Seeking Alpha

Stick the part from Dow Theory about the Transports and the DJIA needing to confirm each other...

Stick the part from Dow Theory about the Transports and the DJIA needing to confirm each other in the same closet with your bell-bottoms, writes Jacqueline Doherty. Since the 1970s - as the U.S. has become a more service-oriented economy - the S&P 500 has gained an average 6.5% in the six months following a period (such as now) when the Transports have lagged. This handily beats the S&P's average 6-month gain of 4%.
Comments (11)
  • Neil459
    , contributor
    Comments (2644) | Send Message
    "Since the 1970s - as the U.S. has become a more service-oriented economy"


    That should say, "Since the 1970's when we started our decline from participating in the normal wealth producing economy.


    Folks there will be nobody to buy services tomorrow if no one is mining, growing, or manufacturing products today. That's Econ 101, if you did not go to the socialist propaganda school called U.S. higher eduction. So how smart is it to kill off mining and manufacturing? It's not, regardless of how many birds are saved.
    29 Sep 2012, 09:18 AM Reply Like
  • Mike Maher
    , contributor
    Comments (2616) | Send Message
    70% of the economy is services, so yes there can get economic activity without manufacturing. Doctors, lawyers, appraisers, accountants, bankers, teachers, police, firemen, pilots, truck drivers, cashiers, software engineers, bartenders, cashiers, chefs and hundreds of other jobs exist without manufacturing or mining anything. The US should manufacture what it has an advantage at manufacturing, high tech, capital intensive products, like planes, locomotive engines, and large mining equipment. And we should mine all our resources in a safe, responsible way.
    29 Sep 2012, 10:12 AM Reply Like
  • Neil459
    , contributor
    Comments (2644) | Send Message
    ". . . economic activity . . ." is not economic wealth producing.


    Think of it as a wheel being propelled on level ground. Without some extra force being added it stops moving. The circle of economic activity is the same, without extra force (wealth being added) it stops. Wealth can only be created in three ways (and I know this is old fashioned).


    1. Take something out of the ground and sell it for more that it costs to extract it (mining.)


    2. Grow something and sell it for more than it costs to grow it (Agriculture.)


    3. Convert something from something of lower value to something that will sell at a higher value (manufacturing.)


    Well, there is a fourth; steal it. But that is left for governments these days.


    You don't need services to live. They are a conveyance, but not necessary and that is why they don't add to economic wealth (not to be confused by individual wealth).


    The economy cannot keep going on services alone, in-spite of what the politician's told you to justify sending jobs offshore. The economy won't and can't last. That is a dirty socialist secret and the reason why there has not been a need for a socialist party since the 1950's.
    29 Sep 2012, 12:19 PM Reply Like
  • Neil459
    , contributor
    Comments (2644) | Send Message
    'conveyance' should have been 'convenience'.


    My reliance on spellcheckers is a result of my public school education and using computers at an early age.
    29 Sep 2012, 12:59 PM Reply Like
  • Mike Maher
    , contributor
    Comments (2616) | Send Message
    So your argument is that knowledge is not wealth? UPS uses its knowledge and logistics systems to drive down costs for shippers and businesses, reducing costs, increasing efficiency, and as margins expand, increasing wealth. What about the railroads who transport coal and ore that are mined? By providing takeaway capacity to the mines and access to markets are they not creating wealth? Or songwriters or authors who create new works of art? Or computer programmers who write a new search algorithm and create a company like Google?


    You're correct, we dont need services to live. But without services like utilities, supermarkets, doctors, police, etc, everyone's quality of life would be much, much lower, and the amount of economic activity lost by people performing tasks they are not optimal at would send us back to the stone ages.


    Mercantilism ignores the ability of people to invent new techniques or processes to add wealth, and ignores the value of intellectual property. Why can't a nation simply provide IT services, and create its wealth by selling its knowledge and expertise overseas, rather than selling its goods overseas? Its worked quite well for IBM.


    And in your definition of wealth wouldn't raising livestock or harvesting wild animals be considered wealth creating? So killing birds mining or manufacturing would be destroying wealth.
    29 Sep 2012, 04:14 PM Reply Like
  • Neil459
    , contributor
    Comments (2644) | Send Message
    Mike you completely missed the point. But don't be disheartened, so do most people that have any higher education (above grade school).


    Re: UPS driving down costs, creates wealth for UPS, but not economic wealth (meaning that it does not add to the total wealth available to the nation.) It is simply a better way to divide the existing economic activity. And I never indicated that new techniques or process did not have value, but you need to really think about where money come from and goes to in the national economic system. It is very complex and it is easy to be fooled by politicians that have for years told us we were a knowledge society (more about that later.)


    The question is, "How does money get into the system"?


    Let say we have 5 people and they are a doctor (Service), waste hauler (Service), milk delivery person (Producer), gardener (Producer), and data analyzer (Knowledge).


    These 5 people trade with each other. The doctor buys from the gardener, as do all of the others. Sometimes the gardener has to buy from the doctor when they are sick, as do the others.


    Since the gardener and milk person have to deliver goods in order for the others to survive they always have money (in our little system). In other words the other Service and Knowledge providers simply divide the money made by the producers. If all of the others go away the gardener and milk producer can live forever and trade with each other.


    The Doctor has to charge a lot because the Doctor is not used very much. The same with the knowledge worker. But if the milk provider and the gardener leave or quit, then were does the money come from. The remaining people just keep dividing what's left, with a bunch removed every cycle by taxes. There is no wealth creation, just economic activity and wealth migration until its all gone.


    This probably was not the best example, but consider any small town that once had a thriving community and ask why it ended. The same logic will apply to America only on a grander scale.


    Now about the knowledge society, there is no intrinsic value in knowledge (and I am a knowledge worker) unless you can keep the knowledge from others. This is becoming increasingly difficult. For example, we are selling our knowledge and systems to Chinese and Korean companies, but guess what, these countries want to control their own destiny. So what are they doing, they are developing their own technology and system making our knowledge completely devoid of value. Even if we don't help them they can develop their own knowledge.


    Where will our technology workers be then, we already outsource all knowledge about manufacturing to Asia. American companies are no longer the lead patent appliers, etc. Knowledge does not have value because in the end it is available to everyone.


    This whole thing about the knowledge society is our future is a bunch of propaganda generated by politician's and companies that found a way to make money from outsourcing and wanted to assure the populous that they were not destroying our future. Consider yourself indoctrinated along with the majority of the educated in America.
    30 Sep 2012, 02:38 PM Reply Like
  • Momintn
    , contributor
    Comments (4283) | Send Message
    The problem will be when even the services are outsourced. And this is increasingly happening in IT, healthcare, and can easily happen with everything over the internet. If you don't have a government that can protect your jobs, then there is no industry that is safe. Even when you think that you've saved an industry, like the auto industry, countries can dump their parts and tires here, even the basic materials, if the government doesn't step up to stop it. And foreign companies can get tax breaks from us to move here and for us to build foreign cars so that those profits go back to foreign countries. People really seem quite ignorant as to what is going on. And it has been going on for a very long time, while the two party system spends more time arguing over social issues.
    30 Sep 2012, 06:36 PM Reply Like
  • Tommy the Cork
    , contributor
    Comments (62) | Send Message
    It's different this time?. I guess the profound insight here is that waiters, bartenders and short order cooks don't need to be shipped? Naked and hungry financial services providers and web site designers are the economy? If that's the case, we'll all be living in tee-pees and you can short this economy with both hands.
    29 Sep 2012, 09:20 AM Reply Like
  • whidbey
    , contributor
    Comments (3391) | Send Message
    This conjecture is odd. If it were true that a rebalanced economy would make transportation irrelevant we must first explain how this squares with INTERNET sales which must be delivered. While I have not researched this issue, my first impression is that Ms Doherty is too glib by half. The facts seem to be that as I look at my chart of the two Dow induces for the last ten years, is that news often over rides the Dow theory for a time but the period after the INDU run up is when the index often retreats hard. I don't know why but it might be the transports were saying things were out of balance in a manufacturing and delivery economy. But she makes good reading, just don't swallow it too fast.
    29 Sep 2012, 09:34 AM Reply Like
  • David Urban
    , contributor
    Comments (1036) | Send Message
    Whenever you are told to forget the lessons of history you can be sure that it is about to come roaring back to remind us why we should not forget the past.
    29 Sep 2012, 09:39 AM Reply Like
  • Momintn
    , contributor
    Comments (4283) | Send Message
    History was probably during a time when investors looked at valuation and made reasonable investments that would appreciate over time. Now traders are looking for the stock that moves the fastest to scalp a point or they are buying options to place their bets out in time with leverage. Pride in ownership has been replaced by the desire to make alot of money by trading. And companies that have been around for a long time just aren't seen as quick to pop or drop fast enough for the traders. Another problem for the transports is that they have been tied to commodities like oil and coal. If the price of oil goes up or appears high, air freight stocks go down. If coal goes down, rail stocks go down with it. May be traders or may be computer programming...who knows. Computer trading has replaced common sense and many stocks are seriously undervalued when you consider the value of the entire enterprise, especially when you consider the value to the global economy.
    29 Sep 2012, 10:32 AM Reply Like
DJIA (DIA) S&P 500 (SPY)
ETF Tools
Find the right ETFs for your portfolio:
Seeking Alpha's new ETF Hub
ETF Investment Guide:
Table of Contents | One Page Summary
Read about different ETF Asset Classes:
ETF Selector