By Nathan Barton
According to Investing.com, the Standard and Poors (S&P) 500 is at all-time highs, reaching over 3,000 in the last few days. The NASDAQ is over 8,000, the Dow Jones Industrial over 27,000. (This is in general over a period of days or weeks: as I write this, the various “numbers” are actually slightly down for the day.)
So (according to Wall Street), the economy has never been better. We are growing steadily, with a few glitches along the way, but no serious problems. We are all getting richer, even if the really rich are getting even richer faster. Old and new companies are increasing in value, as business and consumers get more and more goods and services, and while there are (always) companies in trouble, going under, and just plain imploding, the average American and multinational (publicly-traded) corporation is strong and getting stronger.
It is a meme that the mainstream media has been promoting for decades, as everyone pays attention “to the numbers.” From Fox and CNN to NPR and even the Blaze, we hear and see how all the stock markets are doing. And how this reflects the state of our economy. And therefore our nations and the world.
What if it isn’t growth that the Dow, S&P, Nasdaq and the like are measuring? What if they are really measuring inflation? The continuing devaluation of the dollar?
What if Acme Gifts’ stock price is up 20% because the dollar has dropped 20% in value, but the company is really worth just the same in “constant dollars?” So that to buy the same value in ownership of Acme Gifts in 2019 that we did in 2018, we have to shell out $120 instead of $100 for the same slice?
Numbers are often hard to understand, and the news and calculations BEHIND those numbers still more difficult to figure out. And the media, government, and many others use that difficulty to, frankly, con us.
Theoretically, a company’s value is based on its quality: how much are they worth based on how much profit that they make, how much capital they have, and how much inventory they have. Even how good their employees and processes are.
But in reality, of course, there are subjective and difficult-to-quantify elements that figure in. Who is going to beat that company competing for consumer’s dollars? What if they produce shoddy products and get sued? What if their top employees all quit? What if their product or service is suddenly outdated?
But it is not just economic questions that figure in. Did one of the company officials say something (or post something) that gets people angry and loud? Did the company do something 70 years ago that suddenly is declared to be bad? Are there rumors that maybe they won’t quite sell as much as they expect next year? Next week? Did the brother-in-law of a daughter of one of the senior officials in the company get busted for speeding yesterday?
In other words, like every other human institution, the stock market is far from perfect. What it does is one thing, but what it supposedly tells us about the economy may be totally different. And wrong.
It is easy to misread data, and especially financial data. Years ago, the new manager of a convenience store selling gasoline was showing her numbers to the owners, “proving” that things were looking really good: fuel sales were up 25% in the past three months. It looked good, but the reality was that the fuel PRICES had actually gone up 30% in those same three months, so in reality, the store was selling 5% LESS fuel.
Think of it in another way. If I pay a dollar for a 12-ounce can of Dr. Pepper, and $1.50 for a 16-ounce bottle of Dr. Pepper, I’m getting less for my money with the 16-ounce bottle. If it is a 20-ounce bottle, I’m getting more. But if the price of the 12-ounce can drops to 80 cents, it becomes the better deal. (Still not a really good deal, even by 2019 standards.) And that doesn’t even take into account the value of the money – for instance, how long it takes me to earn that dollar. It can be confusing.
But there is a basic principle to remember: It isn’t just how much money we have, it is how much we can buy with that money. And how much we have to work (or risk) to GET that money. Which can still be confusing.
Even more when we look at the economy as a whole. Supposedly if the economy is growing at a 2% per annum rate, we are expanding and therefore doing better. But if real inflation is running at 3 or 5%, it would appear that we are actually, in “real values,” losing ground – we are not expanding, we are shrinking. It is the same thing with our paycheck. If we are getting $25/hour this year, compared to $20/hour ten years ago, that is great! UNLESS inflation means that $25 can only buy what cost $15 ten years ago.
However we understand and interpret these numbers and concepts, it should not distract us from some basic facts:
- We do NOT have a free market in anything: at best it is a mixed economy due to government intervention and involvement in virtually everything.
- As long as we use fiat debt-based money, inflation is with us and damages us in many ways.
- Economic numbers – even those from the supposedly-private stock markets – are suspect due to government intervention and inflation.
- There is much more to economic growth than increasing share prices.
We must ensure that no one – not the business sector, not the banks, not the media, and especially not the government – sells us a bill of goods (bogus information) by slanting and twisting data and statistics. Plan and prepare for the worst, and hope and pray for the best.