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Dow breaks records-- is this good news?

The collective U.S. mood for this month is melancholy, especially for last week, which is an indicator of likely "bad news." So, what about the stock market rally that broke new records? Isn't that good news?

More and more people in the U.S. are not doing well. Health care is a problem for many. Foreclosures are rapidly increasing. High oil and gas prices will insure a higher price for most other goods and services as well. The dollar is falling, further decreasing our purchasing power. Yet, the stock market keeps rising.

Stock prices rise because investors keep buying stocks, and because there are more buyers than sellers. It is that simple. If the U.S. stock market is a gauge of the collective mood of the U.S., and the collective mood has been turning down for some time already, then what gives?

The stock market's continual rise in spite of a slowing economy, and lowered general mood can be compared to the "J" curve in ecology. When a species is in sync with its food supply and the rest of the ecosystem, its population fluctuates in a sine wave shape, an "S" curve. If it gets a temporary increase in food supply, or its predators die off, for instance, the population can surge way above a balanced state until suddenly it crashes.

Every time I hear the Dow breaking new record highs, I find it highly disturbing, even chilling. The market is in such a state of overshoot, and so out of sync with its "ecosystem", that when it does finally crash it could even make 1929 look like a walk in the park. Each time records for winning streaks are broken (as they have been for 1987, then 1927 and 1929 in the last few months) and the connection is NOT made with what happened the last time such greed and mania went unchecked, I am baffled.

At some point this roller coaster ride is going to be over. And it will feel like it ended because the tracks suddenly weren't there. It won't be pretty.

Stocks surge despite rush of bad news
By Dean Calbreath

July 14, 2007

"Capping a dramatic week on Wall Street, the Dow Jones industrial average came within spitting distance of the 14,000 mark yesterday and the broader Standard & Poor's index surged to its highest trading point in seven years.
But for a number of observers, the big question is: Why?
The record gains for the Dow and S&P came despite news of slowing retail sales, a burgeoning trade deficit and a declining housing market."


"Even as stock prices climbed to record highs, there were signs that some investors were jittery about the health of the economy. International investors continued to drift away from the U.S. dollar, signaling their lack of confidence in the economy. The dollar fell to a record low against the euro and a 26-year low against the British pound."


“All of the pundits and so-called 'experts' who did not see this coming still do not appreciate the magnitude of the mortgage disaster and how it will impact the housing market in general, the economy, the stock market, the dollar, interest rates, inflation and the price of gold,” said Peter Schiff, head of Euro Pacific Capital in Newport Beach. “The curtain has yet to close, but if you listen closely, you can hear the fat lady warming up in the wings.”


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