Great chart here from Deutsche Bank’s Jim Reid (via FT Alphaville). The chart displays the inflation adjusted Dow going back to 1900. Reid used two different trend lines:
1) The trend from 1900-2010
2) The trend from 1900-1994
What’s clear from this chart is that something was altered in the markets substantially in 1994 that resulted in the huge move higher. It could have been technology, leverage, prop trading, who knows? But the important question now is asking whether the newer trend line is justified? Or, should we focus on the long-term trend line? In which case the Dow should be at roughly…7,000….
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.