Wednesday, August 9, 2017

An explanation for Dow 22,000

Yesterday:
Image if you will, your local supermarket. We are going to the dairy aisle to get a quart of milk. Now, in this musing, we have four brands to make our choice. Let us not differentiate between low fat or 2%, just plain milk without GMOs.
First, we have the national brand. For consumers who just moved into the neighborhood, this will be their choice.
Next, we have the local dairy. This will be supported by folks who grew up in this environment.
Thirdly, we have the discount brand. People buy what they can afford.
Finally, we have the new kid on the block with fancy cartoon characters. They will try to get your kid to bug you to buy their product.
These are our choices with some backstory. Now, since the four brands are in the refrigerator section, we must conclude that they are all making money and that is why they are still in active business.
Now, dear reader use an analogy here. Instead of milk, imagine the US stock market in the 1990s.
The market listed almost 7,000 companies. The Wilshire 5,000 was the choice to find a good small cap stock with growth potential. With so many choices, money circulated.
Today:
In the refrigerator section we basically find two choices. The reasons are many like high prices and changing consumer preferences to government subsidies favoring big corporations over ma and pa operations. You can buy the national brand or if still available, the local brand. Since land near cities is so expensive and tax burdened, in short order the local dairy will sell out to a housing developer. Then, we will only receive one choice and when it goes GMO, no choice.
This is what happened to the US stock market. We no longer use the Wilshire 5,000. We use the Russell Small Cap Index or Russell 2,000. The Big board has only 3,400 companies and shrinking. There are many reasons for this, from mergers to going out of business. The shills never mention the reason so many went out of business. It is due to globalization. This is the death of the middle class. The shills sometimes tell some truth, but only to mask their intentions which is really unknown to them as this is behind the doors strategy. They may suggest that rules and regulations are hurting companies. This is true. The Sarbanes-Oxley Act hurts small business which large corporations love because it gets them one step closer to going out of business. This has directly effected IPOs to the market. The cost is too high to go public. It is why the real successful companies in the US are private concerns. This is the real reason why the stock market keeps setting new record highs. There is little to choose and money is funneled into the few remaining choices. If there is a correction, this will cause a stampede to exit the market. By the way, the long-term up channel line has just been reached. This is the first time since the fallout of 2008 and guess what? The market ended its streak of record closes as it had a down day. Not good. 

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