From time to time I’ve noted the irony that 6,500 on the Dow – the Great Giddiness a dozen years ago that prompted Alan Greenspan’s famous “irrational exuberance” comment – might wind up being our bottom. After a lot of growth and a little inflation, and an even Greater Giddiness that took the Dow up to 14,164, maybe we’ve grown into 6,500.
I hope it’s the bottom, because I love irony – and because, more to the point, it’s here (the Dow dipped below 6,500 before rebounding a little Friday) and as a patriotic, shareholding American, I don’t want to see it fall any further.
But markets are frequently irrational in both directions; and there’s nothing irrational (that I can see) about Dow components like Citigroup and GM selling for a buck or two. Sadly, their common shareholders are likely to get wiped out altogether. Likewise, I’m not sure the other 28 Dow stocks are irrationally low here either, given the current state of affairs, or that some of them may not have to go through some form of reorganization, too. (Not that I have the skills to know – but then again, neither does anyone else.*)
So even if 6,500 were, ironically, fair value for the Dow here, there’s nothing to keep it from going to 3,500.
Even at today’s prices, the stock market is no place for money you may actually need in the next five years.** It never is.
*They’ll just be wrong for more sophisticated reasons.
**If you’re anywhere near retirement, you wouldn’t want all your money in stocks even if you did have abundant resources for the next five years.
It never fails to surprise me: the days are getting longer. It’s thrilling!
And if you can afford a broadband connection, there are endless free ways to amuse yourself, from web boggle and chess to hulu clips and movies, to long walks in the fresh air (this one requires no broadband connection), to roaming the ocean floor, to occasional moments worth pausing for . . . like this one:
FOUR MINUTES OF GRACE
NOT SOAKING THE RICH
Amazingly, a lot of people are wailing that Obama is promoting class warfare or attempting to soak the rich – because he proposes not to interfere with the Bush-signed, Republican-Congress-enacted “sunset” provisions of their tax-breaks for the rich.
Which means that someone making $15 million in 2011 would be taxes at a 39.6% marginal rate, up from 36% (but still have about $9 million left to pay the bills) . . . or, if her income had been from long-term capital gains, at 20% up from 15% (leaving $12 million).
Nor is it only the rich who will be clipped. As this Slate piece details, the tax rate on the next $100,000 or so above the first $250,000 a family earns would go back up from the current 33% to 36%.
But what can I say? Times are tough. This is not class warfare, and this is not socialism, or “confiscatory.” And this is no more likely to deter a bright young entrepreneur from starting the next Apple Computer than the then-prevailing 70% top tax bracket stopped Jobs and Wozniak from starting the first one.
As Frank Rich noted yesterday:
The simplest explanation for why America’s reality got so distorted is the economic imbalance that Barack Obama now wants to remedy with policies that his critics deride as “socialist” (“fascist” can’t be far behind): the obscene widening of income inequality between the very rich and everyone else since the 1970s. “There is something wrong when we allow the playing field to be tilted so far in the favor of so few,” the president said in his budget message. He was calling for fundamental fairness, not class warfare. America hasn’t seen such gaping inequality since the Gilded Age and 1920s boom that preceded the Great Depression.