Eddie’s chart on the Dow adjusted for CPI inflation is pretty telling: The inflation adjusted Dow is back to 1966.

Category: Markets, Technical Analysis

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

28 Responses to “Inflation Adjusted Dow is at 1966 Levels”

  1. Mike in Nola says:

    Anyone know what it is with dividends?

  2. H.T. says:

    So I guess that makes for a lost two generations?

    An interesting post by Hulbert in Barron’s 3/6/09, with some questionable logic/conclusion from Herr Siegel.

    “Here are some myths about the Depression that should be dispelled.

    MYTH 1: It took 25 years for the stock market to recover its losses from the high reached just before the stock market crashed in October 1929.

    It’s easy to see why investors believe this myth to be true: It wasn’t until Nov. 23, 1954, that the Dow Jones Industrial Average closed above the level at which it closed on Sept. 3, 1929, the date of its closing high before that year’s crash. That’s a recovery period of more than 25 years.

    If the recovery from the bear market over the last year and a half were to take the same length of time, the Dow wouldn’t again close above its all-time high from Oct. 9, 2007, of 14,164.53 until — you’d better sit down — Dec. 28, 2032.

    The truth, however, is that it took stocks far less than 25 years to recover. According to Wharton finance professor Jeremy Siegel, the inflation-adjusted total return index of the U.S. stock market was just as high in late 1936 and early 1937 as it was at its precrash peak in 1929. That was less than eight years later. That may not be great news to investors who are hoping to recover their bear market losses in just one or two years. But it’s a whole lot better than taking 25 years to recover those losses.


    One factor is dividends, which were substantial during the 1930s. At the depths of the Great Depression, in fact, the Dow’s dividend yield was in the double digits. Ignoring dividends, which is what investors do when focusing on price alone, therefore, introduces a significant pessimistic bias into any historical analysis.”


    “ANOTHER FACTOR IS DEFLATION: The consumer price index actually dropped by 27% between its 1929 peak and its low in 1933. A stock that dropped by less than this amount in nominal terms over this four-year period, therefore, actually turned a profit in inflation-adjusted terms.”


    “Yet another reason why it took the Dow so long to surmount its 1929 peak: The decision in 1939 to delete International Business Machines from the average. It wasn’t added back until years later. According to Norman Fosback, editor of Fosback’s Fund Forecaster, the Dow would today be more than twice its quoted level had IBM not been removed from the average in 1939.”


    “MYTH 2: If we’re playing out a 1930s script, now would be a bad time for long-term investors to get into the stock market.Actually, if the stock market were to exactly adhere to a 1930s-like script, equities would provide a handsome return over the next five years.

    Once again, this insight relies on data from Professor Siegel. To locate the date during the 1930s that is most analogous to today, he looked for the point at which the stock market after 1929 had — as is the case today — declined by around half on a dividend-adjusted and an inflation-adjusted basis. That point came at the end of 1930, just 16 months after the August 1929 stock-market top. (Ironically, of course, the current bear market is just 16 months old too.)

    According to Siegel, over the five-year period beginning in January 1931, the stock market produced an inflation-adjusted total return of 7%. That’s right in line with stocks’ long-term average performance, in fact.

    To be sure, this myth does have a big grain of truth to it. Over the first five months of 1931 — the first five months of this five-year period — the stock market fell 60%. You read that right: That’s a 60% drop on top of a 50% drop over the previous 16 months.

    If the stock market today were to suffer a further decline of similar magnitude, the Dow Jones Industrial Average would be trading below the 3,000 level by the end of July.”


  3. H.T. says:

    Hard to say. Here’s a chart http://www.incrediblecharts.com/free/trading_diary/images/20070512_spx_payout.png showing the the DOW’s yield since the 60′s until 2006. So was in the double digits for a good time, but also way under 2% for a long time more recently as “capital reinvestment” became the mantra as opposed to dividends [thank shift from industrials to tech for that i would think]

  4. Mike in Nola says:

    Seigel is trying to salvage his reputation after leading millions off a cliff. Good luck.

  5. try2bamused says:

    Siegel is merely trying to rearrange the tea leaves, that got all messed up by reality, so that they once again read “Stocks for the Long Run”. In less enlightened times, this was called alchemy. Today it gets you an endowed chair in economics at one of our most prestigious universities.

  6. texasradio says:

    @Steve Barry
    What is your thesis for gold “plummeting”? I don’t see it, stocks are getting crushed and gold is still 900+ USD. The oil/gold ratio is not relevant in the current environment. It seems to me that the various gold-related voodoo correlations invented over the last 35 years are getting destroyed, one after the other.

    Also, I bailed on the PG puts at a tiny profit last month…such loss of nerve is expensive…$300,000 so far, and they were April expiration. But I kept my AUY calls, so maybe you are right. But I do not yet believe it.

  7. Bruce in Tn says:


    BOE’s King ‘Groping in the Dark’ as U.K. Prints Money

    All I can say is I am glad we aren’t making the same kind of mistakes as the Mother Country!

    Going hiking today…back much later..

  8. daenku32 says:

    So, what’s the average growth rate of that, from ’28 to today inflation adjusted?

  9. “According to Wharton finance professor Jeremy Siegel…”

    if some ‘street punk’, w/ a can of spray paint, had defaced Wharton’s reputation, to the extent that Siegel does, he’d be a cash cow for the Stadt, I mean, in Jail..

    Pennsylvania Judges Plead Guilty in Juvenile-Center Kickback Scheme

  10. krbecarson says:

    He drew a line between the nominal and the inflation adjusted dow! this chart is TOTALLY WRONG! the line needs to be drawn between points BOTH on the inflation adjusted dow to mean anything at all. this is total NONSENSE.

  11. krbecarson says:


  12. km4 says:

    “Plastics” The Graduate 1967

  13. krbecarson says:

    i want to see a chart where you invest in treasury bonds bought at par, and don’t reinvest the coupons. Oh wait… let me draw it:


    a Dow chart without reinvested dividends means basically nothing. If anything it highlights the ridiculous level of capital gains over the past 15 years. the inflation adjusted dow (no dividends) should be heading back to that 100 level.

  14. Steve Barry says:

    I wouldn’t take Seigel’s advice on what to pay for bubble gum.

    @texasradio: Gold is down 10% fromits highs already…that alone is a plummet…looking at the Committment of Traders reports, plus anecdotal evidence (gold commercials) tells me there is too much bullishness in gold…plus the dollar looks strong here and hedge funds are going to be liquidating big time…I just think it will be wise to wait to mid-April to go back in.

  15. Steve Barry says:

    Also texas: look at a chart of GDX…it is now encountering resistance of the 21, 50 and 200 day MAs all at once…that’s a tough nut.

  16. krice2001 says:

    I guess part of the problem is, is that no one knows where the Dow “should” be. Or the S&P 500 for that matter, since that broader index more closely resembles what most people are invested in. I guess we all have to wonder if history does repeat itself or not (some say it rhymes?). And the problem there I suppose is that there have been few enough major economic disruptions to map against their effects on the market to give us a truly meaningful “n” to use as a statistical predictor. And with any chaotic system, having so many moving parts, predictions are pretty hard to make… consistently accurate ones, anyway.

  17. EJH says:

    Here’s my Real Dow (inflation-adjusted) on a linear scale — MUCH more compelling:

    Here are three close numbers:
    3/6/2009 close, ca. Real Dow 46.96
    3/6/2009 extrapolated +1.64%/yr curve 45.52
    Jan. 1966 Real Dow 46.39

  18. cdrueallen says:

    I’d sure like to see the same chart for real estate prices – anyone got it? Is it possible that real estate is, after all, a very good investment?

  19. barrister999 says:

    To quote Winston Churchill: “There are lies, damn lies, & statistics”. Jeremy Siegal needs to acknowledge that his thesis ‘stocks for the long run’ is fatally flawed. Plus to quote another far more prescient economist, John Maynard Keynes, ‘in the long run we are all dead’. Was anyone on this board around in 1932 to invest in the Market? Get real Jeremy!

  20. AGG says:

    And as I recall, 1966 was the year Buffett said stocks would be a bad investment for the forseeable future. LOL

  21. Janice Doe says:

    Barry, I beg of thee, please try to find out if this chart is accurate and please post as to your findings. An alleged fact such as this one, if true, would have significant ramifications on one’s portfolio, as discussed very quickly below.

    Simply put, I can’t see how this number can be right. I’ve read 1,001 times from 1,001 sources that the stock market was flat, adjusted for inflation, from 1966-1981 (of course, maybe that’s an urban myth, which is why I plead that you post any kind of confirmation or proof that the chart is inaccurrate). If I recall right, the Dow was roughly at 1000 in 1981. Adjusted for an inflation rate of 5% per year since 1981 (which is probably high), the Dow would be at about 3900 right now. It just doesn’t make sense how the Dow is not any higher than it was in 1966, even excluding dividends (assuming the Dow was the same in 1981 as 1966, adjusted for inflation).

    Can anyone please confirm this claim, and Barry, can you please post any confirmation or proof that the chart is wrong. If this chart is actually accurate — if the Dow, over a 43+ year period from 1966, was flat when adjusted for inflation — then it seems to me that it is a mightily powerful argument for lay investors to dominate their portfolios with TIPS, no matter what your age or time to retirement.

  22. The inflation adjusted Dow is back to 1966.

    ….matches my wages

  23. In the end, I suppose, our brains and our bodies become ‘inflation adjusted’ too :mrgreen:

  24. H.T. says:

    Agree with SB– hold on buyin [or sell now] GLD, GDX until carnage of this quarters forced liquidation of Hedgies is over 3/31. Could get as nice an entry on GLD @ ~875. But moving higher for sure IMO [as the miners]

  25. H.T. says:

    Another thing about the effects of dividends on the chart above– my eyeball guesstimate of the period in question was an average yield of 3.5-4%. [Better chart: Barrons http://www.gold-speculator.com/attachments/mark-lundeen/835d1233550879-inflations-effects-dow-its-dividend-yield-lundeen022405b.gif

    Until Bush tax cut, dividends, and someone correct me if I’m wrong, had previously be treated as ordinary income, thus taxed at one’s marginal rate–let’s say 1/3 for kicks, reducing the “dividend effect” somewhat to be sure. Interesting

  26. EJH says:

    Hi Janice Doe,
    I’m EJH of the Comment 4th preceding yours.
    Here’s the 3/30/99 WSJ chart that got me started:
    My main page (incl. full description of my data sourcing and calculations) is
    The first link therefrom is to
    which shows agreeing overlay.

    I’ve had this real history on my mind since timely seeing the WSJ chart — and I still am astonished that such compelling fact is kept little-apparent to the people, in our free markets/free press/free country! High deception by omission!

    You mentioned TIPS — this is all I’ve written up on this, but it’s done:
    Basically, the average of all DJIA stocks-holders owned it the whole time; dividends and frictional costs are cash flows to him, summing to 2.7-3.2%/yr. The +1.64%/yr average long-term real price growth I figured (see my main page) is of course composed of a wide range of outcomes — on a certainty equivalent basis it is essentially 0%/yr. I used CRRA, with coefficient of 5 (‘serious money’ choice).

    Here’s more “High deception by omission!”

  27. EJH says:

    Hello cdrueallen,
    Re. your
    I’d sure like to see the same chart for real estate prices …
    please see first and last charts here:
    and, for credibility, here’s the NYT chart that got me started

  28. EJH says:

    Janice Doe,

    The UNadjusted for inflation Dow was flat over 1/66 – 10/82, see the numbers here:
    BUT during this interval, CPI-U rose by a factor 3.09.
    New 1,001 sources needed!