The Mindless Herd

When markets do a u-turn, you always get the few who say the u-turn doesn't mean anything, no matter what the numbers are saying. This is particularly true when someone has a political agenda to push. Daniel Gross at Slate (via Instapundit) is the latest culprit:

For starters, the Dow's success does not mean that stock-market investors in general are thriving, because the Dow does not well represent the whole market ... And because of its weighting system, the performance of a few stocks can have a disproportionate impact ... And serious investors don't even use the Dow as much of a benchmark.

Go and read his piece if you are so inclined; at least it offers some amusement for its sheer financial illiteracy. It's that 'weighting system' argument again, which bears and Democrats alike are all over - despite the fact that, as I said in a recent post, it doesn't really matter at all how the index is weighted when it's buying momentum you're trying to guage and when the total numbers of outstanding shares is much greater than the privately held ones.

This argument is logically flawed too. Re-read this line:

the Dow's success does not mean that stock-market investors in general are thriving, because the Dow does not well represent the whole market

So, when internet stocks were pushing enormous highs only seven years ago under a Democrat government, was it fair to say that it didn't mean investors weren't cashing in because the NASDAQ doesn't represent the whole market (and the NASDAQ back then constituted a much smaller part of the market than the Dow does now)? It's simultaneously impossible for ALL makets - property, commodities, bonds, all equity indices - to be up all at the same time, so no one who understood financial markets would make such a ludicrous claim. Plus, it's wrong. Capital spillage from the Dow has pushed the NASDAQ to a five year high.

On top of that, it's incredulous that Mr. Gross would put his name to a statement like 'serious investors don't use the Dow as much of a benchmark,' especially as he claims in the same post that 'The Dow has a long and distinguished history, and remains the most popular shorthand for the performance of the stock markets.' So - while remaining the most popular shorthand (presumably he means in the financial industry meaning 'serious investors') for the performance of the stock markets, 'serious investors do not use it as much of a benchmark'?

This is herd-talk again, and if anything, the whole self-contradiction should sound warning signals to those who are short right now. Or, dare I say it, banking on a Democrat take-home at mid-terms.