DOW 14,000 is unearned, not reflective of economy
In October of 2007, the Dow Jones Industrial Average broke through the 14,000 level for the first time in our nation’s history. Most Americans, in fact, even our Federal Reserve, were blissfully unaware of the financial carnage that would soon engulf the daily lives of all.
Five years later, some have recovered; others wish they could awaken from their own personal nightmares. As we once again knock on the door of 14,000, it’s odd that with over 8 million Americans still not finding adequate work, over 47 million of our citizens receiving food stamps and consumer confidence being 35 percent lower than it was in 2007, we know — we know intuitively that our economic foundation is just not right in our nation.
Don’t get me wrong, I am pleased with the performance of the stock market. I know that for investors, recovering lost ground is indeed sweet. However, discerning people understand that the Federal Reserve has enabled incredible risk taking by creating trillions of new dollars to re-inflate asset prices, while holding interest rates near zero. When looking at stock prices, you may just have to say they are succeeding in their quest for more risk taking.
The problem is, it just doesn’t feel as though we have earned this rally. In the days ahead, breaking a new record in the stock market will be wind aided — not really counting for the record books. In some ways, this market won’t be voted into the Hall of Fame as the era of financial steroids will certainly disqualify this current season.
To put proper perspective on where we are today, I would like to re-visit a few dark days of 2009. I’m inserting a passage from my book: The Great Economic Train Wreck: When America Went off The Rails.
As the world was seemingly unraveling before our eyes, we collectively held our breath as President Obama addressed a joint session of Congress. In an atmosphere of high anxiety, we had to assess the words of our president and weigh what we observed in our everyday lives. For investors, this speech presented a crossroads of sorts, as the deeply oversold markets were as shattered as history had shown after the crash of 1929.
How do you climb out of the economic rubble we had created since September? I clearly remember there was a sense of resignation as the markets became unhinged from economic fundamentals and common sense. Panic will do that. I was hopeful; yet, my own words would betray the confidence I tried to portray. In my personal journal I wrote:
There is a song that Don McLean made famous; I hear the lyrics, “the day the music died. And they’ll be singing, Bye, bye Miss American pie.’ Drove my Chevy to the levee, but the levee was dry.” I realize my music has died; my levee is dry. When you reach such a moment, there is this realization of your mortality and that the world is indeed dangerous. There is great questioning and great blame for why your music dies. I don’t know what the days ahead will bring. I have little control over how this world will spin. I am not the center of the world-I am the leaf in autumn, struggling to keep from becoming dust.
Discouragement was at epidemic levels. It has always seemed unfamiliar territory for America, but we would move forward, and, from afar, you could see the fabric of modern politics fray dangerously. Things seemed to be coming apart, deepening the discouragement many Americans felt.
The President and Congress began to push an agenda for health care and climate change, rather than address the critical employment picture, which would be the number one issue for most Americans. This disconnect from the people and their paramount fear over lost jobs and tumbling home prices has brought us to the failing job approval ratings of both the President and Congress.
Since I wrote that passage, 18 months ago, politics continues to fray dangerously, degrading into class warfare that threatens our basic freedoms. For conservatives, discouragement remains at epidemic levels, and a vision for America seems elusive.
With the most recent inaugural speech by President Obama, I maintain there is a huge disconnect between the big government vision of President Obama and the basic daily needs of most Americans. It is clear: the president is choosing to erode freedom through debt and the expansion of the welfare state, ignoring the moral imperative of providing meaningful work for far too many Americans.
There is a very good chance the Dow Jones Average will pierce the old record, surpassing 14,000. But, my claim to you is that the stock market is reflecting Federal Reserve policy and future inflation, rather than the fiction of cultural healing brought on by the leadership of “the great one”.
Update: The DOW hit 14,000 on Friday, Feb. 1, 2013 for the first time since Oct. 12, 2007.
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