Conservative Economics

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Subject: Dow Jones

Dow Jones & Company is an American publishing and financial information firm.
The company was founded in 1882 by three reporters: Charles Dow, Edward Jones, and Charles Bergstresser. Like The New York Times and the Washington Post, the company was in recent years publicly traded but privately controlled. The company was led by the Bancroft family, which effectively controlled 64% of all voting stock, before being acquired by News Corporation.
The company became a subsidiary of News Corporation after an extended takeover bid during 2007. It was reported on August 1, 2007 that the bid had been successful after an extended period of uncertainty about shareholder agreement. The transaction was completed on December 13, 2007. It was worth US$5 billion or $60 a share, giving NewsCorp control of The Wall Street Journal and ending the Bancroft family’s 105 years of ownership. (Wikipedia Jan 2010)

This is a 'game-changer'

Economic recovery may wait until 2016

Economic systems and institutions tend to gradually corrode and become increasingly inefficient and unstable

The current economic crisis, which started with the market crash of 2008, is a ‘game-changer’ that requires effective leadership with a firm grasp of economic reality and a willingness to introduce sensible bipartisan reforms in many areas of financial markets.

Unfortunately, these conditions are unlikely to be met before 2016. In the meantime, history suggests that there are likely to be many false rallies and dashed hopes before true recovery begins.

Smooth sailing unlikely

Inefficient market portends bumpy recovery

Inefficient markets have consequences that may be prickly for incautious investors.

Markets can be inefficient for different reasons and persist for long periods. The transition between one type of inefficient market to the next is usually a period of strife and uncertainty which may last five to fifteen years. Looking back at how the economy emerged from previous transitions, I note that in each new period, equity prices started at reasonable levels. This was true at the beginning of the Roaring Twenties, the Post WW II Period, and the Reagan Era. It is as if markets, recognizing prior inefficiencies ‘reset’ and start over. However, for the current market to ‘reset’, it will be necessary for equity prices to fall considerably, which will have dire consequences.

Commonsense Economics:

The Inefficient Market Hypothesis

The dead Efficient Market Hypothesis has left behind much harmful junk in financial space

Eventually, at some point, without an efficient market, common stocks become mere baseball cards.

Sooner or later, some Baby Boomer, pressed to pay his bills in retirement, will find that one can’t live off the dividends of common stock and that when everyone is trying to cash out their holdings at the same time, market prices plunge to levels that seemed inconceivable for generations. But it will simply be the cost of allowing an inefficient market to flourish for so long.

This article discusses the concept of inefficient markets and the practical consequences.

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Featured articles on inside pages

Stock buybacks

Stock buybacks dry up

Since 1982, US equities have been driven upwards by stock buybacks. Federal Reserve statistics show corresponding sales of stocks as executives exercised options to take advantage of manipulated prices. More ...

Securities Analysis

Jeff Skilling explains US corporate ethics

Unfortunately for society, Jeff Skilling of Enron told the truth according to tenets of moral relativism learned at the Harvard Business School and with McKinsey and Company, when, on being sentenced to decades in prison, he said, "That's the way the game is played. You win some, you lose some."
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US Politics

The decline of mainstream media

In September 2009, President Obama dominated television in his attempt to sell his government-run health plan, despite massive public opposition. Mainstream media has falling revenues and market share as people turn to unbiased sources. More ...

US equities

GAO pooh-poohs a Boomer bust

In 2006, the GAO issued a report saying that the retirement of the Baby Boomers should not have a negative effect on stock prices. This article reviews the GAO reasoning and concludes that the conclusion is not credible. More ...

US Bonds

Bond demand exceeds supply for a decade

Over the decade, 1995-2004, the demand for US bonds of all types has surpassed new bond issues in eight of the last ten years. This is the reason that bond prices have held firm, even in 2003, when net new issues reached almost $1.8 trillion. More ...

World Economy

Signs of US losing its groove?

Thirty years ago, US income from abroad was more than double the amount of income that the US paid to the rest of the world. This year, or the next, this foreign income surplus may disappear forever. Is the US 'losing its groove'? More ...

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Stock Quotes

DJIA11192.58  chart -0.80%
NASDAQ2518.21  chart -1.46%
S&P 5001199.21  chart -1.18%

Ftse 1005796.87  chart -0.32%
Dax6734.61  chart +0.17%
Cac 403831.12  chart -0.94%

Nikkei 2259724.81  chart -1.39%
Hang Seng Index24222.58  chart -1.93%
Straits Times Ind3252.00  chart -1.27%

Eur To Usd1.37  chartN/A
Usd To Jpy82.53  chartN/A
Gbp To Usd1.61  chartN/A

2010-11-12 16:03