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May 27, 2010

So the Dow is up and everyhing is okay again, right?

Wrong.

The Dow (or any equities-based average) is really meaningless as an overall indicator of the economy. Why? Because the equities market is tiny compared to the debt market. And the debt market is in bad shape, and getting worse, particularly for commercial paper and so-called "junk" bonds. Even Treasuries are getting the stink-eye from some investors.

An upsurge in the equities markets means a healthier 401(k) for most average folks, but the bad debt market means that the overall economy isn't likely to recover any time soon. This situation won't change until spending aligns with income -- and this applies from the sovereign level all the way down to Joe and Jane Taxpayer.


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posted by Monty at 12:03 PM

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