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IS THE DOW REALLY AT ALL TIME HIGHS?


"The Dow's Phony New High". Here's Some Food For Thought.

There have been a lot of interesting articles found at http://www.bullnotbull.com entitled "The Dow's Phony New High." One particularly interesting article is:

Misrepresentation of Economic Numbers


Another Investors Post & Opinion From: UNICO INCORPORATED (AZ) (UCOI)
Posted by: Hopeful Diogenes
In reply to: None Date:10/29/2006 9:19:38 PM
Post #1492 of 4770

OT but not really.

There is something that has been bothering me-The Dow-the DJIA-it seems to be going up conveniently just before the mid-term elections in the US; yet many of its 30 components have been falling in price. Since our Unico stock price is so easily controlled, could it be that such a widely followed, at least by the general public on Network broadcasts, indicator of financial well-being, could it really be that it was being fiddled? Surely not! Next you will tell me that gas prices are being artificially kept down to benefit certain parties.
So I dug around and found the following: It was posted on geezerboomer.com (don't ask me how I got there, it just sort of happened as I was poking around the web.) For your enjoyment and renewed faith in the probity of our financial system.

Whoopie, a new 12,000 high for the Dow, and how nice for the Replicants. Could I rain on this parade? Oh, but of course.

The Dow Jones Industrial Average (DJIA) of 30 stocks is calculated by adding up the dollar closing prices of 30 “representative” stocks of our economy and then dividing by a divisor. I’ll slow down if I’m going too fast for some of you…

The DJIA Index is denoted in “points” not dollars. And the divisor has gotten adjusted over the years as stocks in the Index are subtracted and others are added, or stocks that are there split their shares. (Known in the biz as giving you two $5’s for a $10) You want an Index as popular as the Dow to have a certain consistency - that it will open somewhere near where it closed the night before.
Anyway, the current Dow Industrial Index divisor is currently 0.12493117. (And you thought you were nit-picky.) That means you can take a 30 stock Raw Score of about 1499 and divide that by the teeny divisor. Or take the raw score and mulitply by 8. Yeah, 1500 times 8…carry the 4…comes out to about 12k. (Nightly Business Report says, $1 of stock value is more than 7 points in the DJIA. Can you smell the “Never give a customer an even break” aroma?)

Well, since most, I mean more than HALF, of the Dow 30 stocks actually trading lower than they were back in March of 2000, I decided to do some research. Nobody was really explaining HOW parts of index could mostly be lower, and yet the Index itself was hitting new highs. And isn’t that nice for the Replicrooks.
In one of my old adult ed workbooks, I’d written down that as of June 5, 2000, the Dow’s divisor was 0.18238596. That means that the Dow’s March 2000 high of 11722 had a Raw Score of approximately 2137. I’ll skip the decimals and the slight mismatch on dates here. I want you to know though, that my Hewlett Packard 12C calculator did these calcs with batteries to spare. At the Dow’s high back in the spring of 2000, $1 of stock value equated to only about 5 and a half points on the Index.

Presto Reducto, our new high on the Dow has been caused by reducing the divisor…and the public snoozes on.

(And don’t even get me started on the drop in the purchasing power of the money invested in the Dow stocks - caused by the 30% dunk of the dollar in the last 6 years…)

On Planet Wall Street, figures may not lie, but we should bet much more often that liars can still figure, especially in an election year. Over 43% of the population DO figure that somehow the Bush Administration lowered the price of gasoline in the last 2 months. Why won’t the public consider the possibility that other scams are at work in our other markets?

Courtesy of geezerboomer.com

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