Thursday, March 14, 2013

The Record Dow And The Age Of Mediocrity

     There has been quite alot of excitement in the stock market since the Dow Industrial Average hit an all time high on March 6, 2013, the first one in five and a half years. Since that historic occasion, the Dow has moved higher by only 126 points in six sessions. This eight tenths of a percentage point gain is hardly reflective of what CNBC and others in the main stream media have been characterizing as a stock market that is on fire. The last two closes have been 5 point gains or less, and this after the Dow spent those days wandering between gains and losses.
     The reasons for the Dow reaching a new record high last Tuesday during an economy that is arguably the worse one since the Great Depression, has to do with Federal Reserve Chairman Ben Bernanke printing 350 thousand dollars every second and pumping that money into bonds to lower bond yields and drive money into stocks. It is almost incomprehensible to those of us who haven't spent our entire lives in academia or government, like Mr. Bernanke, that more money is printed and used to buy government bonds every second of every day since Quantitative Easing III began than 98 percent of the people in this country make in a year working real jobs.
     The other reason, besides the sugar high created by Ben "the candy man" Bernanke, that the markets are on such a roll is because of lowered expectations. In the Obama Age, all expectations for excellence in the markets, as in the rest of American life, have been replaced with mediocrity. The financial markets are like a parent and the corporations are like the children. The parent agrees to reward the children with money for a certain level of academic success being achieved. The child will receive five dollars for an A, four dollars for a B and three dollars for a C. Expectations for corporate performance have been lowered so much in the Obama economy that it has become analogous to a child receiving F's quarter after quarter, and then one quarter he receives a D- and the parent rewards the child as if he received an A.
     The truth is that American corporations have met the drastically reduced expectations of the market when they have recently reported their earnings, but revenues have been anemically low. Revenues are sales, and while companies can make earnings look better by cutting expenses to the bone, they can not generate sales out of thin air. This lack of revenues is a sign that the economy is far from being on the road to recovery. I fear things will get worse before they get better, especially once The Candy Man pulls the supply of sugar from the markets, which the laws of math and economic reality will force him to do in the near future.

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