Chapter 15 Why Apple Joined the Dow
November 22, 2015
Apple: A Corporate Miracle Assisted by Government Corruption.
On March 6, 2015 it was announced that Apple would join the Dow Jones Industrial Average (DJIA) replacing AT&T which had been included in the group of 30 stocks that make up this stock market index for over 100 years. The reason for this change was reportedly because the DJIA wanted a company that more accurately reflected the importance of technology. I find this somewhat ironic since for decades AT&T was the pillar of technology creation and in fact it was the AT&T research laboratories (Bell Labs) that produced both the transistor and Unix which are now the fundamental hardware and software underpinnings of the entire technology revolution. Apple would not be Apple without these basic technologies that were created by AT&T. The world makes progress by building on the acquired knowledge of our predecessors.
Heroes stand on the shoulders of prior heroes!
But I also think that another reason, and maybe the main reason, that Apple was selected to be included in the DJIA is because Apple has quickly become the company with the largest market cap on the planet at over $650 Billion. Also the AT&T stock price has been basically flat for the last three years while Apple stock has continued to increase rather dramatically. For this reason I just think that the managers of the DJIA index felt that Apple's stock price was more reflective of what is happening in the financial markets.
I would agree that the Apple stock price more accurately reflects what is going on in both the financial markets and the U.S. and global economy than does the AT&T stock price. But my explanation for why this is the case is probably different than most.
Why Apple is so successful!
I contend that there are two fundamental reasons for the success of Apple and they are of almost equal importance.
1) the genius of Steve Jobs and the Apple team that was assembled to create, engineer, manufacture, market, distribute, and support an evolving stream of high quality products that hit the mother lode with the iPhone.
2) the Ponzi Economy (USAPonzi) that was created by LBJ with the "Unified Budget" in FY1969.
Apple has been able to master the process of coming up with great technology ideas and then producing them with outstanding quality and precision. But unless you have a massive audience that not only wants these high quality intriguing products but also has the money to buy them, you cannot have commercial success. That is where LBJ enters the picture.
LBJ was also able to build on prior history. The U.S. Government was already offering social benefits to the U.S. citizens when LBJ came up with the idea that if the U.S. Government offered these social benefits to the U.S. citizens but did not tax the U.S. citizens to pay for them, then both the U.S. Government and the U.S. citizens would have a lot more money to spend. We have been doing just that for 47 years and we have been able to buy a lot of stuff that we could not have afforded without the U.S. Government going into "virtual debt" by $99.8 Trillion (our US Unfunded Liabilities (GAAP)).
The U.S. Government is using Cash Accounting vs. the proper GAAP Accounting and therefore has not been taxing the U.S. citizens and businesses to fund the social benefit trust fund and as a result has been running an exponentially increasing GAAP basis deficit ($5.9 Trillion in FY2016) while reporting a much smaller, but still huge, Cash deficit ($0.433 Trillion in FY2016).
This fiscal policy means that we can give unlimited Social Security, healthcare, and other social benefits to everyone because nobody has to pay for it except the future U.S. taxpayers. Since the upper class U.S. citizens and businesses don't have to pay the taxes to pay for the social benefits they get rich and everybody has more money to spend. The poor, the elderly, the disabled, and the underprivileged get paid social benefits which in many cases is enough to buy food, shelter, and a smartphone subscription service. The people that are not getting these social benefits do not have to pay the taxes to fund these social benefits so they have extra money to pay for their smartphone subscription service. The upper class folks should be paying for the bulk of these social benefits but since they do not pay these taxes they can have several super high end smartphones, can live an opulent lifestyle and still put away enough counterfeit money to become filthy rich.
Sounds like a great deal for everyone except the future U.S. taxpayers that now owe $99.8 Trillion and that amount owed is increasing exponentially. The people that are depending on these social benefits in future years are also going to be facing financial devastation because the U.S. Government has not been funding the future social benefits. Who is going to pay that $99.8 Trillion? It can't be paid! It won't be paid! When this is generally recognized and acknowledged, USAPonzi will implode.
But that is why everyone can have a smartphone. The U.S. Government is using corrupt and fraudulent accounting. The U.S. Government has created $99.8 Trillion of counterfeit money by passing both its Debt and its Unfunded Future Liabilities forward to the future U.S. taxpayers. The U.S. Government is running a classic Ponzi scheme by promising to pay our debt of $18.7 Trillion and Unfunded Liabilities of $81.1 Trillion some time in the future by a phantom payer but it can never be paid and this obligation is increasing by $16.1 Billion every day.
So Steve Jobs and Lyndon Baines Johnson had to work hand in hand to make Apple a success. But when USAPonzi implodes there will be a lot of people that will not be able to pay their phone bill and the price of Apple stock will plummet. I estimate that the value of U.S. Total Assets (Household, Corporate, and Small Business) will drop by 84% when USAPonzi implodes and this $99.8 Trillion of counterfeit money evaporates.
In another irony, the stock of AT&T (and Verizon, Sprint, etc) will also dramatically plummet when USAPonzi implodes. Apple needs the telephone companies to make their product successful. The telephone companies need smartphones to promote usage on their networks. And the smartphone companies and the telephone companies both need USAPonzi to provide the counterfeit money to buy both the smartphones and the telephone service.
And the rich investors are using their counterfeit money to buy the stock in Apple, AT&T, Verizon, Sprint, and many other companies which is what causes the stock market to continually set record highs. Mad Money will not be such an exciting show when USAPonzi implodes.
It should also be noted that USAPonzi has also been stimulating other economies with this $99.8 Trillion of counterfeit money so the future U.S. taxpayers have also been helping to buy smartphones all over the world.
See The Infinite Counterfeit Money Machine for further explanation of how this counterfeit money is created.
Maybe they did the right thing after all!
So I guess that the people that manage the DJIA actually did the right thing. By putting Apple in the Dow, they will have an index that better represents what is happening in our global economy and our financial system. They now have included the poster child (Apple) for the Ponzi economy (USAPonzi) so when USAPonzi implodes the Dow will retreat in a way that is most reflective of the implosion of what is now a $99.8 Trillion Ponzi scheme.
Another Ironic Twist!
There is another ironic twist that comes from Apple replacing AT&T in the Dow Jones Industrial Average. AT&T was broken up by the U.S. Government because of AT&T's monopolistic position in the Telecommunications Industry. This breakup of AT&T is what has ultimately led to their removal from the DJIA. They are now being replaced by a company (Apple) that has the opportunity to establish a dominate if not monopolistic position in that same industry because that same U.S. Government has dramatically subsidized the buyers of their product with corrupt and fraudulent accounting.
Financial data sourced from usdebtclock.org Nov 22, 2015.
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