Reich: Why Dow is Hitting 10,000 when Consumers Can’t Buy

Sep 23, 2009: 11:09 AM CST

Former Secretary of Labor, current professor at UC Berkeley, and author of Supercapitalism Robert Reich penned a thought-provoking article recently entitled “Why the Dow is Hitting 10,000 when Consumers Can’t Buy and Businesses Cry Socialism.”

Visit his blog (link above) for the full article, but I wanted to summarize his main points in his post:

“The explanation is simple:

The great consumer retreat from the market is being offset by government’s advance into the market.

Consumer debt is way down from its peak in 2006; government debt is way up.

Consumer spending is down, government spending is up….

Consumer spending is falling back to 60 to 65 percent of the economy, as government spending expands to fill the gap.”

Reich discusses advances in healthcare stocks as related to the government healthcare plan in Congress; housing starts picking up thanks to the Treasury buying “Freddie and Fannie’s paper”; auto sector picking up thanks to government assistance in “cash for clunkers,” and financial sector surging because the Federal Reserve is keeping interest rates near zero.

Remember – it’s supply and demand that move stock prices… the assumption Reich is making is that demand doesn’t necessarily have to come from the consumer.

Interesting thoughts worth a read (beyond the technicals).

Corey Rosenbloom, CMT

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