The past 36 hours should have been a moment of unbridled celebration for cheerleaders of American capitalism. The Dow Jones Industrial Average had two successive record-breaking closes, and Hugo Chávez, Uncle Sam's most prominent hemispheric antagonist, died after a two-year illness (which his vice president blamed on the machinations of enemies domestic and foreign).
And yet reactions have been muted, conflicted. As the Dow scaled previously unknown heights on Tuesday, "the record went largely uncelebrated," the Wall Street Journal reports. "There's no massive sense of euphoria," one high-ranking trader told the paper. "Years ago, there was more excitement."
It's not a mystery why this should be so: The disparity between the bull market on Wall Street and the actual U.S. economy is awfully wide. On Tuesday morning the financial news site Zero Hedge posted a sobering then-and-now comparison entitled "The Last Time the Dow Was Here...," looking back at where some key economic indicators stood on October 11, 2007. A few striking data points:
GDP Growth: then +2.5%; now +1.6%
Americans Unemployed (in Labor Force): then 6.7 million; now 13.2 million
Americans On Food Stamps: then 26.9 million; now 47.69 million
Size of Fed's Balance Sheet: then $0.89 trillion; now $3.01 trillion
That last point helps explain what's going on. The trillions of dollars of mortgage bond and U.S. Treasury purchases made by the Federal Reserve have artificially stimulated markets, boosting investor confidence even in the absence of fundamental economic recovery. And with interest rates near zero, people looking for a decent return on their money have been driven back into a market that burned them badly in very recent memory.
In the words of the editorial board of USA Today, stocks are acting as though they're "on steroids," and the withdrawal process could be painful (drastically diminishing bond returns, for instance). Better start clarifying now how the Fed plans to extricate itself, the editors advise: "The longer the Fed's easy-money policies go on, the greater the risk they will distort markets, create new bubbles and set the economy up for another fall."
To some economists, the Dow's record-breaking performance isn't just asterisk-worthy because the market's been juiced, but because the actual high-water mark has yet to be topped. As CNNMoney points out,
The record that everyone is talking about is in nominal terms and doesn't take into account the impact of inflation, which has increased more than 10% in the past five years, according to the government's Consumer Price Index. If you factor that in, the blue chip index is actually still about 11% below its all-time inflation adjusted high, which was set in January 2000, according to data from Ned Davis Research.
And, as The New York Times notes, the companies that comprise the Dow have in fact fared unevenly since the index bottomed out four years ago (at 6,547.05): "12 of the 30 stocks in the Dow are still down from their peaks, some of them spectacularly so."
It adds up to a sense of unreality, even foreboding. A strange plea from CNBC stock market evangelist Jim Cramer, acknowledging predictions of stimulus-induced hyperinflation, seemed to encapsulate the current unease: "If you want to give us a Weimar scenario where we're all going around with wheelbarrows and dollars, that's fine, but in the interim, do you mind if we try to make a little money in Kellogg (K)?" Cramer also reminded the audience that during Zimbabwe's notorious economic crisis, diamonds, artwork, and luxury housing all did quite well; what relevance that has to the average investor he did not specify.
Not even the death of Chávez, who denounced U.S. imperialism and once famously referred to George W. Bush as "the devil," provided an occasion for unalloyed triumph. Obituaries were obliged to mention his success in cutting poverty, even as the editors of Bloomberg View attributed to him a "Legacy of Ruin." (A drop in Venezuelan unemployment, from 14.5% of the total workforce in 1999 to 7.6% in 2009, got less attention.) Chávez also instituted a program providing free heating oil to poor Americans, "which saved some 180,000 U.S. households around $260 apiece in 2008," according to the Christian Science Monitor. With more than 46 million Americans currently living below the poverty line, even as corporate profits soar and the Dow sets nominal records, the specter of populism isn't so easy to exorcise.
Photo Credits: Spencer Platt/Getty Images and Brendan Smialowski, AFP / Getty Images