For the past few months, the media has been watching the Dow Jones Industrial Average the way a hypochondriac checks his thermometer. And the higher the Dow's temperature goes, the more we need to sweat.
The Dow's autumnal visit to 10,000 is opposite in mood and cause to the springlike euphoria that marked the same milestone in March 1999. Part of the reason we can't rejoice is that we are now cursed with self-awareness. The tech bubble broke our hearts, and the mortgage bubble broke our spirits. As Eric Jackson, the founder of hedge fund Ironfire Capital, says: We’ve lost our innocence. “My apprehension is more like living in a post-9/11 world," he explains. "I'm more skeptical, vigilant, fearful."
Back in 1999, Dow 10,000 was a symbolic victory for American capitalism. Now we see the moment as a sigh-inducing win for quasi-socialism. It is an irrelevant milestone because we are just one part of a giant, increasingly intertwined global economy. Unlike in 1999, when the United States was center stage, our economic importance has slipped. To borrow a line from Casablanca, it doesn't take much to see that the problems of 30 little companies don't amount to a hill of beans in this crazy world. We are in a market of magical thinking, detached from economic reality. Unemployment is over 10 percent nationally and government unemployment benefits are running out. There isn't an economic indicator out there that will tell you good news.
Pervasive taxpayer support props up every sphere of the markets. Government guarantees are keeping many major corporations—and all the capital markets—limping along. Our major banks are effectively nationalized and still hold many of the toxic assets that kicked their stock prices to the curb during the crisis. Interest rates are at zero, which means companies can get cheap financing, which in turn supports nearly every kind of stock and bond—and we still complain that the Fed may have pitched the rate too high. Housing prices are balanced precariously on the health of government support to the Federal Housing Administration, Fannie Mae, and Freddie Mac. The government is so indebted that it is trapped in some fiscal version of an infinite-loop Escher painting, bailing out its own bailouts. And then there is the commercial real-estate crash that is spinning towards us. We're not even trying to stand on our own. We can't.
Consider the Dow's development since 1999. Some of its biggest components from back then are off the Dow and on the dole. Back in 1999, the Dow companies included Citigroup and General Motors. In 2004, American International Group joined the group. Now fast forward. In September 2008, the Dow's editors plucked AIG off after it became a ward of the state. In June, the Dow's editors kicked both Citigroup and GM out of the house.
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Confronted with the illogical psychology of markets, the best we can do is make the most of it. But as many will tell you, there's no reason to be energized by the Dow at 10,000. After yesterday's close, the index went back to hovering at 9,980 points. One lost decade later, the importance of 10,000 is not a tribute to our collective success. We're just relieved that the markets are no longer failing in that appalling way. Armageddon may be off the table. But all we have now is purgatory.