As a kid, I liked math. It could tell me things that words could not. Numbers can reveal nuances more quickly than words. But, numbers can also mislead.
The current obsession with 14,164 is misleading. It is more nostalgic than significant. True, the Dow Jones Industrial Average is now within 1% of that all-time high on April 7th, 2008, but is nowhere near its all-time high on an inflation-adjusted basis. While inflation is not high, five long years of even low inflation can make a large cumulative difference. Take a look at this graph.
This graph is reassuring for the bulls, as the market is nowhere near its red line of resistance. In other words, the market should continue its upward march, assuming Washington gets out of the way.
Now, take a look of another interesting graph of the Dow, courtesy of The Privateer.
There has been a good deal of conversation about “the New Normal.” Historically, it has been normal to see stocks rise about 9% on average per year. The New Normal suggests we are now living in a deleveraging, slow-growth world of 6% . This graph shows the stock market has indeed “jumped the track” and is now playing catch-up in this new, slow-growth world of deleveraging (or paying-off debt).
However, neither graph shows any bearish indication. Neither makes me concerned the market is currently over-valued and is getting ready to fall . . . assuming Washington can get out of way!
So, when you hear the media gush that the Dow has just set a new record high, simply yawn politely and reply “that’s nice.”
14,164 is just another of my many beloved numbers . . . no better, no worse . . . just another beloved number.