021 dollars, and this $120 price today is measured in 2024 dollars. How much inflation have we suffered in the past three years? A lot more than 20%.
Look at how much automobile prices have skyrocketed since the Biden-Harris regime grabbed the wheel of the federal government’s locomotive and steered it toward the cliff.
Cars, butter, ground beef, eggs, energy, housing – everything that matters to an American family’s budget has jumped by 50% in the past three and half years.
If the stock market hasn’t jumped by a similar amount, then that rise in the Dow isn’t impressive at all; in fact, it’s embarrassingly weak.
The stock market is doing better for you than your savings account, but it’s not keeping you ahead of inflation. With inflation like we’re suffering today, there isn’t much that can.
Economic measurements are meaningless in a vacuum. We need to consider the context, rather than blindly cheer a number just because it sounds like a milestone.
All that being said, there are a few other important points to keep in mind when we watch the stock markets.
- When traditional investments like business startups, bank accounts, or commercial real estate are doing poorly, a relatively healthy-looking stock market is appealing as a place to park money for the time being. Much of the current investment in the stock market is therefore not there because the market is so strong, but because other alternatives are so weak.
- The strength of America’s biggest publicly-traded businesses, especially nowadays, has recently meant – to some extent anyway – the displacement of America’s small businesses. While a strong market is good for our personal retirement funds and other investments, it means that our regular day-to-day lives – hopefully our jobs owning or working for a small business – is squeezed ever more severely. It would be great if both big and small businesses succeeded in America, but to an ever greater extent, the dominance of the giants means the closure of the small ones that built the American middle class.
- More and more members of the very unamerican Left are joining the chorus to confiscate people’s 401(K) programs and IRAs, and/or to tax the “unrealized” capital gains based on a high trading value at the moment the exchecquer swings his pickpocket-claw into action. If they ever get away with such a move, that alone will devastate the markets permanently.
- Finally, the stock market isn’t just a measure of the American economy; it’s a measure of companies that have chosen to be traded here, but may not actually be based here, and may not even do all their production here. Many of the companies in the US stock exchanges are making their money by employing tens of thousands of people in foreign countries, from Mexico to China and beyond, producing things there and selling them here – often, things that used to be produced here, but are no longer. The more companies that use that as their model, the fewer jobs there are in manufacturing here in America. These successful companies may well be providing opportunities for Mexicans and Chinese workers to climb out of poverty and into the middle class – and good for them! – but they are providing fewer and fewer such opportunities for Americans with the same ambition and need.
None of this means we shouldn’t be happy when the Dow rises. Of course we should.
We just shouldn’t imagine that it’s more good news than it is.
A number denominated in the US Dollar has to be viewed in the context of the strength of that US Dollar, and when, day in and day out, inflation is beating up that US Dollar, every single investor is going to feel the bruises.
Copyright 2024 John F. Di Leo
John F. Di Leo is a Chicagoland-based international transportation and trade compliance professional and consultant. A onetime Milwaukee County Republican Party chairman, he has been writing a regular column for Illinois Review since 2009. His book on vote fraud (The Tales of Little Pavel) and his political satires on the current administration (Evening Soup with Basement Joe, Volumes I, II, and III), are available in either eBook or paperback, only on Amazon.
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