On long term trends
From an historical perspective, the Dow could go down to around 3,600 and all would had happened is that the speculative bubble of Reagonomics would have been completelly deflated.
Get a complete chart of the Dow, trace a line from the bottom in 1942 connecting with 1974 and you will see how in 1981 the prices started rising in a bubblesque fashion (i.e., the angle departs from the historical trendline).
Most people would admit that the growth of the American industry from 1942 to 1963 (at least) was glorious, and that we had a very good economy. Now we are used to bubble levels, and these are not sustainable.
I don’t think the American society will make the changes needed to get rid of the bubble economy mentality, but if we did, we could see the Dow go down to the historical trend level and keep going up from there at an average of 10% or 12% annually.
Even If we don’t stop using financial steroids, the bubble trend of Reaganomics is broken, and the previous high on the Dow will not be broken without a large period of consolidation.
Quitting excessive debt, and in general excessive leverage is going to as painful as quitting any other addiction.
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February 16th, 2009 at 5:55 pm
Actually, the problem is too much government interference with the market, although that certainly isn’t going to change with Obama. Government is not the answer to all our problems.
March 29th, 2010 at 8:19 pm
An excellent post. You did a tremendous job thats for sure. Thanks for informing about growth in American industry.
April 16th, 2010 at 1:14 am
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