Monday, March 16, 2009

Bonner: 1966 - 1982 , and Dow 5,000

Bill Bonner, in the Daily Reckoning, confirms what I've said here many times: we need to measure investment performance in inflationary terms, and done that way, the last cycle ran from 1966 to 1982. The implication for us now?

We only bring this up to warn readers: these major cycles take time. So far, the Dow has only gotten down to the ’66 TOP. Now, it has to get to the ’82 BOTTOM…adjusted for inflation. Where would that be?

Well….as we recall, the Dow was barely at 1,000 when the bull market began. And if [we] adjust that to consumer price inflation, we come to a 2,000 – 3,000.

However, the 1982 bottom was higher than the 1932 bottom, so I'm hoping it will be no worse than 4,000. Having said that, the levels of governmental and personal debt now are quite unprecedented.

Here's the graph I did last October, again:


Sebastian Weetabix said...

"It has to" - you sure about that?

AntiCitizenOne said...

You could put the year across the bottom!

The rise bit in the last 1/4 of the graph has been put down to the effects of
a) Income tax.
b) Income Tax breaks if you invest in a government approved area artificially increasing demand for these equities above their natural yield based price.

Both A and b need to go.

Sackerson said...

Like I sais, SB, I don't necessarily agree with Bonner on that point - but we've never been in quite such a perilous financial situation.

Sackerson said...

ACO: will do next time, but it's the overall shape that was most relevant this time.

CityUnslicker said...

how does economic growth fit into the graph. The uS economy is 10 times the size it was after your calculations allow for this?

Sackerson said...

CU: no, unfortunately - I have had to compile data painstakingly from CPI and Yahoo Dow stats. I am looking at the Dow's progress from the point of view of an investor.

But also the size of the economy needs to be interpreted in the light of inflation, doesn't it?

Given time (ha!), I suppose I could do a different graph relating a stockmarket index to GDP - assuming long-term stats for the latter are available and reliable (surely they are a nit of a wild estimate?).