In the last 50 years, prices have gone up around 20 times. Aside from the obvious fact that the FED’s printing of new Dollar Bills out of nothing has stolen 95% of the Dollar’s value, I find it interesting when I consider the Dow Jones Industrial Average.
Around 50 years ago, the Dow approached the 1000 mark for the first time. (I recall seeing a Broaway show “How Now Dow Jones” which used Dow 1000 in the plot line.)
But, the Dow couldnt make it past 1000 at that time. It pulled back by 25% and made another run in ’69, but still it fell back – way back.
The Dow made another 3 tries – and even made it 7% above 1000 before the Recession in 1974 – but it wasn’t until 1982 that the Dow finally broke above 1000 for good.
That was 16 long years that the Bulls had to wait. If a market player had invested all he had in 1966, it took him 16 years before he could start to make a profit.
Of course, the CPI kept going up, so Dow 1000 in 1982 wasn’t worth nearly as much as Dow 1000 was in 1966!
If we consider today’s Dow 20,000 – after prices have run up 20 times – the stock market looks very similar to 1966 with the Dow at 1000.
Except that today:
- The FED has been printing Dollars for the last 10 years at a much faster pace than it did between 1956 and 1966.
- The PE Ratio today is around 50% higher than on the Dow 50 years ago.
- The stock buybacks of today, with their manipulative effect on earnings, were only a twinkle in corporate officers’ eyes in 1966.
- The Dollar still was “As Good As Gold,” and was 3-4 times the value in 1966 to other currencies compared to today, even after the recent run up.
- The numbers coming out of DC for such items as Prices and Unemployment were reliable back then, as opposed to the laughable fictions they are today.
So, I guess maybe today’s Dow 20,000 is a bit overextended compared to Dow 1000 in 1966. In 1974, the Dow fell around 50% peak to trough.
But if the Market and the Economy are not in as good shape today as in 1966, then maybe the coming fall from grace will be much bigger.
Do I need to say, “Look out below?”