muses of the moment

May 30, 2013

Inflation-adjusted Dow

Filed under: DOW and S&P500, Inflation — totallygroovygirlfriday @ 2:14 am

Just a reminder of the inflation-adjusted Dow chart. Click here. And this is the official inflation, not the real stats from Shadowstats. Which is much worse.



  1. GG, thanks, I enjoy your posts.

    Here are a few observations about using the DOW (or many other major indexes) in comparison charts. These comments don’t necessarily negate the value of using them, it’s just helpful to consider the composition of various indices:

    The stocks in the DOW (1) have always been arbitrarily picked; there is no real “science” behind their selection; (2) DOW components have changed many times. The DOW initially was representative of industrial companies; over time, more and more financials and non-industrials were included. (3) The DOW is price-weighted, so that “expensive” shares carry a greater weighting. (4) Most companies currently represented in the DOW have significant international revenues, e.g., “43% of components’ revenues come from outside the U.S.”, per Forbes (linked below).

    The original 12 components were selected by Charles Dow in 1896. One was dissolved in 1911; none of the others currently exist in their 1896 form. Some recent changes include these, in 2008-2009: Citigroup, GM, and AIG were replaced by Travelers, Cisco, and Kraft – not exactly apples-to-apples replacements. Speaking of apples: APPL and GOOG haven’t been good candidates for the DOW, due to price appreciation without splitting their shares; that makes them too “expensive” for the DOW.

    Many of the facts mentioned above come from Forbes, largely this article:

    Comment by Anonymous — June 2, 2013 @ 12:11 am

  2. G.G., I am curious as to your opinion on the shadow stats inflation numbers. Taken in aggregate over the last few years(and truthfully I have not kept too close of an eye) the compounding rate of inflation he is claiming woud be astronomical( read cataclysmic). While I intuitively dismiss the Feds number, Johns seems unsupported by simple observation, yet I do not see anyone speaking to this. The 7+% YoY that I’ve seem to recall John claim would put the cimpounded rate over 40% over the last 5 years. What am I missing? Johns analysis is respected my people much smarter than I. Thanks.

    Comment by GM — June 2, 2013 @ 10:12 am

  3. All very good points, Anon.

    The companies in the DOW are selected for their “better than average” representation of the over all stock market/corporate economy. Which makes the official numbers and the inflation-adjusted numbers all the more a deficit of reality.


    Comment by totallygroovygirlfriday — June 3, 2013 @ 11:44 am

  4. GM,

    That YoY % was back in mid 2011. See this chart:

    The YoY % has fluctuated wildly since the 2006-2007 crash. In gg’s opinion this is a direct result of the global economy and debt trying to deflate in a natural cycle, but global intervention pushing up prices.

    As far as prices going up 40% in five years, all groovygirl can say is that her grocery bill (part of the basket of items that determine the CPI rate) is up that much or more.

    Yes, over-all, gg agrees with John’s stats.

    Update: just eye-balling the chart, it looks like we could average 3-4% (using John’s stats) for the last 5 years. That bring us to 15-20% compound inflation in 5 years. I have seen that for sure.


    Comment by totallygroovygirlfriday — June 3, 2013 @ 12:15 pm

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