Dow Jones Adjusted For Inflation

Stocks Shown To Be A Pig In A Poke

Buying a pig in a poke originated from the dark ages practice of selling cats, tied up in bags, to someone who believes they are buying a pig.

What’s this got to do with buying stocks? Well, the Wall Street investment mantra is ‘buy and hold’ for the long term. I’ve personally been instructed as to the validity of this concept, with a broker once showing me, on paper, how over time the stock market returns an average of about 8-12%, usually higher than inflation.

He practically guaranteed I wouldn’t lose wealth if I followed this advice.

But look below at the chart of the DJI since 1925, comparing nominal values to their inflation-adjusted values. The myth of the stock investment should almost immediately become apparent.

corrected dow
Chart courtesy of Dogs Of The Dow

From The Big Picture(emphasis mine):

It is shocking to see the Dow, when corrected for inflation, sitting at the same level in 1995 as in the peak of 1929. That is, when inflation is factored in, the Dow was finally breaking even 65 years after the crash of 1929. With the Fed pumping eye glazing sums of money into the economy to combat the present deflation this inflation corrected chart which includes the deflationary 1930’s may be back to the future.

Take another look at that inflation corrected chart and notice the inflation infested seventies effect on actual market wealth. And then compare it to the standard non-inflation corrected chart for the same period. The standard Wall Street stock market story versus the actual stock market wealth story for that period is a slap in the face now but could be a body blow in a couple of years. It also makes it obvious why the inflationary seventies is when high interest CDs and money markets became popular investments. In other words we are dealing with deflationary risks we have not seen since the 1930’s and possible inflationary risks we have not seen since the 1970’s.

Each time a new bailout is approved, every time a new stimulus package is thrown at us, that creates some future inflation. This is just the way it goes. All that money is being created as debt, not wealth. The debts have to be paid off, and the interest on that debt is what creates the inflation.

The deflation we are going through now will seem like a blessing in many ways. Cheaper food, gas and electricity will make this year feel a little better for us, in some ways. Just remember – what comes after is going to be a real curse on nearly all of us.

I am Jon. Study your history.

Image 19

One Reply to “Dow Jones Adjusted For Inflation”

Comments are closed.