Early Retirement Blog

The Dow hit 10,000, while the dollar collapses, and unemployment reaches 10 percent – it’s not a coincidence.   Unemployment and the collapsing dollar are the two principal reasons why the Dow Jones 30 has risen 50% from it’s low in March. Artificially low interest rates, and investment bank speculation, have also played a significant role.

In an effort to boost their earnings, and beat Wall Street analyst expectations, the large American multinational corporations that comprise the Dow Jones 30 index laid off hundreds of thousands of their employees.   The rise in their stock prices has come, in large measure and literally, at the expense of their employees.   While unemployment may be bad for the economy, in the short run, it is very good for the corporate bottom line.

Since many of the Dow Jones 30 corporations are multinationals, earning a significant percentage of their revenues in foreign markets, they have benefited tremendously from the collapsing dollar.    Not only are their American produced exports instantly more competitive, more importantly, many of them manufacture and sell their products overseas.   A declining dollar, automatically increases their income, when the revenues from foreign sales, are exchanged back into dollars.

A collapsing dollar may be bad for U.S. consumers, increasing the cost of imports, which makes Americans poorer and produces inflation, but it is very good for multinational corporations.

Artificially low interest rates, created by the Federal Reserve to protect banks, has also helped the Dow Jones 30 rise to 10,000.   Several of the corporations in the Dow Jones 30, are large banks that have benefited from the ability to borrow at near zero interest, while collecting much higher interest payments from their customers.

Near zero interest rates has also helped the Dow reach 10,000, as large institutional investors such as mutual funds, who had fled to cash during the economic collapse, return to the stock market seeking higher returns. Record profits at Goldman Sachs and J.P. Morgan, were gained from speculating in commodities such as oil,  helping Dow components Exxon and Chevron.

Individual American investors, with their 401k’s and IRA’s, scared out of the stock market during the economic collapse, did not participate or benefit from the 50% rise in the Dow to 10,000.   Many individual investors are kicking themselves for missing the stock market rally.   Wondering if they should get back into the stock market, or if Dow 10,000 is a result of a bear market rally, and as soon as they begin investing again they will get punished yet again?

If you are an investor, who has been dollar cost average investing with a proper asset allocation, the question is unimportant. You would have been buying stocks when they were cheap, selling them when they were expensive, and would not have been burned by the economic collapse or missed out on the recovery.   The question of, is the Dow too high or too low, should I get in or out, is a question for herd investors.   Investors who are easily panicked, who follow the herd into pastures that have already been eaten, and who never realize that the Wall Street cowboys are fattening them up for the kill.

So, if you are investing for your retirement, make sure that you are dollar cost averaging using a proper asset allocation model, and try our free retirement calculators and learn how to retire early.   And, if you were delaying your retirement, you should seriously consider taking advantage of the stock market rally to retire now.