Friday, September 13, 2013

Dow Jones, an index of shame

I happened to be channel surfing the other day when I stopped on a PBS station.  The Nightly Business Report was on and the hosts were putting their best spin on the latest "non-event" Apple announcement ( 2 new versions of the same old phones). 

Financial correspondents understand charts, trends and indicators.  None of which have any basis in reality.  Well,  at least not to anyone with a net worth of less than 7 figures.  They have their own reality and it doesn't involve keeping the lights on or the kids fed. 

That's why Wall Street is a farce.  That anyone treats it as an economic indicator is laughable.   That is, unless you consider1% of the population a reliable demographic.
I almost switched the channel after suffering clueless commentary about yet another tech bauble.  I stopped when I found that following story concerned 3 companies being dropped from the Dow Jones Industrial Average (DJIA.) 

The DJIA supposedly reflects a cross section of American based companies publicly traded on the stock market. 

It's the "I" in the industrial average that's amusing.  The 3 companies that didn't make the cut were:

Alcoa     Bank of America     HP

No love lost for B of A but what replaced them were:

Nike      Goldman Sachs     Visa

The criteria for membership in the exclusive DJIA club is simple, share price.  The highest performing and generally most expensive stocks make the cut so long as they continue to "perform." Performance is measured in a consistently high share price.  Often brought about by ruthless worship of the bottom line; many of these companies reflect the worst in corporate pandering to shareholders.

Much has been made of the inequity of the index affecting the entire market with just a handful of "representative" stocks.  Regardless, the DJIA is still the daily number most reported and most relied on as the de facto indicator of the economy.

If that's true then perhaps a name change is in order.  Perhaps something more along the lines of the DJFI or Dow Jones Fantasy Index.  Think of it like fantasy football except you lose real money when you pick the wrong team...

God knows most people with 401K's see it that way...

When the DJIA first came about in 1896 there were only 12 companies that represented the nation's industrial sector.

They were:

General Electric, American Cotton Oil, American Sugar, Chicago Gas, Distilling & Cattle Feeding, Laclede Gas, National Lead, North American, Tennessee Coal, Iron and Railroad, U.S. Leather and United States Rubber.

What's the common thread?  They all actually made something tangible.

Let's look at 2013's class...

3M, American Express, At&T, Boeing, Caterpillar, Chevron, Cisco Systems, Coca-Cola, Dupont, ExxonMobil, GE, Goldman Sachs, Home Depot, Intel, IBM, Johnson & Johnson, JPMorgan Chase, McDonald's  Merck, Microsoft, Nike, Pfizer, Procter & Gamble, Travelers  United Health Group, United Technologies, Verizon, Wal-Mart, Walt-Disney

Look at that list closely.  Only a handful of the constituent parts of the DJIA are companies that actually produce any kind of tangible product and of those most of them produce their wares somewhere other than U.S. soil.

The rest is comprised of mostly banks, insurance companies, big pharma and other followers of the cult of  the bottom-line.   

It's all about the money but it's not about reality unless you think that an economy driven by outsourcing, medication and interest charges reflects its "Industry."

McDonald's and Wal-Mart, low price leaders known for low wages and substandard products.  Often the butt of jokes from those concerned about a failing career. 

Visa and JPMorgan Chase known for questionable financial products and poor treatment of their customers. 

Intel and Microsoft, tech pioneers but respectively proponents of offshore labor and unfair business practices that harm consumers and workers alike.

Insurance companies whose bottom line is best served by denying coverage even if the result is death. 
Pharmaceutical companies who lobby congress to artificially inflate profit margins and force the elderly to choose between medication and food.

If this is a cross section of American industry we might as well give up.  Nothing is being produced but misery and to celebrate the practice is madness. 

You can't blame globalization for the decline in American industry.  We are where we are because of the lesser parts of our nature.  Avarice, ignorance and ego,  Global markets have just allowed us to nurture the darker sides of our ambition.  Worse, we aspire to dwell in some corner office atop the glistening skyscraper producing nothing but the wages of our own sins.

We value those whose success was built on exploitation and dismiss all others.

Change may have come to America but real change involves a change in values.  Hard to do when popular media continually drives home the edict, "Greed is Good."  Openly we reject  it but secretly we hold it to be true.


That's why we fail.