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Breakingviews: Missing the mark

Tuesday, September 10, 2013 - 03:28

Sept. 10 - Antony Currie and Breakingviews editors explain how the finance-heavy changes to the Dow Jones industrial average misrepresent the American economy.

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So the Balkans behind the Dow Jones Industrial Average may -- something that we don't they just put a couple of big financial firms into the average of the going to be stuck in it in a couple of weeks. I missed ten cuts the waiting all such firms up to about a quarter of the heavily -- average -- -- this is an average that people have long since that does it matter doesn't doesn't not but. What acting does seem tips implying that financials and much more important -- the accident of the economy right. They operate as -- maybe they're trying to make it relative GDP but the point is they are adding. They've added now Goldman Sachs -- That flanks JPMorgan. American Express and you could argue. That's that's still under it under place the amount of -- even in the air and it just drives -- -- -- -- aware they have it -- obviously -- capitals of 300 billion plus. I'm not out of so I don't know how to I. They all -- on any county make Bjorkman industrial company you know but certainly it understates the level finding their bit. You know it it is kind of funny to -- you you taking out Al Carla you know so and that's it now that there's anyone in the government it did in the market and don't look real considering -- I mean the funny part I guess -- -- usually don't like -- average and we're throwing out industrial company and is really nothing replace it on the industrial side and nice night going but we you have via mail -- going out now. But certainly BofA is gonna reflect the industrial the industrial economy as a big bank. But of course it's been it's been a bit of a laggard relative to Goldman Sachs she's going in. But they are quite different businesses which I think -- you could argue however Goldman Sachs -- incentive of the of the industrial activities of the country. Where these -- but my argument is that it's a sunny 50% of its business comes in the US now so right not west -- event that my pictures. And HP of course it's been while the stock has done incredibly well. Since we said that it would break up and or that it was undervalued. It's it's still not exactly this sort of major before getting kicked out and actually -- also that you can't. I mean if you wanted to be represented you might wanna have a company like apple in the average. But Apple's stock prices part of the distortions the widening its stock prices so high that you couldn't really. Put it in the run -- so what it is an average -- not an index -- not waited. So this is using step stock price averaging so. There there's a lot of fiddling have to happen when by the folks who make -- in this average up at the questions what does it really are -- the averages really meant for we're talking in terms of with a proxy. For American business. And the fact that it's overweight finance and I guess in that sense. It's telling us something about the American college I thank -- think that any doubt Jones industrial average people think this means that finds something to boost profits that it's at that finances about. We'll certainly sent a profit in the -- -- -- Had a 125% of the of the average Netflix but I don't think it bodes -- last point here or what kind of fine. Because actually we've taken a bank we. We keep. We have one bank in the index has JPMorgan Goldman Sachs. Okay bank holding company because I had to be so it wouldn't fail in the crisis. But frankly it's it's really not that it's not a bank in the traditional sense of JPMorgan BofA which replaces. Visa is a consumer finance company American Express the same thing. I don't know JPMorgan matters is that it was a real -- bankrupt yet in the average it's just kind of interest and where maybe it tells us more about. The evolution of finest -- -- but thanks rob. Thanks Jeff and we back tomorrow with more breaking views.

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Breakingviews: Missing the mark

Tuesday, September 10, 2013 - 03:28