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Related: Editorials & Other Articles, Issue Forums, Alliance Forums, Region ForumsDow 17,000 is on the Wrong Side of History--"Market Watch"
July 8, 2014, 6:16 a.m. EDT
Dow 17,000 is on the wrong side of history
Opinion: Since 1929, stock-market rallies have had things in common that this one doesnt
By David Weidner, MarketWatch
SAN FRANCISCO (MarketWatch) Todays bull market is the fourth biggest since the 1929 crash after stocks have nearly tripled since the financial-crisis low set in early 2009.
But more than any modern bull market, this one stands alone in that its squarely out of step with economic growth. Its being driven higher by just a few wealthy participants and traders who have tacitly, perhaps even unknowingly, agreed to drive prices higher.
First, low interest rates have made other investments unattractive. The 10-year U.S. Treasury BX:TMUBMUSD10Y -2.15% is yielding only 2.62%. Inflation is running at an annual rate of 2%. That makes corporate bonds, certificates of deposit (which yield less than T-bills) and other fixed-income products largely a losing proposition. Those who have been buying bonds have been doing so for safety.
Second, the investing public isnt really buying stocks. A study by the Pew Research Center, published in May, found stock ownership by households is shrinking, at 45%, down from more than 65% in 2002. Even with the Dow Jones Industrial Average DJIA -0.70% reaching the 17,000 milestone, investors are leaving stock mutual funds, not buying them.
This series of circumstances is unique. Unlike central bankers response to the Great Depression, the Federal Reserve has embraced Keynesian economics and flooded the economy with dollars on a scale never seen before. The Feds balance sheet has more than quadrupled to $4.3 trillion since 2008.
In short, stocks have become more attractive not because of a surging economy or strengthening corporate profits, but because they are the last-place finishers in an ugly contest. Thats a significant difference with boom markets of the past.
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In all of those periods, the market reflected strong economic trends: solid growth, high or strengthening employment and stable inflation. Only the latter is present today. The unemployment rate is improving, but its still a relatively high 6.1%. The best GDP rate produced since the financial crisis was 2.8%. That was in 2012, before the current bull market really took off.
Perhaps, as some suggest, this is a new normal. If so, it represents a disconnect between economic reality and market valuation. More likely, its a warped market distorted by the extraordinary measures used to create an economic lift.
MORE AT:
http://www.marketwatch.com/story/dow-17000-is-on-the-wrong-side-of-history-2014-07-08?link=MW_popular
cbdo2007
(9,213 posts)6 months from now, 2 years from now, 5 years from now?? Nobody knows how long until it happens and those of us IN the stock market are making too much money to just pull it out and sit on the sidelines right now.
upaloopa
(11,417 posts)little to do with today's economy so a crash will also have little to do with the economy then.
My house is my investment and it is out performing the market right now.
LordGlenconner
(1,348 posts)That's what I hear.
Submariner
(12,504 posts)and since republicans are inherently dishonest people, it's no wonder the population is not investing after they crookedly ran off with our 401(k) nest eggs and got huge bonuses for doing so.
KoKo
(84,711 posts)Since the 99% have little money...one hopes the next CRASH will be limited to the 1%...but then they like to blame us little people for everything...so it will be our Pensions (if anyone has one) and Social Security that PAY for the next Crash and Privatization of MORE of our "Formerly Public" resources.
Well....it's good to prepare...but that's sooooo far away for most of them who have all the money...why should anyone worry? It's not about THEM...but, those they wish to steal from to support their lifestyles.
Algernon Moncrieff
(5,790 posts)That was the same reason for the huge stimulus in 2009.
If you are a 1%er, and your fortune is not dependent on collecting debt, and you have a lot of cash, you are hoping that the fed fails, the market collapses, and that rapid deflation sets in so that you can buy up the pieces on the cheap.
Having said that, the economy is far more fundamentally sound than it was in '09 (which ain't saying much). Ag has been prosperous; building is taking off; oil and gas are making money. Is it Dow 17K prosperous. Not at this time. My best guess is that there will not be a crash (although FAUX et. al. will spin it as one), but a correction to somewhere between 13K & 15.