Wednesday, September 17, 2008

dow theory

I’m not much of an investor anymore. During the Go-Go 90s, the “new economy” tech bubble fooled a bunch of us into thinking we could pick stocks as well as the pros. Back then, it seemed as if you could pin the tail on the ticker symbol, buy the stock, and then just watch it go up, up and away. Little did we know the stock market had become the instrument of a flim flam American economy that produces plenty of high quality paper wealth, internet porn and milkshakes, but not so much in the way of cars, semiconductors, TVs, and shoes. When the tech wreck finally came in March of 2000, the subsequent housing bubble replaced stocks as the new ‘engine of growth.’ Alan Greenspan was a ‘maestro’ when it came to financial manipulation for the purposes of short sighted fixes, but he was anything but a responsible steward of the U.S. economy. One wonders how he could possibly warn against “irrational exuberance” in 1996, and then turn around and fan the flames of not one but two asset bubbles, one right after the other, and each of disastrously large proportions. I feel sorry for Ben Bernake, now charged with cleaning up the blood spatter…charged, in other words, with doing the impossible, the reason being that there are seemingly no bubbles left to inflate (Bonds, gold and oil are all counter cyclical, meaning that increases in their value tend to be bad for the economy or are signs of a weak economy). In the end, there really is no substitute for producing useful things. American manufacturing has been in steady decline since the 1960s.

The capital markets have gotten bludgeoned this week. The Dow Jones Industrial Average declined 8 percent in three days. I’m not looking forward to receiving my next 401K statement. A lot of my hard earned dollars will have evaporated. Can you imagine what an even bigger calamity this would all be if the conservatives were successful in their scheme to privatize social security? If there’s anything positive coming out of the current financial meltdown it’s that the idea of private social security accounts will die, with no chance of resurrection. The public now hopefully understands that social security cannot be an extension of the market precisely because it’s supposed to be an insurance policy against market vicissitudes.

What’s especially interesting about all this to me is that the Dow is now more than 1,000 points lower than it was on the day before it began to take its tech wreck nosedive in early 2000. That’s more than eight years ago for those of you keeping score at home. It’s important to remember here that the market collapse back then ended an eighteen year secular bull market that began in the summer of 1982, and that during the period from 1966 to 1982 the Dow had its significant ups and downs but never made a new all-time high. It took Reagan’s destruction of the legacies of FDR and LBJ to unleash the full, ruthless force of American finance capital in the late 20th century. Now that this strategy has been tapped out and it’s clear that laissez-faire economics ultimately invite disaster, the question becomes whether America will move back to the mixed economic policies of the New Deal and the War on Poverty. One hopes this is the case, yet the cultural and political polarization in this country - as well as the increasingly weakened position of America in the global economy - suggest that our options are pretty limited.

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