Jeff Bennett: As I mentioned, this has been a big week for the stock market.
Today not only did the Dow Jones Industrial Average close above $40,000 for the first time;
The broader S&P 500 and Nasdaq also hit record highs this week.
The market has recovered from recent lows in 2022, and the Dow Jones Industrial Average is about 40% higher than when the pandemic began.
Roben Farzad joins us.
He is the host of the public radio podcast Full Disclosure.
It’s always nice to meet you, Roben.
So how important is it that the Dow reached the $40,000 level?
That’s because the Dow doesn’t tell us as much about the economy as the S&P 500.
ROBEN FARZAD, “Full Disclosure” host: This is a great topic.
Everything feels expensive right now, including housing, cryptocurrencies, gold, and stocks.
Then again at the turn of the century, an infamous book called “Dow 36000” was published.
And it took forever for the Dow to reach 20,000, 25,000, let alone 40,000.
If it had been planned more rationally, if Apple or Amazon had been included, or if there had been other components that still represent this economy better than the components of the old economy, the Dow would have been much more There is a school of thought that says it should be higher. Initialization.
So — but we accept it.
But in this truly unique economy, nothing is truly cheap.
Jeff Bennett: So what’s behind the current broad rally in the market?
Robben Farzad: Artificial intelligence.
There was a semiconductor company called Nvidia that suddenly became a $1 trillion, $2 trillion player.
Great enthusiasm for AI
boom.
What will be the impact on manufacturing, construction, journalism, media, all these powerful semiconductor chips that will be needed in the future, the staffing, consulting and professional services that will be disrupted?
So it’s almost a parallel internet.
Some companies have achieved record profits because of their pricing power.
And oddly enough, that also translates to stock market investors.
Gone are the days of worrying that inflation will kill stocks.
But if you actually buy Chipotle, if you buy a home builder, you have portfolio companies that are driving prices up, and you as a shareholder are participating in that, so the Dow 40000 and the S&P are completely Match. It’s the best time.
Jeff Bennett: So, if you take this into consideration and add in last month’s weaker-than-expected jobs report, this overall indicates that the Fed may eventually take this step of lowering rates. Does that mean?
Robben Farzad: It’s strange that we’re having these conversations.
Asset prices are at record highs.
It seems like no one can afford to buy a house.
Bidding competitions are taking place everywhere.
So is the Fed obsessed with this idea of cutting rates?
I think this speaks to the weakness of the economy. So the fact is that people who are not participating in this wealth effect, lower-middle-income people, low-income people, are having to juggle maxed-out credit card debt and are struggling to make ends meet. In the midst of this inflation, we are experiencing something like value meal shock at McDonald’s drive-thru.
The Fed has a blunt weapon.
We talked about this before.
And if they ease into this, does the housing market really need stimulus now?
Does the stock market need stimulation?
There is a heated debate on Wall Street.
And in fact, the Fed was supposed to raise rates sooner, but they’re trampling on that.
Jeff Bennett: So what I’m hearing is that this is not enough to improve Americans’ overall perception of the economy.
Robben Farzad: Now, what do you do with your paper winnings from the stock market?
My 401(k) is feeling bloated.
I still get sticker shock.
Enter Chipotle.
An extra piece of chicken is $4, right Jeff?
come.
Guacamole, $4?
No, I don’t have that kind of money.
Jeff Bennett: Yes, that’s real money.
ROBEN FARZAD: That money is about logging in, but it doesn’t give you dividends to deal with real-world sticker shock, like gas, housing, rent, clothing.
I mean, car insurance, it’s a weird, weird economy.
But since when has the economy not gotten weird?
Jeff Bennett: So how do you think this situation will develop in the future?
Robben Farzad: I don’t know how they put the genie back in the bottle.
As I said earlier, this is the first time in a generation that we are dealing with capital I inflation.
And the Fed, the Powell Fed, said a few years ago that this is temporary, meaning it will pass.
But when you get hit by a once-in-a-generation pandemic and there’s a flood of money on the plains, it’s very difficult to get it all back up and back to normal.
What is the normal interest rate?
What is a regular stock market?
What is a typical housing market?
I think it’s a $15 trillion or $20 trillion question right now.
Jeff Bennett: Roben Farzad, I always enjoy talking to you.
Robben Farzad: Same.
Jeff Bennett: Thank you so much for having me.
Robben Farzad: Thank you.
