Are iPods Keeping the Stock Market Afloat?

What’s keeping it up? Why is the Dow Jones Industrial Average near its all time high of more than 14,000?

The current swath of quarterly results have been mixed at best with financial firms slammed by write offs on subprime mortgages and problems with collateralized debt obligations (CDOs). How much have these firms socked away into their loan-loss freezer?

There’s more. A lot more. Two prime, pardon the pun, examples are on the front page of today’s Wall Street Journal – the blaring headline “Merrill Takes $8.4 billion Credit Hit” is right next to a photo of a furious Ken Lewis of Bank of America as he vows to remake his investment bank that lost $1.45 billion in the quarter.

The experts are chiming in. Euler Hermes economist Daniel C. North says the U.S. has been stunned with three blows – high oil prices, the burst housing bubble, and the inverted yield curve of 2007-2007 ("Euler Hermes Chief Economist Sees Interest Rate Cuts Into 2008," 10/25). The Journal’s David Wessel calls it a “Three-Ingredient Recipe for Recession” citing oil, housing, and a pull back by lenders and borrowers. 

OK, so a recession is likely around the corner, housing won’t get better anytime soon, and oil prices will probably stay near current levels.

So why is the Dow near 14,000? Because Apple sold a lot of iPods?

Wall Street is in a dream world.