Tag: Dow Jones Industrial Average

Irrational Exuberance?

The Dow Jones average broke 25,000 today.  The Dow has risen 28% in the past year and the S&P 500 has risen 21%.

“Irrational exuberance” is a phrase used by the then-Federal Reserve Board chairman, Alan Greenspan, in a speech given at the American Enterprise Institute during the dot-com bubble of the 1990s.  The stock market was on a tear.  We all know how that ended.

The dotcom bubble occurred in the late 1990s and was characterized by a rapid rise in equity markets fueled by investments in Internet-based companies. During the dotcom bubble, the value of equity markets grew exponentially, with the technology-dominated NASDAQ index rising from under 1,000 to more than 5,000 between 1995 and 2000.

What is happening in today’s stock market seems to me to be the same sort of irrational behavior.  The Dow price earnings ratio is now at 22.08 and the historical average is about 15.  But famed economist Robert Shiller indicated he was not alarmed when being interviewed on CNBC this past September.

“It’s not just a matter of low interest rates, it’s something about the American atmosphere. It’s partly the Trump atmosphere. Investors love this. I can’t exactly explain – maybe it has something to do with prospective tax cuts. But I don’t think it’s just that. It’s something deeper, and it’s pushing the American market up,” he added.

Unlike 1929, Shiller pointed out there’s not much talk about people borrowing exorbitant amounts of money to buy stocks. Plus, he noted there’s now more regulation.

I am somewhat mollified.

The Rich are Getting Richer

Ford Factory - It Looks Good

Workers build a Ford Focus on the assembly line at Ford Motor Co.’s Michigan assembly plant in 2011.  (Bill Pugliano, Getty Images /December 14, 2011)

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Let’s start with the positive news that 236,000 jobs were added to payrolls in the United States during February.  The most optimistic forecasts were 160,000 new jobs.  This was a marvelous wonderful surprise.  We can only hope that this is the beginning of a trend.

Meanwhile the 100 wealthiest people on the planet added $28.7 billion to their collective net worth this week after the Dow Jones Industrial Average surged to a record, according to the Bloomberg Billionaires Index.

It was not just Bloomberg that pointed out the discrepancy between us and the wealthiest.  Michael Hiltzik’s Los Angeles Times column hit the very same fact.  He wrote, “Wages peaked at nearly 53% of GDP in 1970, but they never saw that number again. Through expansions and recessions that percentage has fallen almost without surcease. As of the end of last year, it was below 44%.”

“Try to find a statistical measure that shows the middle class and working class keeping up with growth in corporate wealth and affluence at the top reaches of the income scale. Viewed in isolation, of course, growth in corporate wealth would be a good thing for everybody. But the figures show that the people most responsible for this growth — the workers who contribute their sweat and brainpower — are being mulcted of their fair share.”

Am I being too harsh on the richest in our society?  My view is that no society can thrive if everyone is not included.