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Why the Dow isn't working.


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2010 Aug 6, 4:31am   1,251 views  2 comments

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Because economist like to think that formulas and indexes that worked for some eras works for a new uncharted economic era.

Like trying to tie the DOW index into any cohesive reason to show positive gains, and dips should reflect in our GDP, Economy and Housing starts or sales. It was tweaked to work for a set of accounting rules that worked for specific eras and to divert previous debacles and failed policy.
I don't think that these companies that comprise these indexes then selves become indicative our economy. I think eventually they begin to reflect our economic expectations. Almost like a savant self profiling economic prophecy.

Every time our economy goes south Some of the current players on the DOW gets replaced with new unknown variables that then skews that previous working savant formula.

Lust look at the last two years of the Company Shuffle.

On June 8, 2009 General Motors and Citigroup were replaced by The Travelers Companies and Cisco Systems.

On September 22, 2008, Kraft Foods replaced the American International Group (AIG) in the index.

On February 19, 2008, Chevron and Bank of America replaced Altria Group and Honeywell. Chevron had been a Dow component from July 18, 1930, until November 1, 1999. During Chevron's absence, its split-adjusted price per share had gone from forty-four dollars to eighty-five, while the price of petroleum had risen from twenty-four dollars to a hundred.

These were major key players that were actually reflecting our economy, "WARTS AND ALL".
They were replaced by companies that then made them hot buys for the Investor sector, regardless what Maistreet or Joe Six Pack is doing.

Absent is a dependency of Car sales, dependency of Home Mortgages. Not even Apples and Oranges either. Look at AIG and how much of the actual financial growth that AIG played "Cannary in Caves" for, replaced by a company that sales %50 of America's grocery bill, in one way or another. With all of the food companies that they actually own. This food production isn't even necessarily domestic production.

What Kraft is, is a Damn hot buy for investors playing the Dow, everybody gotta eat, and these companies stack the deck.

It's hardly the DOW of the 80's - 00's not even close.

It goes up and down totally disconnected from economic reality of our economy.

#housing

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1   marcus   2010 Aug 6, 2:38pm  

The dow is just 30 stocks, and I don't think they are hiding the fact that they change it to reflect representation of 30 Major US corporations. IT seems that companies with such enormous failings as GM and AIG, and with capitalizations as low as they were needed to be replaced.

Even the S&P 500 seems surprisingly strong relative to the economy, and I don't think it as much games that they are playing with the composition as it is that they are international corporations, and yields are low on competing investments, and there is a lot of money out there that has to be invested somewhere.

That is, in spite of the changes, the dow is not lying to us about where the market is, and it does seem disconnected from reality, that is, it doesn't seem to be doing a good job of telling us where the economy is headed.

I think it would be nerve racking to be massively "long" or massively "short" right now.

2   Done!   2010 Aug 6, 2:57pm  

"Although Dow compiled the index to gauge the performance of the industrial sector within the American economy, the index's performance continues to be influenced by not only corporate and economic reports, but also by domestic and foreign political events such as war and terrorism, as well as by natural disasters that could potentially lead to economic harm. "

I'm just saying historically the above statement worked generally to reflect the economic outlook.
It generally ebbed flowed and stagnated in the general direction of not only the way the economy went, but were generally as positive or negative as world events. Pre 2007 300 point swings, were stuff major news was made of. And would coincide with current events or disaster. Now it's another day at the market. These swings now happen with out a mere mention of a stubbed toe in the middle east or the African continent.

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