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March 02, 2009
The Dow in perspective
The Dow Industrial Average closed today at 6,763. It hasn't closed under 7,000 since October 1997. Media outlets and cable TV news shows turned up the volume of this continuation of bad economic news.
As bad as the Dow is right now -- and it's bad for millions who've lost jobs or rely on the stock market for interest-generating income -- it looks pretty different when viewed since 1929. Not the greatest consolation, I know, but what else is there right now but context?
Based on the context of decades, I know that sometime soon, the Dow will right itself. Until then, I'm focusing on producing something of value every day. And swearing off cable TV news.
Other blogs that reference The Dow in perspective:
No cable TV? Great idea! Why pay for biased news :)
One (big) issue I have with looking at the Dow in this time horizon is the basket of companies in the Index in 1929 are not even close to basket of companies reflected in the Dow today.
Your chart suddenly doesn't look so optimistic when you adjust it for inflation.
http://www.dogsofthedow.com/dow1925cpilog.htm
Jansen -- So true. I'm going to sound like an old fogey if I start saying "I remember when TV news..."
Shawn -- True, it's not the same companies back then as now. But, if the Dow is representative of the *relative performance* of the 30 largest and most widely held companies, then we at least have some context for then and now.
Axian -- I certainly believe that adjusting for inflation is absolutely necessary when comparing actual prices from different time periods, but if the Dow is also a relative indicator of price to earnings ratio, i.e, performance, then is accounting for inflation necessary in this case? Anyone want to chime in on this?
... and if you make it a linear graph rather than logarithmic - it gets really scary.
Point well made, but to get honest numbers you must adjust for the FED's assault on the dollar's value over time -- inflation.
Despite inflation, stocks did well from 1982 -- while commodities were in a depression. Jim Rogers makes a strong case that they are due a reversal, and that commodities should do well over the next decade while stocks languish.
For Obama's part, he inherited all this (mostly from Clinton & BushII) and there's not much he can do about it but make it worse -- by CONTINUTING FED inflation, big spending, and proping up select Wall Street friends with govt-bailouts. NOT capitalism. Let the market work and we'll be past the bad stuff in another year.
David
Preach it, Brother McConnell! Preach it!!
I'd like to see this chart adjusted for inflation and on a linear scale. That would be devastatingly scary!
Ben, you are right there is no need to adjust for inflation. Pick any 20 year period and you will see an increase.
David, you are spot on. Let some of these companies fail. What we are witnessing in economic pornography.
"Letting companies fail" sounds like some sort of free market preaching. However, bankruptcy is a goverment process, and limited-liability corporations are government creations.
