No One Was Spared, Not Even The Services

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The Institute for Supply Management's non-manufacturing index is an unloved instrument. When at its highs it means that the United States creates nothing, and just pushes around paper and capital. When shrinking, it means not even that ability will save the economy from a catering disaster.

The Institute for Supply Management's non-manufacturing index, which covers almost 90 percent of the economy, dropped to 44.4, weaker than forecast and the lowest level since records began in 1997, the Tempe, Arizona-based group said today. A reading of 50 is the dividing line between growth and contraction. Other reports showed job losses climbed.

That's not pretty. We hear there are jobs to be had at the IRS however.

ISM Services Index in U.S. Slumped to Record Low
[Bloomberg]

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The Smart Indexes Are Even Worse Than The Dumb Ones*

You may have heard that the Dow hit 13,000 today before subsiding to a shameful 12,965.69. You may not have heard this, or cared, because the Dow is for morons, being a price-weighted index of thirty semi-random companies that, gah, aren't even "industrial" any more.** There are alternative theories but those theories are wrong: Joe Weisenthal in defense of the Dow has been noting its very high correlation with other, broader, more sensible indexes. I see this as further undermining the Dow's legitimacy. If it's very different methodology were leading to some kind of meaningfully different result, then we could perhaps argue that it's adding value in some kind of way. But instead what's going on is that the Dow's creators are hand-picking which stocks to include in the index specifically with an eye toward constructing an index that mirrors the other, better indexes out there. Apple and Google, for example, aren't in the Dow and aren't doing to get in any time soon because their very high share prices would skew the index in weird ways. This just goes to show that the Dow's creators already "know" the right answer (from looking at the S&P 500 and the Wilshire 5000) and then are trying to assemble an index to create the predetermined result. Maybe! An alternative theory is maybe suggested by [Occam's razor and] this piece from the Journal this weekend about index funds that I just loved and so am now going to inflict on you at unnecessary length: