Joe Doakes from Como Park emails:
A buddy wonders why, if the economy is as bad as Republicans claim, the stock market is roaring? Doesn’t that prove Republicans are lying?
I’m no expert but even I have noticed the S&P 500 and NASDAQ have hit highs while the Dow Industrials and Dow Transport have not. What’s the difference? The high-flying stock exchanges buy and sell stocks in companies that are NOT industrial or transport. So what are they? The NASDAQ-100, the top performing companies, is composed of banking, insurance, mortgage and brokerage companies . . . in other words, companies that own a lot of paper but nothing else. They are dependent on the federal government continuing to dump $60 Billion per Month into the economy to prop up lending and housing. When that gravy train stops, those companies will collapse.
Industrial and transport – companies that own a lot of heavy iron – have been wrung dry for a decade and thus are far less dependent on stimulus but also far less profitable right now. Major contractors don’t order billions of heavy machinery for a short term burst of government work; instead, they do the jobs with what they have, defer maintenance, scrape by. The real orders for machinery, jumbo jets, etc. go to companies that are seeing real growth.
The true measure of the economy is not reflected in paper companies that shuffle stimulus money back and forth, skimming a percentage off the top each time. The true measure of the economy is iron companies that make things that do stuff. And that economy is not robust at all.
To take the absurd extreme, if I had a Dow Jones company, and I laid off all the employees and sold all the inventory and buildings and land, and took all that cash and the bailout payment besides and stuck it in a Swiss bank account, my stock value would be…
…well, probably 0, and I’d probably be in jail for something or another.
But leave out the “selling the plants and land” bit, and don’t lay off quite as many people, and my stock value would soar, because I’d be in a freaking awesome cash position. No matter that I’m producing less, employing fewer, shedding payroll, and just waiting for things to get better. My shareholders are happy.
Isn’t that the sort of thinking – thinking for profits? – that liberals claim to criticize in business?