Listen to this episode of Planet money in 2013:
Despite all the celebration, the Dow Jones industrial average has not hit record highs recently. If you adjust for inflation, the highs just aren't as high as they seem.<p>And even if it does hit a real, inflation-adjusted high in the next few weeks, it won't mean much. The Dow is a seriously flawed stock index, and it's certainly not a good way to measure what's going on in the overall economy.<p>On today's show, we rain on the Dow's parade and explain why a lot of very smart people say we should ignore the Dow.<p><a href="http://www.npr.org/sections/money/2013/03/12/174139347/episode-443-dont-believe-the-hype" rel="nofollow">http://www.npr.org/sections/money/2013/03/12/174139347/episo...</a><p>The Dow Isn't Really At A Record High (And It Wouldn't Matter If It Were) <a href="http://www.npr.org/sections/money/2013/03/05/173515767/the-dow-isnt-really-at-a-record-high-and-it-wouldnt-matter-if-it-were" rel="nofollow">http://www.npr.org/sections/money/2013/03/05/173515767/the-d...</a>
So what? The Dow is a terrible indicator of even how well the stock market or the economy as a whole is doing. It is price weighted instead of market cap weighted so smaller companies that released fewer shares at a higher price have more impact on the Dow than larger companies. <a href="http://www.npr.org/sections/money/2017/01/04/508261371/episode-443-dont-believe-the-hype" rel="nofollow">http://www.npr.org/sections/money/2017/01/04/508261371/episo...</a>
I understand that people believe Trump is good for business. And I also understand that people believe Trump is good for the rich. And I also understand that people believe Trump is good for the blue-collar worker.<p>But I don't understand how Trump could be a good influence, in the long term, on business and the stock market, when looking at his positions and policy changes.<p>Why Trump isn't good for poor working class America - Assuming there's a large tax on every good coming into the country, then the cost of groceries will increase dramatically. The cost of cars will increase. The cost of consumer electronics will increase. The cost of many goods that Americans buy will increase and that will most directly affect the poor.<p>Why Trump isn't good for business - Many American companies source their parts from other countries. Increased tariffs and taxes impact their bottom line. Trump wants American companies to hire American and is willing to enforce it. American workers have a higher minimum wage. This also affects the bottom line.<p>Why Trump isn't good for the rich - If businesses are impacted then investments should decline, but if you've seen The Big Short, then it's possible that we could just have a fraudulent, unpredictable market instead. The huge tax cut should also benefit the rich, so actually, Trump does seem great for the rich.<p>All in all, I'd like to hear what others think and why this sort of thought isn't widely circulated.
Remember when nearly the entire business media predicted that if Trump was elected the stock market would crash immediately?<p>Some of my smartest friends (at hedge funds) placed large bets mid to late 2016 that the market would decline. Now here we are.<p>The lesson isn't that Trump is awesome for the economy (maybe he is, maybe he isn't) or that the market won't crash tomorrow (maybe it will, maybe it won't) but rather that even the so-called experts are relatively clueless when it comes to financial timing. Remember Brexit? Same story. Good lessons for the rest of us trying to invest. If you want to learn more, read 'The Bogleheads Guide to Investing' [<a href="http://fave.co/2jpTKmf" rel="nofollow">http://fave.co/2jpTKmf</a>] which is an excellent place to start.
"The Dow is dumb! Calculating a price-weighted average of a small arbitrary group of stocks is no way to go through life, son, and no one should care if that average reaches 20,000." - Matt Levine from <a href="https://www.bloomberg.com/view/articles/2017-01-11/insider-trading-and-theoretical-indexes" rel="nofollow">https://www.bloomberg.com/view/articles/2017-01-11/insider-t...</a>
Trump for all his craziness is vehemently pro business. I know the whole tech crowd wants him to crash and burn but the stock market rising is no surprise to me.<p>Whether it's worth the damage done to the poor and the environment is yet to be seen.
Other people have covered how the Dow is a mediocre stock index. The other half is that 20k doesn't mean anything either. It's just a number calculated by the math-function of the index.<p>The psychology is mildly fun, just like a 50th birthday may be more celebrated than a 49th. Round numbers appeal to us. But 20k dow says nothing more about the state of the economy than the 19.9 dow did a few days ago.
Would be great for Republicans if this boom persists through the 2018 midterm elections.<p>When Trump's trade policies take hold there should be a rush to form manufacturing startups to make stuff in the USA for the industrial supply chain, e.g. power cords, circuit boards, paints, etc. I expect these to form in the traditional centers of manufacturing excellence - urban areas where minorities will enjoy relative job prospect improvements.
Here's an interesting podcast claiming the Dow is meaningless: <a href="http://www.npr.org/sections/money/2017/01/04/508261371/episode-443-dont-believe-the-hype" rel="nofollow">http://www.npr.org/sections/money/2017/01/04/508261371/episo...</a><p>The article might have already discussed this, but I can't tell because of the paywall.
So nominal stocks valuations are up. The real question is are valuations high or low.<p>good indicators<p>- Stock Market Capitalization to GDP (This is Warren Buffets's favorite). <a href="https://fred.stlouisfed.org/series/DDDM01USA156NWDB" rel="nofollow">https://fred.stlouisfed.org/series/DDDM01USA156NWDB</a>?<p>- Q Ratio aka Tobin's Q Ratio (total price of the market divided by its replacement cost)<p>- S&P 500 CAPE (PE10) and Shiller PE (PE)<p>- S&P 500 Price to Book Value<p>None of them alone, but all of them together.
If you had a bunch of money to put in the stock market, would you:<p>- Put 1/3 of it in now and the other 2/3 in when the next crash hits
- Wait until it all goes to shit and put it all in then, keeping it in a high-yield savings account until then (they make about as much as CDs these days)<p>Would love to hear opinions!
The Venezuela stock market has had quite a run over the past few years too, but..... <a href="https://www.bloomberg.com/quote/IBVC:IND" rel="nofollow">https://www.bloomberg.com/quote/IBVC:IND</a>
This is nothing more than a sugar high before the inevitable Trump crash. He likes to take credit or stuff other people did. Then when Trump actually does something and it doesn't go well he pushes the blame onto someone else.<p>The stock market indexes were already up significantly as a result of Obama's policies. I'm just not here for Trump or others assigning credit to Trump for something Trump had very little to do with.<p>This is what you call speculation. Under Obama people had to prove out their finances. Under Trump gut feeling is enough.
This is driven by expectations of Trump's deregulatory agenda. He says he's going to cut 75% of regulations.<p>I can't believe this is happening. America is back people.
This is why Hacker News needs a downvote button. This is a non-story. The DJIA is an average of 30 stocks. Even if it was possible to figure out causation of stock market movement, the DJIA would be a terrible indicator of stock market movement.<p>For more, see here: <a href="https://en.wikipedia.org/wiki/Dow_Jones_Industrial_Average" rel="nofollow">https://en.wikipedia.org/wiki/Dow_Jones_Industrial_Average</a>