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.


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