Was the 14,000 Dow mainly the result of a bubble??

[kentuck]

Primarily created by the housing bubble and the financial creativity of a few large investment banks? It was an illusion. It should never have been at 14,000.

Now, we have lost 50% of that illusion and everyone is concerned that the market is in a freefall. And it has been. That is what happen when a bubble bursts.

There was little reason for the stock market to reach 14,000 other than the quick money scams of the financial wizards on Wall Street. The economy has grown very little since Bill Clinton left office. And the stock market at that time was about where it is today.

Should we be so concerned about the huge drop in the stock market? What is the direct correlation it has to Main Street? I think it can be legitimately argued that when corporations and employers lose much of their stock value on Wall Street, they tend to cut back and lay off employees. Their wealth was not real in the first place.

So when does the market stop falling? Does it continue to crash until there is nothing left?? Or is there a point where the psychology turns the other way? Will it be at 5,000? Will it be at 3,000? Should we simply focus on Main Street and jobs for the American people or should we focus on stopping Wall street from collapsing? There is an old axiom about, "Does the flag follow the dollar or does the dollar follow the flag?" I think the same can be said about Wall Street.

[PBS Poll-435]

1. The simplest answer is to look at the P/E ratios of the Dow components and compare against history

3M MMM Diversified industrials 1976-08-09 (as Minnesota Mining and Manufacturing)
Alcoa AA Aluminum 1959-06-01 (as Aluminum Company of America)
American Express AXP Consumer finance 1982-08-30
AT&T T Telecommunication 1999-11-01 (as SBC Communications)
Bank of America BAC Institutional and retail banking 2008-02-19
Boeing BA Aerospace & defense 1987-03-12
Caterpillar CAT Construction and mining equipment 1991-05-06
Chevron Corporation CVX Oil and gas 2008-02-19
Citigroup C Banking 1997-03-17 (as Travelers Group)
Coca-Cola KO Beverages 1987-03-12
DuPont DD Commodity chemicals 1935-11-20
ExxonMobil XOM Integrated oil & gas 1928-10-01 (as Standard Oil (N.J.))
General Electric GE Conglomerate 1907-11-07
General Motors GM Automobiles 1925-08-31
Hewlett-Packard HPQ Diversified computer systems 1997-03-17
Home Depot HD Home improvement retailers 1999-11-01
Intel INTC Semiconductors 1999-11-01
IBM IBM Computer services 1979-06-29
Johnson & Johnson JNJ Pharmaceuticals 1997-03-17
JPMorgan Chase JPM Banking 1991-05-06 (as J.P. Morgan & Company)
Kraft Foods KFT Food processing 2008-09-22
McDonald's MCD Restaurants & bars 1985-10-30
Merck MRK Pharmaceuticals 1979-06-29
Microsoft MSFT Software 1999-11-01
Pfizer PFE Pharmaceuticals 2004-04-08
Procter & Gamble PG Non-Durable household products 1932-05-26
United Technologies Corporation UTX Aerospace, heating/cooling, elevators 1939-03-14 (as United Aircraft)
Verizon Communications VZ Telecommunication 2004-04-08
Walmart WMT Broadline retailers 1997-03-17
Walt Disney DIS Broadcasting & entertainment 1991-05-06

Obviously having JPM, C, and BAC have hurt the Dow in a disproportionate way. BAC and C are worth 10% of what they were prior to September 08.

[seemslikeadream]

2. No we were robbed

[Zynx]

3. By most valuation metrics, it was not particularly overvalued.

The stock market is reflecting a collapse in another bubble. Actually it is two bubbles. One was housing and the other was commodities. The housing market took out the banks and financial companies which then bled into consumer spending. That bubble collapsing collapsed commodities which has killed exporters and industrial companies.

[taught_me_patience]

4. Yes

The whole economy was propped up by the credit bubble. The dow will stop falling when the majority of people believe that there is nowhere to go but down and give up on seeing it come back.

[leftstreet]

5. Maybe we need a criminal investigation of Wall Street?

:shrug:

[napi21]

7. The sad thing is most of them weren't doing anything illegal.

Sure there were the Maddoff's but unfortunately, greed isn';t illegal.

[napi21]

6. YES! many of the companies that created that bubble were

.com's that had little or no real value. The ones that survived were the real ones like Google, Yahoo, etc.

The next bubble was even worse because there were so many greedy investors looking for a quick big buck, they threw their money into grossly overvalued housing, and foolishly assumed the housing market could continue to grow at 20%-30% every year.

[DianeG5385]

8. Of Course!

The whole financial system was one big bubble that the cognoscenti exploited for maximum profit. They knew it was fake because I knew it was "ether" and I knew that it was a big trick for bank capital relief based on how the credit enhancement was defined...insurance, NO; capital relief, YES; all it took was a "qualified intermediary"... I know this sounds arcane but that little tweak was the difference..Everyone was into offloading risk so they could write more business. Again, you may not know what I'm talking about but I assure you it was one big shell game.

[SoCalDem]

9. i think it was necessary to hide the fact that we were losing so many jobs.

The "housing sector" was the only bright spot for a long time.. By including the military deployments to TWO wars in the employment figures, and the people who stepped into their "former" jobs, along with the housing bubble, it allowed things to hum along for about 4 years longer than they should have,,,

[MercutioATC]

10. Dow 14k was based on an unsustainable model.

The average American family has been spending over 100% of it's income for years. That can't continue. This is going to be a slow, painful recovery...and it's going to get a lot worse before it gets better.