If dow is not a good indicator of the state of the economy, what is? (calculate, real estate)

[Chango]

So if the DOW freely takes off non-performing companies and replaces them with companies that are making money, what good is it as a economic indicator? Doesn't that make the DOW really just a bunch of smoke and mirrors? What should I be looking at?

GM, Citigroup Replaced in Dow by Cisco, Travelers (Update1) - Bloomberg.com

[le roi]

Originally Posted by Chango

So if the DOW freely takes off non-performing companies and replaces them with companies that are making money, what good is it as a economic indicator?

Not much.

What should I be looking at?

It is like driving a car, and asking what aspect of the car is the most important. RPM might be most important, until the car runs out of gas. Gas might be the most important, unless the car is overheating. Temperature might be the most important, unless your car doesn't have any wheels. Miles per hour might be the most important, unless you're careening off the cliff, Thelma and Louise-style.

I think that because the economy is multivariate, the best indicator of what is going on at a point in time is whatever index is out of its normal range at that time.

For a while, it was the LIBOR, because credit markets were a key indicator. I'm sure arguments could be made for income levels, GDP, NYSE composite, U6 unemployment, home sales, home prices, home starts, etc.

[Chango]

Originally Posted by rubber_factory

Not much.

Yet the media makes a big deal about the DOW and what it's doing. That really makes it just a propaganda tool.

Maybe that's why the numbers keep going up while business close, forclosures skyrocket, and millions of jobs evaporate. And I was starting to think everything was getting better.

[le roi]

Originally Posted by Chango

Yet the media makes a big deal about the DOW and what it's doing. That really makes it just a propaganda tool.

"Never attribute to malice that which can be explained by stupidity."

I don't know about propaganda. I don't think they are promoting any specific cause. I think they deliver what the people want to hear. I'm sure there's some value in knowing the daily fluctuations of market indices.

Maybe that's why the numbers keep going up while business close, forclosures skyrocket, and millions of jobs evaporate. And I was starting to think everything was getting better.

I suspect that the actions of the Bush and Obama administrations are helping manipulate the markets, but the details are lost on me.

[Stac2007]

Originally Posted by Chango

So if the DOW freely takes off non-performing companies and replaces them with companies that are making money, what good is it as a economic indicator? Doesn't that make the DOW really just a bunch of smoke and mirrors? What should I be looking at?

GM, Citigroup Replaced in Dow by Cisco, Travelers (Update1) - Bloomberg.com

Whats an economic indicator? The countries gross domestic product and unemployment levels, buts that’s me. As far as me this country is on the brink.

[texdav]

The dow tells you how the eomy is do but not indivdual. Those are alwsy separate issues with some losing and others gaining as always.People get rich in the markets and others lose their shirts.

[HappyTexan]

Originally Posted by rubber_factory

I suspect that the actions of the Bush and Obama administrations are helping manipulate the markets, but the details are lost on me.

It's called the PPP or Plunge Protection Team.
They "stabilize" markets..hint hint - manipulate via buying futures.

Working Group on Financial Markets - Wikipedia, the free encyclopedia

Officially here's what they do:
snippet from link:
The Group was established explicitly in response to events in the financial markets surrounding October 19, 1987 ("Black Monday") to give recommendations for legislative and private sector solutions for "enhancing the integrity, efficiency, orderliness, and competitiveness of [United States] financial markets and maintaining investor confidence".

[le roi]

^ In other words, the federal could be printing money and buying common stock with it, and they wouldn't be obligated to tell anybody.

[floridasandy]

The Counterparty Risk Management Policy Group (CRMPG)

Established in 1999 in the wake of the Long Term Capital Management (LTCM) crisis, it manipulates markets to benefit giant Wall Street firms and high-level insiders. According to one account, it was to curb future crises by:

-- letting giant financial institutions collude through large-scale program trading to move markets up or down as they wish;

-- bailing out its members in financial trouble; and

-- manipulating markets short or longer-term with government approval at the expense of small investors none the wiser and often getting trampled.

As a result, concentrated wealth and "financial power resulting from market manipulation is unprecedented" with small investors' savings, IRAs, pensions, 401ks, and futures being decimated from it.

[user_id]

There is no single measure of the economies health (except perhaps the GDP), but there are a variety of measures that do tell you about the health of the economy.

At the end of each month calculated risk puts some key measures in nice graphs:

Calculated Risk: May Economic Summary in Graphs

Calculated risk is more so focused on real estate, but real estate (investment wise) tends to lead the economy out of recession so the focus may be deserved.