Archive for March 2013

Dow closes at 14,253.77 – Celebrating Inflation

Dow closes at 14,253.77 – Celebrating Inflation

Gary Hunt
Outpost of Freedom
March 6, 2013

The news over the record closing of the Dow Jones Industrial Average, yesterday, March 5, 2013, is hailed as an achievement that demonstrates the recovery of the economy, in no uncertain terms.  The Dow, after all, is the indicator of the health of the economy – in most eyes, anyway.

So, let’s just look at what we are celebrating. The previous record of 14,164.53 set October. 9, 2007, nearly six years ago, became the benchmark for future records.  Six years to regain that which was lost, and has remained so, through the entire current administration. There is little doubt that the government was doing everything they could to demonstrate the success of their oft questioned economic policies.

So, is this really an advancement in the economy?  Well, I’m a not an economist, nor do I have a grasp of the complexity of economics. I am but a simple man who must endeavor to see the world in the dim light of my experience. So, put on your night vision goggles and follow me into the realm of reality.

In 1963 you could buy a nickel candy-bar for, well, 5 cents – hence the name, nickel candy-bar. The last time I bought a nickel candy-bar it cost me about $1.50 – that about 30 nickels. Now, I don’t really know what a nickel candy-bar costs, but I do know that the “purchasing power” of the nickel is now equivalent to what would then be 0.17 cents (5÷30).

In 1963, the Dow record was 714.81 ( Now, if we consider the 714.81 to be dollars, we can see that it would take 14,296 nickels to be equal to the value of the Dow.  Today, however, it would 285,075 nickels to equal the value of the Record Dow closing of 14,253.77.

Now, this might be a little confusing, so, let’s look at it from the other side. If we take the 14,253.77 and divide it by 30 (The approximate change in purchasing power), we end up with 475.13. That is just about two-thirds (66%) of the then closing of 714.81. So, in realistic terms, the exalted record of yesterday is not even close (“in current dollars”) to what the value of the Dow was just 60 years ago.

Now, this consideration does not address the manipulation of the content (included stocks) of the Dow. Over the years, certain stocks were removed since they were “volatile” (can you say lowers, which would bring the average down) and were replaced by more “stable” stocks (which kept the average up), making, from a pure economic standpoint, and even more drastic disparity between the then and now.

So, we must consider whether the economists who so cheerfully praised yesterday’s closing are really, in all honesty, celebrating a manipulation that has one appearance, though, in fact, celebrates the effect of inflation on the pure numbers of the New York Stock Exchange?