Thursday, November 20, 2008

Dow over time

The chart below shows the Dow Jones Industrial Average since the 1920s.


There are a few fascinating things to note about this chart.
  1. Despite comparisons to the great depression, the fall in stock prices is not at all comparable to what happened in the 20s. In fact, they fell so much that it took more than 20 years for the index recovered to the point it had been at in the late 1920s.
  2. Secondly, notice how stock prices essentially stabilized in the mid 1960s and then did not start rising again till the mid 1980s - i.e. a nearly 20 year hiatus from real growth. This is why "liberals" are so despised in the US and "conservatives" are so loved. It was only in the Reagan era that this trend changed.
  3. Finally, despite claims to the contrary, the DJIA has essentially flat-lined since the late 1990s, with only sporadic bursts of life. Again, the last time this happened it took 20 years to fix. We've had just eight. Will Obama be able to change course?

Both the mid-1960s flat-lining and the mid-2000 flat-lining coincide with periods of war in the US. In the mid-1970s, as the war ended, the US faced a massive oil shock. We just experienced the start of one this time (it's not over folks - when the deflationary trend ends, oil prices will rebound to $150+ unless the promised green revolution delivers in short order). To make matters worse, just as in the mid-1960s and 1970s, the world could be facing a global food crisis as the economy rebounds, which could lead to severe inflation at the other end, especially coupled with the massive deficit that the US government will undoubtedly accumulate.

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