Recently by Simon Black: Trust Me, This Time Is Different…
Reporting From Santiago, Chile
The Dow Jones Industrial Average, one of the key benchmarks of the US stock market, has soundly surpassed its all-time high. And most of the investing world is toasting their collective success and celebrating the recovery.
Its a funny thing, really. Most investors only think in terms of nominal numbers, i.e. Dow 14,000+ is 40% higher than Dow 10,000 (back in November 2009). But few think in terms of real numbers inflation-adjusted averages.
Everyone knows that inflation exists. We can all look back on prices from the past and realize instantly how much more expensive things have become. Conversely, though, most people dont think about the stock market like this.
The reality is, though, that when you adjust for inflation, the Dow is well below its highs from over a decade ago.
I thought Id put this into a bit of perspective.
Take beef, for example. Based on USDA retail price data, today the Dow will buy you 3,332 pounds of beef in the supermarket. This sounds like a lot. But its actually about 20% less than the 4,046 pounds of beef the Dow would buy back in December 1999.
And if beefs not your thing, lets look at fruit. Based on the wholesale price of bananas, the Dow currently buys you a whopping 15.35 tons of the tropical fruit.
But this is exactly the same amount of bananas the Dow would buy back in February 2008, when the Dow was just 12,266. And its a massive 60% drop from June 1999 when the Dow bought 38.51 tons of bananas.