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14,253.77 Is Just Another Number

It has been a long, hard four years since the Dow touched its low on March 9th, 2009, before bouncing back almost 118% to close yesterday at its new all-time high.  Yes, I’m happy about it!  Who wouldn’t be happy about a graph like this?

Chart of the Day
But, I would be more happy if this graph was adjusted for inflation, if the much more significant S&P 500 was higher, if the Nasdaq wasn’t still 35% below its all-time high, if the Fed was not pumping $85 billion worth into the market every month, and if the economy was performing as well as the stock market.

Of course, the world today is very different from 2007, the last time the Dow was this high.  That was before the global financial crisis of 2008 when Lehman collapsed, before unemployment rose above 10%, before the debt debacle of 2011, and before Europe peaked into the abyss of financial collapse.

In 2007, we did not suspect there would be a derivatives blow-up in U.S. mortgage-backed-securities.  In 2013, we worry about another similar derivatives blow-up in Europe.  Maybe, we worry too much?

The beauty of capitalism is that it adjusts, however painfully, to adversity and eventually recovers.  The Dow proves that!  According to “Dow Theory,” a new high in the Dow Jones Industrial Average is judged to be truly bullish IF the Dow Transportation Average also reaches a high.  This did in fact happen yesterday, suggesting the bulls have plenty of room to run.  This is a big deal to market technicians.

Hopefully, the 30 stocks in the Dow will continue to rise, but it would be better if the Dow takes a break, consolidates its gains, and waits for the rest of the broader market to catch up.