Thursday, October 12, 2006

The stock market playas

I read Jim Kunstler's blog on occasion and "playas" is what he refers to the financial market kingpins as. I thought it would be a good term to start using, just calling them what they are.

You and I don't set the price in the markets, the playas do. The mutual, hedge and pension fund managers set the prices. Most of the pension fund managers are little more than bumbling government workers. They, like many money managers, do well when the Dow is up and poorly when the Dow is down which brings me to my topic: Is the Dow up over the last few years or not?

In U.S. dollar terms the market is even with where it was about 5 years ago, at a record high. The Dow is a good indicator of the on-paper wealth in the stock market but over time it's decieving. Why? INFLATION!

The dollar has lost about 25% of it's value since 2000 against a basket of other currencies (depending on which basket you use, that number changes slightly.) When the market playas talk about oil prices they always qualify it by saying oil prices are not near their inflation adjusted high from at least a hundred years ago. Why don't they say the same thing about the Dow? In order for the Dow to be even, it would have to be (depending on what inflation data you use) at least 20% higher than it is today!

The root of the Dow Jones Industrial Average is the dollar-denominated share price of each component company. If it's dollar based, why doesn't anyone calculate the inflation adjusted value and report it? I think it's just protectionism of a system trying to prop itself up higher and higher. When you adjust the stock market over time for inflation the returns are sad. The bottom line is that you have to beat the market by at least 5% to overcome real inflation (not that core crap.) Then you must make another 9% annual gain to have a real gain so you can pay the taxes on your inflated gains and come out about 6.5 -7% ahead in real terms.

Bottom line, if the Dow is up 6% and inflation is 5%, you got pwned by the playas. You're lucky you broke even. You say you made 1% in that scenario, huh? You forgot about the TAXES!


Blogger Insurgent said...

Nice, well-researched post!

I'm glad that I have moved from the useles ad agency market in to the stable and recession-proof home medical equipment business!

11:03 PM  
Blogger Lee said... excited for Vegas? Personally, I'm looking forward to unwinding and going crazy; bottomless popcorn at the cinema, I hear. Only in Vegas, baby.

3:51 PM  
Blogger Luke said...

Rex, I was able to find this website for you.

4:55 PM  
Blogger Luke said...

5:10 PM  
Blogger Insurgent said...

Poor Rex; I heard that they were making sport of you last night at the smokers meetup. Do you have a new giggle crew?

7:40 PM  
Blogger Rex said...

The new giggle crew: The World vs. Rex

1:50 AM  
Blogger slave_to_reason said...

my post yesterday is similar

5:12 AM  
Blogger slave_to_reason said...

I notice you include Limits To Growth with the Read this, I mean the whole thing link. Since it is based on population I would be interested to know what you think about population from a libertarian standpoint. Also, can you give me a link to a solid argument on economic externalities from an Austrian viewpoint?
PPT playas

7:23 AM  
Blogger EPICRESEARCH said...

Pretty good post. I just stumbled upon your blog and wanted to say that I have really enyed reading your blog posts. Any way I'll be subscribing to your feed and I hope you post again soon

3:57 AM  

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