Wednesday, March 4, 2009

Dow Jones is not indicator of much

The dow jones industrial average, what some people call the "stock
market", as in the market is at 7000 is
is computed from the stock prices of 30 of the largest and most widely
held public companies in the United States.

This is based in dollars...and since the dollar is fiat currency whose
value is only value in terms of it's value to other fiat currencies
then it make the Dow very hard to compare to other times in history.

So for example, since the dollar has lost 40 percent of its value in
current history, saying that the Dow is at a level now that it was say
in 1997 doesn't mean much since dollars in 1997 were worth more than
they are today.

So right now the stock market is very low, but in real terms of value
it is worth even less if you put in the loss of the value of a dollar.

So, once the market is back to 14,000 or so close to its all time
high... well when that happens, by then there will exist trillions and
trillions of dollars more than the last time we were at 14,000, so Dow
14,000 will really be more like Dow 8,000.

So anything valued in dollars is really deceiving since the value of
the dollar varies because of many things, one thing being supply and
demand. The more dollars we create in bailout or stimulus, the less
the dollar is worth. Remember your father or grandfather saying they
could buy a Coke for 5 cents? That show you how deceiving it is to
compare things over time on the basis of of dollars. Did the price of
a coke really increase from 5 cents to a dollar? Or is the dollar
simply worth less.