The Real Confidence Game

The Dow Jones Industrial Average fell today below 6800.


That might not mean much to readers who are not that familiar with the stock market. So think of it this way. There are two reliable indicator's of the country's economic health: the unemployment rate and the Dow. The unemployment rate is a "trailing" indicator. That is, the unemployment data trails by several weeks the employment picture at the current time. That's because it takes a while to collect and report the data



The Dow, on the other hand is a "leading" indicator. That means that the data is current. With the Internet we can actually follow the Dow all day in real time. The Dow is important because it gives us a current picture of economic activity of the 30 "component" companies that make up the index. These are companies whose reach and breadth are so big that they are felt in all corners of the country and in all sectors of the economy. They employ many people and purchase billions of dollars of goods from other companies who employ thousands more.



Why should we be concerned? Well, because most of us: 1) work for one of the components, or 2) work for a company that does business with one of the components, own stock in any of those companies, or 3) own shares of a mutual fund that owns shares of any of these companies, or 4) some combination of all of these. Plainly put, the Dow touches most of us, not just the Wall Street swells.


So when the Dow free falls through 6800 it's big news. How big? This big:

• To get below 6800 points today the Dow dropped 300 points in a single day


• It had not closed this low in 12 years--when Bill Clinton was still president


• The overall stock market has fallen 4 straight days now


• The market has fallen in 10 of the last 12 sessions shedding 15% of its value along the way


• Today's trainwreck was universal--the share prices of all 30 component companies fell

Why the drop? Joe Battipaglia who works for financial company Stifel Nicolas, says the big money men have finally concluded that this recession is the real deal and won't improve anytime soon. Most troubling is his conclusion that people are starting to realize that the government doesn't have a clue how to fix things.

Doreen Mogavero, principal of the only all women-owned brokerage on the floor of the New York Stock Exchange is even more bleak in her assessment: The financial bleeding will only stop when people run out of stocks to sell, she tells the Wall Street Journal.

Those enormous political rallies from last summer and fall--the ones where America drank the Kool Aide of "change we can believe in" seem light years ago. Despite the President's attempts to look presidential, and the Congress' attempt to take over vast sectors of our economy, no one really has a lot of confidence in them. Period.

Despite the President's continued popularity, polls show that nearly two-thirds of the country still thinks we're in a canoe going backwards over the falls. And, while the President has been in office less than a month, neither his enormous stimulus plan, his enormous budget, or his immodest plan to change the role of American government forever, has moved the needle one bit on the confidence of the American people.

I don't think most people signed up for this when they pulled the lever in November.

Just thought you might like to know.