{"id":36673,"date":"2013-03-06T20:37:30","date_gmt":"2013-03-07T01:37:30","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=36673"},"modified":"2013-03-06T20:37:30","modified_gmt":"2013-03-07T01:37:30","slug":"why-the-dow-jones-record-high-doesnt-matter","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2013\/03\/06\/why-the-dow-jones-record-high-doesnt-matter\/","title":{"rendered":"Why the Dow Jones Record High Doesn\u2019t Matter"},"content":{"rendered":"

By MoneyMorning.com.au<\/u><\/a> <\/p>\n

The story of the moment is the Dow Jones breaking out to a new all-time high<\/strong>. It certainly makes a nice headline, but does it really mean anything?<\/p>\n

The first point to understand is that the Dow Jones is a price weighted index. Rather than relying on the changing market cap of a company to calculate the movements, the index uses the changing price instead.
<\/span>
\nThis means that a higher priced stock (eg. 3M Co.: share price USD$104, market cap USD$72 billion) will have more influence over movements in the index than a smaller priced stock (eg. Microsoft: share price $28, market cap USD$237 billion).<\/p>\n

This obviously doesn’t make much sense because there is no relation between the price of a stock and its market cap.<\/p>\n

Also there are only 30 stocks<\/a> in the index, so it’s not a broad reflection of the overall health of the market. For example if Apple [NASDAQ: AAPL]<\/strong> was in the index there is no way that the Dow Jones would be hitting all-time highs, because Apple is currently down 38% from its all-time highs set last year.<\/p>\n

But having said that there is no doubt the money printing is currently working wonders on the US equity markets. The S&P 500 is also only a skip and a jump from its all-time high.<\/p>\n

I’m sure I’m not the only one who thought it would be impossible for the market to retest all-time highs so soon after the market crash.<\/p>\n

US Federal Reserve<\/a> chairman Ben Bernanke always said he wanted to get stock prices up so that the wealth effect would kick in and help heal the US economy<\/a>. He has certainly succeeded in stoking prices higher, but has he succeeded in getting consumers to open their wallets? Not really, and here’s why…<\/p>\n

The last US GDP figures were actually negative in the US and unemployment remains stubbornly high.<\/p>\n

A Bleak Picture Behind the Headlines<\/h2>\n<\/p>\n

The Wall Street Journal<\/em> even noted yesterday that 50,000 people slept each night in New York City’s homeless shelters, which is a record. In the article Mary Brosnahan, president of the coalition for the homeless said that, ‘New York is facing a homeless crisis worse than any time since the Great Depression.’<\/em><\/p>\n

So it looks like Bernanke’s printed dollars<\/a> aren’t filtering down to the masses as he told us they would. What a surprise.<\/p>\n

Legendary hedge fund trader Stanley Druckenmiller said on CNBC the other day that the party in stocks may continue for a while longer and he doesn’t know when it will end but ‘my guess is it’s going to end very badly’<\/em>.<\/p>\n

A great comparison recently on ZeroHedge.com between now and the Dow’s previous all-time high in 2007 paints a very bleak picture:<\/p>\n