...is NOT as bad as certain news groups and people are trying to make it be. I figured this is a good time to discuss this since the economy is under microscope right now, and do not think this is a coincidence that this is a Presidential election year. Please read this whole piece, it will be good for you and you will probably learn something.
First off, let me bring the stock market into perspective. Did it drop to 12, 092 last week...yes. Is that "low"...well compared to what? If you are comparing it to the ALL-TIME high of 14,198 from October 8th of last year (approx 4 months ago) then yes, it's low. But that is like saying that that the 5-series BMW is crap...yeah, compared to the 7-series but it's still a BMW. Like saying that a car is slow because it lost a 1/4 mile race by .2 seconds when it ran 10.8...it lost, but it's still hauling extreme tail. Like saying the standard Kitchen Aid mixer is bottom of the line...compared to the new Commercial heavy-duty grade Kitchen Aid. Like saying 7' 1" Shaq is short when standing next to 7' 6" Yao Ming...he's still over 7 feet tall! Ok, hopefully you get my picture, if not, I've got some ocean-front property in Arizona I'll sell you! So my point is that while people are saying the stock market is "low", it's not low compared to what it has been in the past. During the last 10 months the stock market enjoyed incredible growth. The last 10 months shot the stock market to an all-time high and we are back down to where we were 10 months ago. At that time, we were also at an all-time high. We're talking 10 months...not 10 years. My point would have no validity if I were referring to a 10 year period. Of course, need I point out that the stock market has never, I repeat NEVER suffered a loss over a 10 year period. That is why investing works, but we can save that for another discussion. So, excluding the past 10 months where extreme growth took place in the market, the stock market is still high. Need evidence, right, because I would go through all this trouble just to make it up. Oh, yes, I know...the media does it but that's because they get paid to read what the teleprompter tells them to say...I don't. Anyways, go here and look at the 3-, 5-, or 10-year chart for the Dow and tell me I'm wrong. For that matter, just look at the history of the Dow. You'll see what I'm saying. Look at those charts and then tell me that the stock market is "low". Ok, I have now proven my point. You want "low"...go look at Lake Lanier...that can be considered "low".
Your next question will be "so if the market isn't "low" right now, why are people saying that". Well, valid question and I have a simple answer. Let's look at who is saying this. Well, first off we have the media. The liberal media. And, I'm not just talking about people saying "oh the market is low right now...yada yada yada"...I'm talking about the people who are saying "OH MY GOD...the market is in a harsh downfall...we're all gonna die!!!" and causing everybody to press the panic button. So the medias' motivation? It's an election year...they want a Democratic President to be elected. They make Bush look like he's at fault and then if the Democrats take office, the market goes back up, because that's what it does (not because the D's take office) and then the D's look like heroes. It's how the media works now. Next example, we have the people who want to sway the market for their own personal benefit. Take "short-sellers" for example. Short-sellers make money when the market goes DOWN. Basically people who short-sell, sell a "borrowed" number of shares of stock at say $100. Say they sell 10 "borrowed" shares at $10. They get $1,000. Well, they now own the brokerage firm 10 shares of ABC stock. When the market goes down, they purchase those 10 shares for say $90...or $900 total...they pay back the brokerage firm the 10 shares and they are left with $100...that's a 10% positive return for a 10% drop in the market. See, now these guys are doing this on a much larger scale so that money is a much greater amount. So, that's another reason to sway the market.
Another quick point is that the market went through, which isn't uncommon, a period of over-inflation. This drop can be thought of the free-market system at work. It's "correcting" itself. People freak out when they hear "so and so didn't perform to expectations"...well, usually that means they only saw growth of 10% instead of something like 11 or 12%. Well, they still went through a decent growth. Ok, moving on now. I'm pretty sure you see my point and hopefully have learned a thing or two.
A key indicator on the economy was released today...didn't really see any coverage on the major news networks. Probably because the news was GOOD news. Click here to see today's release by the US Department of Commerce's release on US manufacturing. To sum it up, new orders for manufactured goods in December increased by $10.1 Billion or 2.3%. This is the largest increase since 1992. This statistic has increased 6 out of the last 7 months. That's a good thing. This translates to a higher demand for US manufactured goods...also translating to increased jobs in the manufacturing industry. Manufacturing is a sore subject right now with jobs going oversees. This is a positive note. Again, did anybody see this on the news? Nope, didn't think so.
Ok, now I will touch on the housing market. Yes, the housing market does suck right now. Why, it's going through a stage of correcting itself, just like the stock market does. Another reason it sucks....greed. Greed by the people who want to buy more than they can afford. Greed by the lenders who knowingly put people in that dangerous situation by giving them these loans. No, that's not a shot against free market competition...there is a difference between good business and smart decisions and greed...the lenders were greedy. Greed AND stupidity by the builders who continued to throw up these houses while they saw the market slowing down. Yeah, new home inventory sitting there without selling is high...but that's partially due to the builders throwing the homes up while the market is slowing down. Notice how companies who sell Christmas products, STOP SELLING IN JANUARY...that's because somebody acknowledged that in January, demand decreased....DUH...they saw it coming and know what to expect. The housing builders failed to do this in the past few years. Anybody who lives near me knows this because they can't drive anywhere without passing a new home neighborhood going up...STILL.
To touch back on the market and Presidential election years, I would like to say that this is a mistake. All that causes is the government to try and stick their hands in the market to manipulate it instead of letting it run it's course. We have to let the market run it's course. This whole tax rebate thing, it's so they can get people to spend money in the economy. Why did the economy go up so high? Could part of the reason be that people spent TOO MUCH money in the past few years. Why is the market coming down from it's all-time high? Could part of the reason be that people are out of spending money now because they spent too much a few years ago and are now paying for it? So, what this could mean is that it's average itself back out. I'm not using real numbers here but I'd rather see the market at 10,000 one year and 20,000 the next as opposed to 15,000 for two years straight. A static market is a market where nobody makes money...either way.
Hopefully this sparked enough thought in your mind to look past the high-level false indicators of the economy and ignore all the people using hype to spread their "the economy is crashing" belief which is based off the wrong measures. Please don't get me wrong, I'm not saying the economy is happy-go-lucky right now with everybody prospering wonderfully and no problems are present. What I'm saying is that you need to learn about the mechanics of the economy to fully understand what is really going on...stop trusting the people manipulating the facts to give you an altered and inaccurate view of the economy. The most important point I'm trying to make here is CONSIDER THE SOURCE, THINK ABOUT THEIR AGENDA.
Are we in a recession? Depends on who you ask. Are we heading towards a recession? Again, depends on who you ask. And I'm not saying we are not or not heading towards one either. It's all based around the source and the agenda behind the source. It's all relative...at least until the total country is in a crap-box with everyone loosing their jobs and the government handing out rations, I would say that is a recession. Now, I'm sure there would be people who read this and say "well you're wrong, we are going into a recession" or 6 months from now if the market continues to decline they will say "Ha...I told you so blah blah blah"...all I have to say to those people is come see me in 10 years. We'll talk then. If the market is lower, I'll buy you a happy meal.
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2 comments:
Way to go Bruce, I am having serious neurotransmitter overload right now,lol. Thanks for a lot of good info. I will probably have to read this again, just to absorb all of it, but, I do agree with you on the fear that the Dem's try to spread through the mainstream media. I have always been told that when the Dow is 0ver 11,000 that people are making money. Maybe not big money, but people are still making money. That may or may not be completely accurate, but that is what I have always been told. Not being an active investor in the market keeps me uninformed on a lot of these issues, but, correct me if I am wrong, please.
Well, 11,000 is not any sort of measurement for if investors are making money or not. People can make money at any point in the market through conventional trading or by means such as short-selling as I mentioned. The Dow average is merely a measurement of growth. When the Dow goes up over a period of time (and 1 day or 1 week doesn't constitute a period of time) then overall, the companies that make up the Dow are in growth mode. When it goes down, companies are not in growth mode. That is somewhat of an oversimplified statement but it's a start for someone who doesn't understand what that number means. The Dow didn't even close over 11,000 for the first time until in May 1999. So if what you heard was true, nobody made any money until May of 1999...and that's not true.
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