Oh, please. The only thing more preposterous than this — you have doubtless seen some discussion of a book by this name (by bright people! how could they?!) — is Donald Trump for President. I mean, please.
Sure, the Dow will get to 36,000 — some day. If it rose 5% a year from today’s 10,000, it would get there in 26 years. (That’s how long it took the Dow to get from 1,000 to 3,600.) But Dow 36,000 anytime soon? I sure hope not! As our friends the Japanese would attest, a financial “bubble” is fun only for those lucky enough to get out at the top — and then move to a country not gripped by the hangover.
Is it possible, one wonders, for the Dow to climb so slowly? At just 5% a year?
I wouldn’t be amazed to see something like that happen, albeit with large ups and downs along the way. Remember, for starters, that that’s 5% on top of dividends. (Quaintly, some of the Dow stocks actually do still pay dividends.) So the total return if the Dow were climbing 5% a year might be more like 7%.
For many decades, the Dow provided a total return of more like 9% or even 10%. So even 7% would be pretty lame. But remember, also, the concept of “regression to the mean.” The fact that the Dow — up from 777 in 1982 to 10,000 today — has grown at 16% a year, compounded, may mean this will go on forever. Except a lot of that was achieved as interest rates fell. Long-term Treasuries that yielded close to 15% in 1982 now yield more like 6%. How much lower can yields go? Not below 0% I think — and maybe not even that low in a thriving economy.
So, far from above-normal growth continuing, because we’ve had it so long, we might actually be in for a stretch of below-normal growth, as things even out, regressing to the mean. (That’s mean as in average, not mean as in nasty, though we could have a few nasty moments along the way.)
The Dow first touched 1,000 in 1966 — a heady time for stocks — and first touched 3,600 about 26 years later, in 1993. Then it tripled these past 6 years
(I know: if George Bush and Bob Dole had been in the White House it would have quintupled and we would have added 40 million new jobs instead of just 20 million — and not only would no American soldiers have died in Kosovo, seven would have come back from the dead. But still, it’s been a pretty good run for Clinton/Gore.)
Technology may be lofting the world onto a steeper prosperity curve. And decades’ more experience at the art of global economic management may have improved central banker skills. The traditional 9% (including dividends) may be old news, with a higher number perhaps expected going forward. (Or perhaps not.) But the 16% and 20% annual returns we’ve been seeing . . . well, these are not sustainable.
Dow 36,000 is the kind of book title that lulls sensible people into doing foolish things.
Quote of the Day
Governments are necessarily continuing concerns. They have to keep going in good times and bad. They therefore need a wide margin of safety. If taxes and debt are made all the people can bear when times are good, there will be certain disaster when times are bad.~Calvin Coolidge
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