Here we go again

[altivo]

The rain is back. At least this time it comes with entertaining lightning and distant thunder. My dog rarely gets up on the bed, but last night he did because thunder worries him a lot (even though he's 13 years old now and growing hard of hearing.) This afternoon we had severe thunderstorm warnings, though nothing materialized. First they said it would pass north of us. Half an hour later they changed and said it was headed right for us. It actually went south of us.

So the news says that General Motors has been dropped from the Dow Industrial "Average". This is apparently a normal practice. When a stock no longer performs well enough, it is dropped and something else put in its place. They replaced GM with Cisco. That's hardly a direct substitution. Seems to me a hardware manufacturer of consumer products should be replaced by another company that does the same. But this just goes to prove that the DJIA is antiquated and does not deserve the psychological "weight" that is assigned to it. The economy is very poor now, so we should believe that it suddenly got better because a healthy stock is substituted for a very unhealthy one in the measuring scale? In order for the average to be a meaningful value, the decline in GM's stock price should show there, should it not? But that's bad for business if you're a broker or mutual fund "pusher" so they redo the supposed measuring mechanism to make it look better.

This is like when, instead of raising prices, the seller changes the size of the container. "Now, less sodium than ever." Well yeah, because now there's less tuna in the can than ever. It only weighs 5 ounces instead of the 6 it weighed last year or the 7 it weighed when I was a teenager.

Your waistline is embarrassingly large? No problem, let's just use this magical tape measure that has extra big inches. Look, now you're only a 32 instead of a 48.

Governments have been doing this for a long time, so I suppose it's no surprise that the stock market pundits should be doing the same thing. "Hey look, unemployment has gone down!" (Because we stopped counting people as unemployed if their unemployment compensation ran out...) "See, there's no warming trend!" (Or at least you'll have trouble figuring it out because we just switched from Fahrenheit to Celsius readings. A 20° temperature sounds MUCH cooler than 68°, right?

Bah, humbug.

Comments

[hgryphon.livejournal.com]

And that means more bugs, per your earlier post? Where I come from, mosquitoes require standing water... prr?

[altivo.livejournal.com]

Yes, and in the kind of terrain around here, with heavy clay soil that drains slowly if at all, more rain does mean more standing water. A couple of inches of rain in a span of two or three days almost guarantees there will be standing water around for two weeks, just long enough to breed more mosquitoes.

[hgryphon.livejournal.com]

Ah, that's it then. Where I'm from, there's not so much flat space for water to gather.

[schnee.livejournal.com]

Yes, good points all around.

They're doing the same thing in Germany with regard to unemployment numbers, too - cooking the books in order to make themselves look better, in essence. And then you get politicians wringing their hands and wondering why people are so disenchanted with politics and politicians in general, why the voter turnout for elections is lower and lower every year, and so on...

[dakhun.livejournal.com]

Well, the main reason that they can't have GM on the Dow anymore is because, being bankrupt, the stocks have permanently ceased trading and are automatically worth zero.

Whole industries or sectors of the economy can become totally obsolete, fall out of favour, or just shrivel up and die, but that doesn't mean that the rest of the economy is going to shrivel up and die along with them.

A good recent example would be photographic film. Kodak used to be on the Dow. Film used to be a big industry, but it is pretty much gone now, and you'll never see another company that specializes in making photographic film on the Dow ever again. And Kodak has not been anywhere near as successful a company with digital photography as it was with film. And none of the companies that were added to the Dow when Kodak was removed had anything to do with what Kodak's business was. But that doesn't mean that film permanently took a chunk out of the economy when it went away. The focus simply went elsewhere. Making vacuum tubes or mining for asbestos aren't the big businesses they used to be either, but the economy as a whole survived their passing. So too will it be with the American auto makers.

[altivo.livejournal.com]

I'm certainly not suggesting that GM be replaced by another automaker, but even the word "industrial" in the Dow is becoming obsolete.

The real issue is the idea of the Dow at all. It was created when there was no easy way to track the entire market at once. Now, with computers, we could do that easily. Using a tiny group of "bellwether" stocks to represent the whole economy is dishonest in my opinion, and easily used to distort the picture when people have been trained to look at the Dow as the sole measure of economic "health." I think the Dow should be retired completely.

[wolfgrowl.livejournal.com]

These indices are used for more than a yardstick.

They use these rebalanced indices for index ETFs. They actually trade the underlying basket as a form of mutual fund.

A better measure of performance, if you want to get an idea of the direction of the market, is to use the S&P 500 (you can also trade this index too).

[altivo.livejournal.com]

Yes, and I have problems with that too. One of the serious issues that contributed to the current economic bubble and collapse was trading in all these complex derivatives and indexes and so forth, at least in my opinion.

[dakhun.livejournal.com]

There's a lot of support for that amongst stock traders, actually. Because if anything, the small number of stocks in the DJIA has distorted the economic picture so as to make the economic recovery look LESS rosey lately. The S&P500 has done much better so far this year.

I mean... when they removed Kodak from the Dow, that's when they put AIG on it. Brilliant move. :-)

[altivo.livejournal.com]

*snicker* Precisely my point

[cabcat.livejournal.com]

Gad more rain for you, it's been raining here a fair bit everything is wet and miserable, and the carpets are starting to smell rather musty.

I kind of like them making food sizes smaller rather than increasing the price as then I eat less :)

I hope this bankrupty and restructuring helps GM change their attitude when it comes to producing cars.

[altivo.livejournal.com]

Smaller food packages are OK. It's the dishonesty with which they advertise that really offends me. Like when the ice cream makers started reducing their half gallon package down to 28 ounces or whatever it is, they put on the box "Now, more convenient size." More convenient for whom?

I'm afraid GM is hopeless. They just don't get it. They've had plenty of opportunity to look farther into the future than six months, and have failed again and again. This was inevitable. Chrysler has the same problem. Ford is doing just slightly better and may actually survive because at least part of their design and management had already been pushing for more efficient cars and production methods.

[cabcat.livejournal.com]

Food packages saying "fun size" have always been my bugbear since I was a wee kitten. At least most now say, snack or treat size.