You see the Dow Industrial Average (the DOW) has taken quite a rollercoaster ride in the past 52 weeks. It has traded from a high of 13,851 to a low of 7,392. On Jan 2nd, it was at 13,044 and on Nov 28, it was at 8,829 – a YTD decline of 32.3%. Last week (Thanksgiving week), it had one of its better up ticks with a 4 trading day gain of about 390 points – or almost 4.6%. The financial pundits explanations for the prior week’s turnaround ranged from the bad news was not as bad as expected, to the market was optimistic over the Obama Administration choices for Secretary of the Treasury, White House Budget Director, the latest bailout of Citi, etc. These are premature and all hooey! We have not seen the bottom. Nor have we any guarantee that the bailing-outs are over, or that the TRILLIONS pledged/ spent thus far are working -- or will ever work! As I write this on Dec 1st “the DOW is back down almost 400 points – a two hour decline has wiped out last week’s turnaround gain. Humm?!?!
Since the DOW was first published in Customer's Afternoon Letter on May 26, 1896 by Dow Jones co-founder Charles Dow, it represented the average of (then 12 now 30) stocks from important American industries. Only General Electric remains part of the index from that initial group. The DOW is hardly “industrial” in the sense that it is representative of traditional smokestack industries. Now its thirty components cover retailing (Walmart), chemicals/ pharmaceuticals (E.I. DuPont, Johnson & Johnson, Merck, Pfizer), energy (Exxon, Chevron), construction (Alcoa, Home Depot), Computers (IBM, MicroSoft, Hewlett-Packard, Intel, United Technologies), Telecom (AT&T, Verizon), and others (Coca-Cola, McDonalds, Kraft, Procter & Gamble, Disney, Caterpillar, Boeing, 3M). The financial services components (American Express, B of A, CITI, J.P. Morgan Chase) plus General Motors have proven the real drags on the DOW. The stock prices of these 30 do not reflect the health/future of US/us! Still the global and American attention is on the performance of the DOW 30. The pressure is on the DOW!
It is ironic that the only musical I’ve ever seen on Broadway is “How Now Dow Jones.” It folded the week after I saw it. It had about 220 performances and won one of its six Tony nominations. Its marquee hit song was “Step to the rear (and let a winner lead the way).” In a nutshell, it is about how erroneous reporting that the DOW hit 1,000 caused the market to spike further (remember this was 1968) and then tank when the investing public realized they had been had by all the hype. A major crisis ensued. "A.K.", Wall Street's shrewdest and most closely watched player was persuaded to buy. The market fall was reversed and the future once again becomes bright. Doesn’t this kind of remind you of recent speculations regarding covert actions by the Plunge Protection Team, and/or Uncle $ugar’s sundry bailouts fluffing the stock market indexes after their recent plunges? Reality is not based in truth, but rather is based in perception – and hype contributes to make those perceptions positive.
As long as the market indexes are rising (or just simply have the appearance of stabilizing), there is the perception we have turned the corner from our present travails – and all will be right with the world. This is particularly true for what happens with the DOW! Moreover... when markets are booming and investors are making money – if only on paper – everyone is happy: "I awoke this morning on my push-button, Neiman Marcus bed – la la la laaaa" (from HNDJ’s “Rich is Better”). When will we ever learn?
I’m Fred Cederholm and I’ve been thinking. You should be thinking, too.
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This story was published on December 1, 2008.