Thursday, March 7, 2013

Dow Jones Highs Then and Now

The media is all excited about the Dow reaching new highs. The message is: The good times are back.

If only it were that simple.

Though the stock market is, in a normal healthy economy, a leading indicator, it has virtually no meaning in our current centrally planned Fed manipulated environment where interest rates are manipulated to nearly zero and trillions of new money are being printed to give the impression a recovery has been under way since 2009.

All of the data below, surprisingly supplied by CNBC's stock promoters, indicates an economy that has not recovered. As you can see, gas prices are almost a dollar a gallon higher. Its an important metric because the Fed cannot print gas as they can dollars. Nor can they manipulate its price as they have with gold because oil is a commodity that is consumed and its buyers always take delivery, unlike gold. It demonstrates that gas has been repriced in a devalued currency.

Also note that though the press would have you believe "good times are here again", the number of unemployed is roughly double, despite millions of workers having dropped out of the labor force as evidenced in the declining labor participation rate. The number of Americans on food stamps has doubled!

And what did it take to give us this illusion of new prosperity? Just look below at both the US debt outstanding which has gone from $9 Trillion to $16.6 Trillion, but also the Fed's own balance sheet which has more than tripled from less that $1 Trillion to over $3 Trillion. If you're counting, the sum of the two is $9 Trillion. Of course there's some overlap here since the Fed is now buying 90% of all the new Treasuries created to fund the deficit but much of that started in 2012 so we can still conservatively call it $7 Trillion in new dollars created since the crisis!

So now the Dow is back to 14,200 when priced in US dollars, but the US dollar, after $7 Trillion in printing is not what it used to be.

From CNBC:

Then                       Now
Dow Jones Industrial Average About 14200 About 14200
Regular Gas Price $2.75 $3.73
GDP Growth +2.5% +0.1%
Americans Unemployed (in Labor Force) 6.7 million 13.2 million
Americans On Food Stamps 26.9 million 47.69 million
Size of Fed's Balance Sheet $0.89 trillion $3.01 trillion
US Debt as a Percentage of GDP 38% 74.2%
US Deficit (LTM) $97 billion $975.6 billion
Total US Debt Outstanding $9.008 trillion $16.43 trillion
US Household Debt $13.5 trillion $12.87 trillion
Labor Force Participation Rate 65.8% 63.6%
Consumer Confidence 99.5 69.6
S&P Rating of the US AAA AA+
VIX 17.5 14
10 Year Treasury Yield 4.64% 1.89%
EUR/USD 1.4145 1.3050
Gold $748 $1583
NYSE Average LTM Volume (per day) 1.3 billion shares 545 million shares

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