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Happy Days Are Here Again?

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new-logo25Dan Martin

PPJ Staff Writer

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“Dow hits record high as markets are undaunted by tepid economic growth, political gridlock” (The Washington Post, March 5, 2013)

This is just an example of the headlines appearing in virtually every newspaper and on every newscast in001-1008100157-economy5 the country.

Feel better now?

Well, I hate to burst your bubble (that’s one of those highly technical economic terms bandied about by the talking heads), but let’s take a closer look at the numbers.

The common thread here is that all of these headlines trumpet a mindset that is pure horse (manure). (Editor’s note: The writer actually used a stronger epithet and, while we do not pretend to be rated G, there is always the outside chance the PPJG will be left lying about where a nine-year-old might find it.)

Anyone who respects the ‘time value of money’, also known as ‘inflation / deflation’, is conditioned to immediately suspect comparisons of dollar amounts between different time frames, and treat them with a huge dollop of skepticism.

THE REAL NUMBERS

The closing numbers for today (March 5, 2013) were $14,253.77 for the Dow and $3,224.13 for the NASDAQ.

The average annual inflation rate from 2000 to 2013 is 2.24%. The rate from 2007 to 2013 is 1.945% (see InflationData.com.)

Adjusted for inflation, the Dow Jones Industrial Average (DJIA) is $1,479.47, or 9.403% short of its all time high of $14,164.53 on October 9, 2007 ($15,733.24 in today’s dollar.)

The NASDAQ is even more woefully behind its March 10, 2000, record close of $5,048.62; ($6,751.24 after adjusting for inflation.) That would be $3,527.11 – short 52.244%.

WHAT DOES IT ALL MEAN!

Inflation is a basic characteristic of our economy. Those who wield some influence over these things strive to maintain the inflation rate between 0.5 and 1.5 percent as measured by the price index for personal consumption expenditures (the PCE price index).

Deflation is considered a problem in a modern economy because of the potential of a deflationary spiral and its association with the Great Depression.

The fact of inflation must be taken into account whenever and for whatever reason we are comparing the cost of things between two different time periods.

Obviously, we have a way to go.

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Dan Martin: procentral@mainstreetcom.com A semi-retired estate planner and tax preparer, determined to help people understand how numbers affect every day of their lives. Comments, questions, or clarifications are welcomed.

Ignore The Roller Coaster

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FWEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEE…

Whoa! Hold everything! Stop the music!

Take a break from frenetic stock trading and hear an alternative diagnosis of the numbers.

Volume

Today’s volume 180,200,207
Average daily volume (3 months) 203,982,552

Fees

A trade of 1000 shares of a stock with a bid of 19.90 and an ask of 20 will incur a typical commission fee of $14.95 at your discount broker and cost 20,014.95 to execute. More

An accountant’s breath of fresh air: REAL numbers

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Let’s take a look at how the economic recovery is coming along.

If you are tired of the blather from the talking heads and the mainstream press, here are the real numbers, adjusted for inflation.

The Dow Jones Industrial Average record all-time high was $11,722.98 on January 14, 2000.

The NASDAQ hit its all-time high point on March 10th, 2000 at $5,132.52.

On March 5th, 2009 (today) the DJIA closed at $6,594.44.

When markets closed today, the NASDAQ was at $1,299.59.

Comparing 2009 apples to 2000 oranges, the Dow is down $5,128.54 (43.748%), and the NASDAQ is off $3,832.93 (74.679%).

(You do not want to know how far off the mark the “recovery” is in 2009 dollars – ‘apples to apples’.)

Oh, okay, these are the numbers adjusted for inflation. The DJIA is off $10,108.35, or 60.519%. The NASDAQ is short $5.969.87, or 82.123%.

If and when the Dow hits the magical $12,000 mark, it will be only about 29% short of the January 14, 2000 mark.

My confidence in the various “stimulus” packages would improve if they would report the actual numbers, adjusted for the time value of money.

A Look At The Real Numbers

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A critical element that has been roundly ignored in all the rhetoric of the past two weeks is an appreciation for the Time Value Of Money.

 

Our present and would-be political leaders, the news media, and most of the rest of us share this void in our understanding.

 

Some are not aware and have only their pathetic educations to blame:

 

“The fundamentals of our economy are sound.”  They’re not!

 

Others are fully aware, and keep this knowledge to themselves, using it to their own advantage:

 

“The markets will recover in three to four years.”  Not likely!

 

What we are talking about here is familiar to any adult.  The older you are, the more examples you can cite from your own experience.  Here are two of mine.

 

In the spring of 1973, groceries for my family of six, including four children from age 9 to 3, came from three sources.  Milk was delivered twice a week (remember the good old days), meat was purchased monthly from a Mom and Pop butcher shop, and the rest were bought, also monthly, at a large, no-frills, grocery outlet.  $55 was spent every month at the grocery outlet.  A babysitter was hired, because if we took the children along there was not enough room in our full sized sedan for all the groceries.  In today’s dollars, that $55 would be $282.07.

 

The year I was born, my Father, who’d spent his teen years bartering his way through the Great Depression, landed one of the best jobs available at the time:  an appointment at the Post Office.  His rate of pay was 65 cents per hour.  In today’s dollars, that would be $10.42 per hour.

 

Think about that the next time you read that the Model T Ford sold for a paltry $300, ($5,045).  The men on the assembly line were paid an annual salary of around $1,485, ($24,971).

 

Back to the future.  Yesterday, the Dow Jones indicator closed at 8,579.19.  The high water mark for this indicator was reached on January 14, 2000, at 11,722.98.  That would be 14,928.57 in today’s numbers.  That is 42.532% short of the all-time high.  That is 6,349.38 points that would need to be restored TODAY to achieve the same level as January of 2000.

 

Those are the REAL numbers.

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