Monday, April 16, 2007

Inflation-Adjusted Dow: No Record Set Yet

Here's an interesting chart from chartoftheday.com, via Barry Ritholtz at Seeking Alpha. (Click on the chart for a larger version.)

dow adjusted for inflation
[Thanks to chartoftheday.com and Seeking Alpha for the image.]

Chart of the Day makes some assumptions that I believe are unwarranted. As Barry says, we can't be sure what it all means.

On the other hand, the chart does give us a new perspective on the Dow, mainly on these points:

1. The Dow has not broken it's inflation-adjusted 1999 record.

2. The 1980 crash ("bear market" as Chart puts it) was as bad if not worse than 1929.

3. There is a possibility -- not necessarily a probability -- that the Dow could be overvalued; but this is one of those conjectures that is difficult to prove or disprove.

Moreover, I would question the data behind the red and green lines. How did they decide where to position them, and at what angle? I suspect these very specific parameters rely on something as foolproof as wishful thinking or a throw of the dice.

But as Barry says, it's still "interesting stuff" if only because it brings the Dow's seemingly vertical nominal explosion since the early 1900's back into perspective.

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1 Comments:

Anonymous Anonymous said...

Please stop referring to the DJIA!! I know you are more intelligent than that, so please use a better constructed index (S&P 400/500, etc.) than the antiquated DJIA. Thanks

5:17 AM  

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