If you’re like me, you’ve been paying a lot more attention to the Dow Jones Industrial Average since October, looking at long term trends, fluctuations in the market and the effects of events in history, especially the Great Depression.
While there are limitations to an index based on such a small number of companies, the Dow gives a good pulse of economic health in the big picture.
I was searching around for some information on the DJI adjusted for inflation the other day, and came across this little gem. Most striking is that the real annual return of the Dow over 80+ years have been approximately 1.64% after taking inflation into account.
Not surprisingly, 3 large bubbles are visible, poking above that 1.64%/year curve. The first is of course the boom and bust that led to the Great Depression, a sharp spike in both directions and lasting less just a few years from about 1925-31. In the mid 50’s, a new bubble begins to form, peaking about a decade later and sliding down as fast as it came up for another 20 years, finally hitting a bottom in the late 70’s/early 80’s that is almost as low on the scale as the Great Depression.
By around ‘95, another bubble takes off like a bat out of hell, slows a bit in the wake of the “dot-com bubble” and September 11, but promptly returns to its previous high in late 2008… which is when the bottom fell out.
It would appear, looking at this, that we’ve still got a few thousand points to shed before we hit bottom. It remains a mystery how few people saw this crisis coming. Looking at this chart in 1999, it should have been obvious a massive bubble was bound to burst any day – but the financial wizards saw no end in sight to rampant growth?
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[...] and it’s arguable whether he has a point or not. As discussed in my last money article, it appears we’re on the inevitable downside of a massive bubble, and losses in the market [...]
Posted on March 11th, 2009 at 11:05 pm
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