The scam of the Dow Jones "Industrial" Average

Everyone knows that the DJIA exists and many (humans and trading robots alike) closely follow the price of the index.  When the DJIA is up, the herd is confident and the people spend money.  When it goes down, the herd gets panicked and save money instead.  But very few people that I talk to (including many who have very stong opinions despite their relative ignorance) have any real idea what the DJIA really is or how the numbers behind it are being gamed.  And so, as usual, I will try to shed some light on the scam.

First of all, the DJIA is an index of shares of only 30 companies.  30 measly companies.  And everyone looks to it like it's the end all be all.  But it's only 30 companies.  Second, the companies change based on unknown factors.  Most people have no idea of the shuffling that has gone on with that index in order to keep its price as high as possible.  Again, the con men like to keep the price of it high so that they can convince suckers to invest in stocks as if they have any intrinsic value.  I've said it before, I will say it again: company shares are as valueless as the scrip currency that used to be printed up by private banks in US economic history.  I don't care much if you don't agree with that.  I don't care much if you want to argue about it.  Those that don't get this fundamental fact have bought into the sales pitch of Wall St.  They are so invested (economically and emotionally) in the scam-ridden concept of corporate securities that they don't want to hear the truth and in fact they get angry when I say it.  But it will not change the fact that shares have no inherent worth and we are all going to get taught that lesson in graphic detail when all the boomers try to cash out of the markets en masse.

But back to the gaming of the index.  AIG (the bankrupt insurance company) used to be one of the 30 DJIA stocks.  When AIG crashed in value and everyone lost confidence in it, the con men running the DJIA kicked it out and installed Kraft Foods (symbol KFT).  That was back in June 2009.  At the time, Kraft's shares had gotten beaten down and it was clear to the con men that deflationary forces could be staved off by Bernanke, at least for a while.  That meant that a leveraged to the hilt company like Kraft could see big share price gains and help prop up the badly damaged DJIA.

By "leveraged to the hilt" I mean little cash and lots of debt.  Here are the number for Kraft as of this writing:

Balance Sheet
Total Cash (mrq):	4.73B
Total Cash Per Share (mrq):	2.67
Total Debt (mrq):	30.74B
Total Debt/Equity (mrq):	84.81
Current Ratio (mrq):	1.23
Book Value Per Share (mrq):	20.36

Yes, that's correct.  $30.74 billion in debt and only $4.73 billion in cash and this is happening as the American economy is rolling over.  This will mean that people migrate to the lower end food products and Kraft's earnings will collapse.  The con men running the show know this.  They watch the charts too.  They see that KFT shares have skyrocketed since being admitted into "the club": 

Insiders have been big net sellers of the shares.  They know that now is a good time to dump KFT from the DJIA index so that they can replace it with something that has better valuation in a post election deflationary environment.  And so now, seemingly out of the blue and for no observable reason, the con men running the DJIA has kicked KFT out on its worthless a$$ and replaced it with United Health.  Replacing it will be United Health which will probably do well as the boomers age and die.  More importantly, UNH has a far more manageable cash:debt position than KFT and thus will fare much better in a deflationary post election environment.

UNH Balance Sheet
Total Cash (mrq):	14.43B
Total Cash Per Share (mrq):	13.97
Total Debt (mrq):	12.62B

 

But more importantly, the DJIA is getting out of KFT while the stock price is high.  While this might sound like just good old fashioned smart trading, don't forget that that was never the purpose of the DJIA.  It was supposed to reflect the strength of the US industrial producers.  Now it has clearly devolved into nothing more than a trading index which is gamed in order to make it look good rain or shine.  While you might not have a problem with that, the bottom line is that this type of gaming of the DJIA sends false confidence signals to the herd which results in irrational behavior (like buying stocks when it should be selling them).  In other words, the DJIA is nothing more than a mood control mechanism designed to herd the sheeple in for the eventual slaughter.

 

I hereby predict the following: KFT has peaked.  The pump is done, the dump will start soon and it will be a big collapse signaled by a massive declining double top on the chart.  The collapse of KFT will likely occur hand in hand with a collapse of commodity prices as China stops stockpiling commodities and indeed begins to sell them off in order to provide stimulus to its ailing economy so that the people do not riot and kill the leaders.   That fact that most people think massive inflation is immediately in the cards tells me that significant ongoing deflation is the more likely outcome after the election no matter who gets elected.  Run, do not walk away from KFT as debtors do very, very badly in deflationary times.  Second, the DJIA will one day zig instead of zag and it too will collapse because it does not represent a natural market selection anymore but rather the selection by central authority in order to game the herd in a legal, subtle but terribly effective manner.  

 

By the way, the selection of UNH is far from ideal given its already high share price.  This may be turn out to be a good case of zigging at the wrong time.  There is a lot less postive share price headroom potential in the UNH addition to the DJIA than was present for the KFT replacement of AIG.  Also, there is a high expectation about how much medical care will be paid for by retiring boomers just like there was a high expectation that boomers would all flock to Florida for retirement.  In other words, there is a ridiculous expectation that boomers will pay whatever price is being charged for healthcare goods and services even though the boomers are all counting on the government to pay for the cost of treatments.  Now hear this: boomers are retiring with very little cash on hand.  They do not have the cash  to afford endless medical procedures.  So they count on government to do it but this is happening at a time when government is finding itself without enough tax revenue to cover current expenses while unable to raise taxes in a meaningful way.  In other words, people simply are not looking at the math surrounding entitlement health care.  What cannot happen will not happen.  UNH might turn out to be a great disappointment for investors in it, including the con men who control the DJIA.