Market up 1500% from 80's, what was the cause?

[EvilEngineer]

I will say that being involved with Dr. Paul has made me more financially aware, and doing some research I've been looking at historical pricing of the market. Looking back, shows a massive increase in the market since the early 80s, on the order of 1500% increase from what was before a steady market.

Was this due to the credit markets becoming unleashed in the late 70s, from the removal of the gold standard?

 

[Eponym_mi]

Was this due to the credit markets becoming unleashed in the late 70s, from the removal of the gold standard?

I'd say the answer to that is yes.

 

[AisA1787]

Innovation, technology, increased availability of goods and services, etc... People create wealth through the application of hard work, intelligence, and the judicious use of resources. Money represents wealth. It represents goods and services. The more goods and services available, the more money... otherwise you have deflation, which is just as dangerous as inflation.

By the way, if you think the market is up a lot from the 1980's, just compare it to 4000 B.C. ;-)

Edit: Also forgot to mention, India relaxed much of their government restriction on free markets in the early 90's. China is also becoming a major factor in the world economy, when formerly they weren't due to government intervention. There are other reasons for the increase besides the change in credit supply.

 

[davver]

www.nowandfutures.com

The DOW has had 2% yearly returns since 1900 once you subtract out inflation.

 

[Fox McCloud]

well, naturally it's going to increase slowly increase over time because of innovations and such....but the Fed has pumped trillions of dollars into the economy since it's founding...not to mention the commercial banks also help in this scheme.

why else do you think the stock market goes up after the Fed cuts rates?

today though? Ehh, it doesn't look pretty; we'll have to see how the rest of the day goes. Eventually the jig is up.

 

[jclay2]

I will say that being involved with Dr. Paul has made me more financially aware, and doing some research I've been looking at historical pricing of the market. Looking back, shows a massive increase in the market since the early 80s, on the order of 1500% increase from what was before a steady market.

Was this due to the credit markets becoming unleashed in the late 70s, from the removal of the gold standard?

No! First of all I might suggest that you figure out the annual increase. I wouldn't think it would be very much higher than 14% annually if not lower. That is still hight but it takes the shock out of the 1500%. Second, Paul Volcker came in and drastically reduced money supply by hiring interest rates and kicked the crap out of inflation as compared with the rediculous double digit inflation of the 1970's. Third, Ronald Reagon came in and cut taxes pretty big and people now had an incentive to become wealthy again. I think the highest rates dropped from like 70% to around 30-40% for federal income tax. So, if you look at it from a business standpoint, it is understandable that the market took off, especially when you compare it to the 70's. As far as credit is concerned, I think it had more to do with loans being more forcastable. In the 70's many people gave loans in single digit rates and then ended up in an environment with double digit inflation. Not so good for lending if you know what I mean. When volcker got a hold on the money supply, it was a lot easier to make a loan knowing you had a fed chief implementing policies to fight inflation no matter what. Oh and yes, a certain percentage of those gains is nominal inflation and can be discounted.

Disclaimer: Never lived in the 80's as I was born in 90 and everythipng I said here could be wrong. If so please correct me.

 

[Fox McCloud]

the thing about Reagan is that he cut taxes, but still kept up with th evil policies of the Federal Reserve; there was at least once occasion where some company needed to be bailed out, and Reagan let it happen...and even praised the Federal Reserve for bailing them out.

the problem goes deeper than just tax cuts...out of control spending+fiat currency = massive inflation.

our dollar is worth less than 4 cents since the inception of the Federal Reserve.....it truly surprises me how little that bothers people when that's brought up.

 

[jclay2]

Fox McCloud, what are you trying to say?

 

[EvilEngineer]

This is what I'm talking about. The market has been massively inflated since the 1980s... something caused that and nothing aside from extra money (fiat money) being poured into the market can account for it. My fear is that a normalized market is going to be around the 500-1000 point level for the Dow... and means that a real market correction isn't going to be a few hundred points, but almost a 90% reduction in market value so about 10,000 points.

 

[jclay2]

Evil engineer: Why don't you compare that, relative to inflation. Assuming that there was 5% inflation each year the market would be up 280% relative to inflation.

 

[webaform]

could say..the information age..computers

started out calling discount brokers and mutual funds in the 80's, next touch tone, then in the 90's trade over computer programs, after that late 90's trade over the web.

could say...baby boomers started selling out ..stacking up all those funds for retirement

 

[Fox McCloud]

Fox McCloud, what are you trying to say?

I'm saying is that he helped further create inflation, which means more investments in more markets (when money changes hands).

a 90% reduction in markets? Ouch; talk about a major adjustment (though needed).

 

[MN Patriot]

How do 401k's and mutual funds factor into this?

Average folks didn't really get involved into investing until the creation of mutual funds and 401k's in the 1980's. Your average person didn't even think about investing before this, pensions and social security were their retirement accounts.

Now there are many people putting a substantial portion of their income into the markets. Wouldn't this contribute to the markets rising so much in the last 20 years?

...and then... isn't the retirement of the baby boomers supposed to destroy the market? I remember reading many years ago that right about now the markets will start going down because of the people cashing in their retirements, not that this is a factor in the current meltdown.

 

[jclay2]

Fox Mccloud: Are you saying that the dow is overvalued by 900%?

MN Patriot: Just because there is a lot of money ready to be invested in business, does not mean that the market will shoot up. What matters is the fundamentals. If the market never showed the earnings, the investments would have been pulled back out. However, the market did show the earnings and stocks in general took off in the 80's. On the point of the baby boomers crashing the market. That really does not have very much validity to it in that nearly 70% of financial assests is harbored in the top 10% of income earners who arn't really starved for cash and just pass it on to relatives. Also, if those other 30 percent went into a big panick attack and sold their assets for cash to retire, I would jump back in and buy up as much as posssible. I would do this because there would be absolutely no fundamentals in driving the market down in price.

 

[AceNZ]

Another way to look at market prices is in terms of gold. Historically, at the bottom of a bear market, stocks are priced so that one ounce of gold will buy the Dow. It currently takes about 14 ounces. That implies a 93% relative decline from where we are today.

The thing to remember, though, is that's 93% compared to gold (real money), not dollars. The dollar could be inflated more than 14x by that time, making it look as though the market was just flat. So either the market will decline to hit gold's current price, which means a Dow of 894 in today's dollars, or gold will increase to hit the Dow's current price as the money supply inflates -- in which case gold would be $12,000 per ounce or more.

 

[jclay2]

AceNZ: You have sparked my interest. Do you have any more sources than the picture. I feel like the picture you presented could be skewed and would appreciate it if you could post links about historic stock market to gold ounce ratios.

 

[AceNZ]

AceNZ: You have sparked my interest. Do you have any more sources than the picture. I feel like the picture you presented could be skewed and would appreciate it if you could post links about historic stock market to gold ounce ratios.

I know Peter Schiff also talks about the Dow/Gold ratio. It might have been his Jan 9 radio show, available here:

http://www.europac.net/radioshow_archives.asp

EDIT: if you're looking for confirmation that the graph I posted wasn't gimmicked, here are other versions from different sites:

http://home.earthlink.net/~intelligentbear/com-dow-au.htm
http://www.321gold.com/editorials/russell/dow_gold.html

 

[Molly1]

This is what I'm talking about. The market has been massively inflated since the 1980s... something caused that and nothing aside from extra money (fiat money) being poured into the market can account for it. My fear is that a normalized market is going to be around the 500-1000 point level for the Dow... and means that a real market correction isn't going to be a few hundred points, but almost a 90% reduction in market value so about 10,000 points.

If you look at this chart, you can see that somebody has made a lot of money since 1980, and it's the banks and investment houses and those in the know.

There is nothing 'normal' about this chart.

What did they do with their money? My guess is they turned it into real goods, real estate, businesses, media, military equipment, control of other countries, everything you need to control the world.

Final plan? I also see dow 1000 as the baseline. They need us poor and without any rights for this plan to work, and that picture looks to me an awful lot like a head and shoulders top.

 

[jclay2]

Molly1: What is so bad about investing. Are you mad at my grandparents too because they invested in thier money in the market and made a bunch of cash for retirment?

 

[scooter]

It took many years for the stock market to start growing steadily again after the depression. Remember, 50 years isn't that long in the life of a massive economy. Take a look at P/E valuations for the major companies in the DOW and S&P right now and they're not that far out of whack from what they were in the 70s. We just hit a point where our companies got more global and started to grow much faster. It's hurt us in the yields, but does not signify an overbought market.

Go read some Ben Graham books to get some history on stocks and investing.

Also, showing that the DOW has only grown 2% annually when compared to inflation actually shows that it is worth it to be in the market. Anything that beats inflation is good! It's true savings. And don't forget that most people didn't just buy in at one time and hold on for the entire trip. Those that dollar-cost-averaged and added to their holdings in bear markets made significantly better returns than that.