Dow Troubles – Do they mean anything?

The DOW has lost over 4% of its value in the past two trading days. This, on the heels of much backslapping and highfiving over an invincible economy, evidenced by the index clearing the 14,000 mark. Now these same pundits (mostly on the Fox News Channel) fail to ever mention the fact that when inflation is figured in, we’re a long way from a new all-time record. Sure, we’ve hit a nominal record, but a real record? Sorry.

Gold has taken a hit, but according to Dan Norcini on Jim Sinclair’s site, it took "humungous" effort on the part of the buyers, with an enormous number of gold transacted to do it. Already, the price of gold has rebounded a bit. Sinclair sees Gold over $1,000.

The dangers in this market are many. Our debt, both personal and public is immense, and growing daily. From Treasury Bills to the credit card that gets whipped out several times a day, someone holds the note on each of those debts, and expects to be repaid. Unfortunately, no one seems to be making an effort to pay off those debts, and everyone knows it. Every single stock on NYSE and NASDAQ is dependent on someone buying something, a product, service, or information. When people don’t have enough money, they don’t buy as many things. When they have a lot of money, they buy and have expectations to buy in the future. While housing prices were rising and interest rates were falling, it looked like free money was everywhere. Refinance your house, take out some cash and your payment’s lower. Wow. Free money.

No.

Those dollars were taken out, spent on plasma tvs, big vacations, new car payment support, etc. Now the housing bubble is starting to (depending where you live) burst or deflate and the value of those same houses are falling, often past the amount level of debt attached. Every day, homeowners in different regions of the country are finding that after one or two refinances, they now owe more on their house than the house next door sold for. That’s a bad situation for everyone, and is only going to get worse. The future ability of consumers to buy stuff will translate to a lower DOW. Remember, all those companies SELL stuff.

Posted in Economy, Housing Bubble