Dow Jones Industrial Average

Oculus Spirit [97663]

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I say the DJIA is not an economic indicator anymore

May 16, 2019, 11:32 AM

TLDNR - It's mostly a debt serviceability indicator.

It's mostly a debt serviceability indicator. Cheaper the debt is to service, the higher it goes. More debt costs, the further south it goes. The market basically leveled off when the FED started raising rates. Wages, when adjusted for inflation, have been stagnant my entire life. That's the key to everything, and that's not going to change. If it does, we're in trouble.

Just think of the companies in the US that are profitable only because they can service their debt at 4% or whatever. If they have to pay 8% interest on their debt, they suddenly become unprofitable, and go out of business. Your 30 year mortgage, for example, that relies on a flat wage buying power. Annuities, commuted value, all types of financial instruments run on that flat wage buying power, and low inflation.

Something very fundamental shifted in our economy in the 1980's. You will notice the rise in illegal immigration started in the 80's. The DJIA started shooting skyward in the 1980's. Our national debt started skyrocketing in the 1980's. Credit cards became popular in the 80's. Mortgage rates on 30 year fixed home loans started a slide to almost nothing (3%). In the 80's, mortgage rates were north of 15% at one time.

And if you really want to understand today, and how it started in the 80's, you need to understand the 1970's. We had a booming economy in the 1970's, even though the numbers don't indicate it. We saw some serious inflation coming out of the 1970's, and everything we've seen since then has been a response to the 1970's. The theory in the 80's was if you lower rates, people take on more debt, and that improves the economy. Remember GWB begging people to still spend money in 2008? Well, when you have interest rates at zero, and a shitload of debt at every level of our economy as a result, well, there's only one way rates can go from zero, or 2.5% or whatever. And when rates are that low, when you raise rates from 1% to 2%, you're doubling what the government pays to service the debt. You're doubling mortgage rates. Credit card rates, everything doubles.

Obama was right when he said we had to get used to this new economy. It will remain stagnant for years and decades to come, and that's IF properly managed. And by managed, I mean that buying power of the average wage remains flat. If we see what we saw in the 1970's, where GDP growth was often 10% or more (great numbers right?), we will suffer a far greater hit on the economy. The 70's were generally considered a "bad" decade for the economy, but the numbers (some) indicate otherwise. With 10% GDP growth we got inflation, which actually hurt us to control. Well, 10% GDP growth today kills us. Like crash, way worse than 2008. The FED has tried mightily, and successfully, since the 80's, to keep GDP growth 5% or less. But this is why the market jumps higher today when bad economic news is announced, and sinks when good economic news is announced (corporate earnings notwithstanding). Bad economic news means cheap debt. Good economic news means expensive debt. REALLY awesome economic news means we crash. Wall Street knows this. But we're at a point where the game can't continue. If our economy ever heats up, and you see wages increase, and you see inflation, we're hobbled in the ability to control that inflation now since we're leveraged in so much cheap debt. Then the calculation is do we devalue the dollar, and let it absorb the losses that way, or crash the economy with higher interest rates and preserve the value of the dollar? Wall Street has leveled off ever since the Fed started raising rates from zero.

To the extent Trump is successful in MAGA, we will suffer. We need crappy trade deals, cheap foreign products, and illegal immigration to keep wages and inflation flat. If illegal immigration stops, there's a labor shortage. If foreign goods become expensive, or we start making them ourselves again, they become more expensive, and wages increase. All "good" economic things that cause inflation. Good economic things that make debt a yuge problem though. This is the corner we've painted ourselves into. We can never be great again with our debt load in all sectors of the economy. We can only tread along. The debt has already been spent. It's already gone into the economy. It's grown the economy, and it runs the economy. And it will eventually kill the economy. Again, 10% GDP growth means inflation. And only 5% inflation means roughly a 7% federal lending rate, and at that level, our credit card payment in Washington grows to be the biggest expense, which increases our debt to pay off the debt. At 10% our total revenues will struggle to even make the minimum payment on our federal credit card, and everything else will be MORE debt.

The 15-20% federal lending rate of the early 1980's, which caused headaches back then, causes our government to default today, and our economy to collapse. We weathered the interest rates back then because we were not leveraged in debt. But even as recently as 2000, it was north of 6%. A 1% increase means we pay $100 billion MORE to service our debt. 6% and we pay $600 billion MORE to service our debt. And that's just $600 billion we have to tack onto the debt because we can't even balance our budget. It can be a vicious and very dangerous cycle. So yeah, Obama's right. Get used to a stagnant economy. We can't afford a good one. And truthfully, this is the greatest danger politicians see in Trump, parties notwithstanding. 95% of American's can't even understand the situation we're in or how dangerous and untenable it actually is. But it explains crappy trade deals, flat wages, no one actually raising the minimum wage (EVEN WITH OBAMA AND A DEM CONGRESS). They can't. We can't do anything really, and this is why Congress isn't actually DOING anything. We're spent. So the best we can do is hope the people watch the BS on news channels about stuff that's totally irrelevant to anything. When all is said and done, someday, we will only have ourselves to blame. Heck, debt runs our politics. The common theme with both parties is spending more. Pubs on defense, dems on entitlements. And no one ever suggesting cutting anything. All the noise from Russian collusion, to obstruction of justice, to payoffs to ######, to IRS filings, to whatever, it's all BS. It's not important. No democrat or Republican is going to fix us. That's why we have Trump. And that's why he will get reelected. And that's why the days of politicians are numbered, from both "parties". It's true today and was true decades ago. We would be better run by the first 535 people in the Boston telephone book, than by 535 faculty members at Harvard.

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Generally what explains things you can't figure out tends to be true more often than not, even if you don't want to believe it. I couldn't figure out the stock market for years and years. It made no sense when a good economic report caused it to drop and a bad economic report caused it to jump. But if you understand it, the government, and the entire economy runs on debt, and we ALL have a massive pile of debt, good economic news is scary, while bad economic news isn't so scary.

I can promise you that no republican an or democrat would dare do what Trump is doing, and probably for good reason. He's attacking the absolute biggest things hindering economic growth and more specifically WAGE growth. Illegal aliens work low wage jobs, and they're more than happy to work them for the lowest wages. If they left, and Americans had to do those jobs, they would demand higher wages. CAN'T have that! So you have that and then you have trade deals and tariffs. The other key to holding down inflation is keeping the cost of goods low. So we get cheap crap from China, and it's cheaper to have them make it there and ship it to us, than to make it here. Adios manufacturing. Hello cheap t-shirts, furniture, steel, everything. Ahh, but it gets better. China can charge huge tariffs on what little they import from us. That kills the most productive American jobs. Good for debt, keep this in mind. Environmental regulations, that's another thing that's expanded to put brakes on the economy.

And make absolutely no mistake about it, illegal immigration has nothing to do with wanting to help the downtrodden and poor people of Mexico and Central America. It has everything to do with cheapening labor. The way Congress sees it, if they enact reforms, and actually put the brakes on illegal aliens, that's less power they have to spend money using debt. That $22 trillion debt has kept a LOT of politicians from both parties, in Washington far longer than they should have been there, and given them far more power than they would have spending far less money with a balanced budget. Keep in mind Congress doesn't have a penny to spend, on anyone, to buy even a single vote, that it doesn't first take away from someone in the form of taxes, who's working in the economy. Ahh, but with DEBT spending, that money is pure power and control for Congress and politicians. Debt spending is like crack to them. Only through debt spending can Congress buy votes and actually contribute a net gain to the economy. Think of it this way, currently Congress and Washington has "given" the American people roughly a year's worth of their salary, on average. If they don't spend a penny of debt, they've actually not "given" a penny to people or put a penny into the economy.

Message was edited by: Tiggity®

+205 today...thanks, Barr!

Re: +205 today...thanks, Barr!

it was 23000 Jan 1 lol. My 401k is up 17% ytd.

Re: it was 23000 Jan 1 lol. My 401k is up 17% ytd.

Good thing youre not a stock broker/money manager...***

Re: Good thing youre not a stock broker/money manager...***

And you are are flipping psycho....***

Re: And you are are flipping psycho....***

Dude, you are a super-sensitive nut case

Re: Dude, you are a super-sensitive nut case

So...you look at small snippets in time?

Re: So...you look at small snippets in time?

Yep, was at 26, 828 on 10/3/18. So, it’s down

And it was 21,792 in Dec 2018, so what's your point

I'm in but if I was your age I might be

I have tempered my risk the last few years

Re: Dow Jones Industrial Average

Re: Dow Jones Industrial Average

Re: Dow Jones Industrial Average

The tax-break sugar rush is wearing off***

Link?***

can you explain what you mean?***

it means it could rain gold nuggets and still trump sux***

Tariffs/trade war is estimated to negate the tax cuts

I say 'they wish,' because that's dems' only hope in 2020.***

Re: I say 'they wish,' because that's dems' only hope in 2020.***

we all know democrats are praying for a slowdown

Re: we all know democrats are praying for a slowdown

yeah I'm just joshing. my serious answer

Re: yeah I'm just joshing. my serious answer

It's down for the last month due to the Tariff War with

I say the DJIA is not an economic indicator anymore

I don't feel any better after reading that.***

It's scary, but it explains a lot.

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