Thursday, November 27, 2008


I went to see IOUSA yesterday. Given that we're in the midst of an economic train-wreck it was a bit dispiriting to see a carefully plotted dissection of the REAL mess that is just up around the bend.

The end of the "investment era" hit me the other day as well when I read this from Gary North:

In the first week of February 1966, the Dow Jones Industrial Average went over 1,000 intra-day and closed at 996. Over the next 16 years, the price index increased by just under three times. See the Bureau of Labor Statistics, Inflation Calculator:

The Dow fell by over 200 points, to 777. The combined loss was a staggering 80%.

Let's bring this up to date. The Dow closed on November 20 at 7,552. Prices have increased since 1966 by a factor of 6.7 to one. The Dow is 7.5 times higher than in 1966. Taxes aside and dividends aside and commissions aside (there were no no-load funds in 1966), your investment of $1,000 in 1966 would have reaped a profit of $6,500. But prices are 6.7 times higher.

You would be behind.

That is what an investor, age 23 in 1966, would have to show for his faith in the U.S. stock market. He is now 65.

So much for the "buy an index fund of U.S. stocks and hold until retirement."

What retirement?

Though I suspect North's numbers focus on a peak at one end and a trough at the other it nevertheless demonstrates the power of inflation.

We'll soon find out all about inflation if the Fed and Treasury keep pumping liquidity into the market. On top of the $700 billion bailout passed by Congress, and the coming "stimulus" from the Obamaites, a new $800 billion dollar lending program was announced a few days ago. Here is the first terrifying paragraph from the NY Times reporting: "The Federal Reserve and the Treasury announced $800 billion in new lending programs on Tuesday, sending a message that they would print as much money as needed to revive the nation’s crippled banking system."

Given our current plight I'd hoped the local muliplex would be swarming with folks heading to watch IOUSA. As it turned out a friend and I were the only viewers. I guess everyone else was watching "Bolt", "Twilight" or the latest James Bond flick. Well I guess we get what we deserve. Sooner or later we will have to pay for our sins of covetousness.

But as public service you can watch a 30-minute version here. Enjoy, or perhaps weep.

Happy Thanksgiving!


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