You’ve not noticed something very important in this all time record Dow Jones jiggery that this author ignored, as does every blowhorn in the MSM. What was left out is the Divisor.
Here’s how it works:
The Dow, while quoted as an “average” but mathematically it really isn’t.
An average is a sum divided by a count. And all of the items that are summed up must be of the same type. Inches of rain, times at bat, number of hits, runs scored, etc.
The Drowsy notion that you can take the price of a stock, which is a variable, and can be any number greater than zero, and compare the price of one stock to another, then add all of the prices of the 30 variables up to come up with some sort of an average is mathematical nonsense.
It is almost as if someone wanted up come up with a “Sports Average”, by taking the scores of one team in each of their respective leagues. One football team, one baseball team, one soccer team, one tennis team, one hockey team, one bowling team and so on until you get the number of points scored by 30 different Sports Teams on any one given day. Then total up all of the points and divide by the 30 teams and you then come up with a “Sports Average”. Any 10 year old kid can tell you that you can’t compare the number of points scored by a baseball team and a football team. Two different games, two different methods of scoring, nothing similar except it is a sports game, and they use a ball in both of the games.
Even more bizarre, the prices in the Dow are treated as equivalent. The price of Chevron, has no relationship to the price of IBM. Both are in vastly different businesses, both have different total sales, head count, capitilization, growth metrics, etc. They have virtually nothing in common, yet Wall Street has convinced everybody that somehow the price of Chevron and the price of IBM represent exactly the same thing from a mathematical standpoint. And Wall Street has also convinced everybody that the Dow is a good measure of what the “Market” is doing on any given day.
The Dow is in Wall Street terms, a “price weighted average”. Outside of Wall Street there is no such thing.
As stated earlier, an average is @sum divided by @count. Being a “price weighted average” means that a stock with a price of $50.00 will move the Dow twice as many points as a stock with a price of $25.00. It’s like saying rainfall on Tuesday counts twice as much as rainfall on Saturday. For example, if Alcoa (AA) is trading at 8.44 and if it went to zero the Dow would drop only 64.82 points. However, if IBM trading at $202.91 went to zero, the Dow would drop over 1,550 points. So you can see that changes in the higher priced stocks change the Dow much more than the lower priced ones in both directions.
You might think the Dow Jones Industrial “average” is calculated by adding up all the prices of all the stocks in the Dow and then divide by 30. Well you would be wrong.
It might have been true at some point in time, but that is not the case today. In fact, if you add up all of the prices of all of the 30 stocks in the Dow, as of 3/1/13, it equals 1,834.71. Then divide by 30 you come up with an average of 61.16, yet it is reported as being 14,089.73. You might ask yourself what accounts for this difference? Bankster’s corporately-controlled MSM.
Over the years stocks have been added and deleted from the Dow and to compensate for these changes a divisor was created. This mystical divisor was created so that whenever any stocks were added or deleted from the Dow, the “average” would remain unchanged on the day the stocks were added or deleted (?). This makes little sense, since any changes in the stocks from that day forward will change the Dow.
Currently the divisor is 0.130216081 so if you divide the total of all the prices of all of the stocks in the Dow, 1,834.71 by the divisor, you will get the closing price of 14,089.73 as of 3/1/13. Technically it is a divisor, but in fact, it really acts as a multiplier. From a mathematical standpoint, since the divisor is applied equally to all of the prices it could be any number and the percentage move would be identical.
For example, if the Dow moved 2% one day and you were calculating the average the correct mathematical way, it would be 1,834.71 divided by 30 = 61.16 and a 2% increase would amount to an increase of 1.22 points in the average. However calculating the index using the current method would be 1,834.71 divided by 0.130216081 = 14,009.41. and a 2% increase would be an increase of 281.79 points in the average.
Now what do you think the Bankster Corporately-Controlled Main Stream Media would like to propaganda/report during ever-stagnant news season: an increase in the Dow of 1.22 points or an increase of the Dow of 281.79 mythological “points” to a new all-time mythological high?
Both are the same percentage increase, yet the larger one carries much more physiological value than the smaller one.
So the Dow Divisor could be any number. It could be the official number of 0.130216081, or any other number greater than zero. Even though the Dow Divisor distorts the reported average by a factor of 230 it could be argued that from a mathematical standpoint it is a valid and accurate representation of the average of the prices of the 30 stocks in the Dow. But there still that lingering question of the mathematical validity of using the prices of the individual stocks to make up the average in the first place.
If you want a quick way to figure how each Dow stock will affect the overall average, just multiply the stock price change by 7.5.
For example, if CAT closes at 84.25 + 5.56 then the Dow point change would be 5.56 x 7.5 = 41.7 Dow points.
If you want to be super accurate, you can use the official divisor of 0.130216081. Using the example above the calculation would be 5.56 / 0.130216081 = 42.69 Dow points.
That being said, the real deal not getting much mention is the $1.7 Trillion of stock repurchases or stock buy backs that have been announced since the Great Recession (2007-2013). Stock repurchases, or buy backs, reduce the outstanding float (denominator) and therefore have had the following faux effect on Corporate Profits (and EPS) after taxes as reported:
Many believe that the current statutory US corporate tax rate of 35% is too high, including both presidential candidates. The fact that many large American companies pay the majority of their taxes to foreign governments has been cited as evidence that the rate is too high. Some believe that if corporate tax rates were lowered, American companies would recognize more of their profits domestically and have the net effect of increasing tax revenues.
Below are the ten most profitable U.S. companies with their taxes for last year, both total provision and payments to the U.S. government.
#1 Exxon Mobil (XOM)
Pre-tax earnings: $73.3 Billion
Tax Provision: $31.1 Billion (42%)
Actual Taxes Paid to U.S. federal government: $1.5 billion (2%)
Exxon paid $1.5 billion to the U.S. federal government in 2011 and deferred paying an additional $1.6 billion. It paid the majority of its taxes to foreign governments where it operates ($28.8 billion).
#2 Chevron (CVX)
Pre-tax earnings: $47.6 Billion
Tax Provision: $20.6 Billion (43%)
Actual Taxes Paid to U.S. federal government: $1.9 Billion (4%)
Chevron paid $1.9 billion to the U.S. federal government in 2011 and deferred paying an additional $877 million. It paid the majority of its taxes to foreign governments where it operates ($16.5 billion). Chevron also paid $596 million to state and local government.
#3 Apple (AAPL)
Pre-tax earnings: $34.2 Billion
Tax Provision: $8.3 Billion (24%)
Actual Taxes Paid to U.S. federal government: $3.9 Billion (11%)
Apple paid $3.9 billion to the U.S. federal government in 2011 and deferred paying an additional $3.0 billion. It paid $762 million to state and local government, $769 million to foreign governments.
#4 Microsoft (MSFT)
Pre-tax earnings: $28.1 Billion
Tax Provision: $4.9 Billion (18%)
Actual Taxes Paid to U.S. federal government: $3.1 Billion (11%)
Microsoft paid $3.1 billion to the U.S. federal government in 2011. It paid $209 million to state and local government, $1.6 billion to foreign governments.
#5 JPMorgan Chase & Co (JPM)
Pre-tax earnings: $26.7 Billion
Tax Provision: $7.8 Billion (29%)
Actual Taxes Paid to U.S. federal government: $3.7 Billion (14%)
JPMorgan paid $3.7 billion to the U.S. federal government in 2011 and deferred paying an additional $2.1 billion. It paid $1.2 billion to state and local government, $1.2 billion to foreign governments.
#6 Wal-Mart (WMT)
Pre-tax earnings: $24.4 Billion
Tax Provision: $7.9 Billion (33%)
Actual Taxes Paid to U.S. federal government: $4.6 Billion (19%)
Wal-Mart paid $4.6 billion to the U.S. federal government in 2011 and deferred paying an additional $1.4 billion. It paid $743 million to state and local government, $1.4 billion to foreign governments.
#7 Wells Fargo & Co (WFC)
Pre-tax earnings: $23.7 Billion
Tax Provision: $7.4 Billion (31%)
Actual Taxes Paid to U.S. federal government: $3.4 Billion (14%)
Wells Fargo paid $3.4 billion to the U.S. federal government in 2011 and deferred paying an additional $3.1 billion. It paid $468 million to state and local government, $52 million to foreign governments.
#8 ConocoPhillips (COP)
Pre-tax earnings: $23.0 Billion
Tax Provision: $10.5 Billion (46%)
Actual Taxes Paid to U.S. federal government: $1.9 Billion (8%)
ConocoPhillips paid $1.9 billion to the U.S. federal government in 2011 and deferred paying an additional $943 million. It paid $413 million to state and local government, $7.1 billion to foreign governments.
#9 International Business Machines (IBM)
Pre-tax earnings: $21.0 Billion
Tax Provision: $5.1 Billion (25%)
Actual Taxes Paid to U.S. federal government:
.268 Billion (1%)
IBM paid $268 million to the U.S. federal government in 2011 and deferred paying an additional $909 million. It paid $429 million to state and local government, $3.2 billion to foreign governments.
#10 General Electric (GE)
Pre-tax earnings: $20.1 Billion
Tax Provision: $5.7 Billion (29%)
Actual Taxes Paid to U.S. federal government: $1.0 Billion (5%)
GE paid $1.0 billion to the U.S. federal government in 2011 and deferred paying an additional $1.5 billion. It paid $4.7 billion to foreign governments.
One more actionable item that has also run its due course is the one-time beneficial effect of having a dramatically re-refinanced & reduced corporate cost of capital. From what was once financed at 7.9% or 9.7% a decade ago, became 0.25% or 3.5% (BBB-)… but now where exactly will those 13.5 years worth of forward projected earnings that will make up those juicy corporate taxable “replacement profits” come from next y-o-y?
Buy High & Sell To A 401(k) Sucker Higher?
But to Whom? and When (after hours!)?
Or better yet, track the new “Fed Index” (TM).
What is the “Fed Index” you ask?
The Fed Index (TM) tracks the new rigged “markets”. The “Fed Index” which now replaces the “market” price of everything the Fed now manipulates with easy dollar stealing : gold, silver, copper, 2-yr, 10-yr, 30-year, WTI Oil, Nat.Gas, and Gasoline, the Nasdaq, Russell 2000, Dow and S&P, the VIX, the CPI, the Yen, US Dollar, CDN Loonie, and the real Fed’s cost of using misappropriated funds, the privately owned and privately used, Fed discount (0.25%) rate; all divided by a divisor of 16.
This Fed Index or the new rigged “market”, is equal to “100″ starting today – and will be worth less than “100″ tomorrow in real purchasing power adjusted to constant dollar terms, without question.
Now take that knowledge and apply it to Trillions of Bankster fraud and deception that is being used today. QE 89.5 provides the ongoing cover of covert swap operations inside the privately-owned Federal Reserve Inc. (last disclosed $85 Billion per month printing of someday worthless US dollars – and then bond king-like buying them back as the lender of last resort and “only” faux bidder & “only” faux lender at the same faux auction – kinda flying directly in the face of the old adage: “Ya don’t *rap where you eat”!
So adding it all up, well,… no one really can. That’s the whole idea of confuse and abuse liquidity transmission mechanisms. A $3.8T (n0n-) budgeted US deficit, which will surely balloon to an actual $4.2T non-budgeted deficit – the real value of such amounts shall all be absconded quickly by the Banksters before the final ink print dries to the tune of US national debt (owed by Citizen Taxpayers) going from $9T to $18T, and from one administration to the next – but all being looted right in front of your very own passively-glazed over eyes – all in a record in just five short years.
Wicked Nasty Senior Citizens’ Entitlements (naa, follow the money…. it’s the Federal Banksters pumping ‘sustain-ably’ all the Health Care costs right to the max… and even a little beyond!).
Ignorance is no longer an just another “failed to deliver” option (or futures contract).
Following none of these what you call “Markets”?; rather just watching in real-time what the “Fed Index” allows printed in terms of an agreed upon price discovery moment achieved through a previous agreement.
Hey, what did the “Fed Index” do today?