Explaining Southern California's economy

Easy choice: Money and no job, or a job and no money?

DJIA-All-Time

Federal Reserve

Ever long for the days of Dow 1000? If you have a job but no money, maybe you should.

Felix Salmon has a great post today about, basically, why we need to tax capital gains at a higher rate. I made a rare Tuesday appearance on "America Now" — the radio program hosted by the always lively Andy Dean, with whom I usually discuss and debate economics and business on Fridays — and wound up talking about this very topic, as it relates to Mitt Romney's taxes. 

In a nutshell, capitals gains is income derived from investment returns — selling stocks and bonds, or collecting dividends, that type of thing. The argument in favor of keeping them lower than income tax is that people with money to invest, i.e. the affluent, need an incentive to keep investing. The idea is that a virtuous circle will be created, with investment creating jobs and jobs creating income and that income being invested, by people who wouldn't otherwise invest. Presto! Economic growth!

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Lucky or unlucky Dow 13,000?

Dow Jones Industrial Average Closes Slightly Down

Spencer Platt/Getty Images

U.S. stock markets have been rallying since October. Time to get worried?

The Dow Jones Industrial Average has been bumping along at or just below 13,000 for a few trading days now. As the Wall Street Journal points out, the Dow is up 22 percent since October, an impressive rally given that the economic news, while improving, isn't that good.

So what does it all mean? Well, you could argue for extreme caution at this point. Because the risk-craving money has probably already come into the markets, earning its double-digit returns, it's going to start looking for a way out. Enter the "dumb money," otherwise known as the retail investor. Some analysts think the dumb money has already showed up and is keeping the market elevated.

Regardless, the tail end of a rally can be hard on unseasoned investors. They may panic if they bought high and suddenly see their holdings turn lower as the pros rush back to cash, preparing for the next sustained rally. 

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