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Reality Check: The Dow Jones Industrial Average Vs. Bananas

Tyler Durden's picture




 

Submitted by Simon Black of Sovereign Man blog,

The Dow Jones Industrial Average, one of the key benchmarks of the US stock market, has soundly surpassed its all-time high. And most of the investing world is toasting their collective success and celebrating the recovery.

It’s a funny thing, really. Most investors only think in terms of ‘nominal’ numbers, i.e. Dow 14,000+ is 40% higher than Dow 10,000 (back in November 2009). But few think in terms of ‘real’ numbers… inflation-adjusted averages.

Everyone knows that inflation exists. We can all look back on prices from the past and realize instantly how much more expensive things have become. Conversely, though, most people don’t think about the stock market like this.

The reality is, though, that when you adjust for inflation, the Dow is well below its highs from over a decade ago.

I thought I’d put this into a bit of perspective.

Take beef, for example. Based on USDA retail price data, today the Dow will buy you 3,332 pounds of beef in the supermarket. This sounds like a lot. But it’s actually about 20% less than the 4,046 pounds of beef the Dow would buy back in December 1999.

beef vs dow Reality Check: The Dow Jones Industrial Average vs. Bananas

And if beef’s not your thing, let’s look at fruit. Based on the wholesale price of bananas, the Dow currently buys you a whopping 15.35 tons of the tropical fruit.

bananas vs dow Reality Check: The Dow Jones Industrial Average vs. Bananas

But this is exactly the same amount of bananas the Dow would buy back in February 2008, when the Dow was just 12,266. And it’s a massive 60% drop from June 1999 when the Dow bought 38.51 tons of bananas.

Gasoline is an even more interesting example. Today, the Dow will buy roughly 3,812 gallons of unleaded, non-premium gasoline in the United States. This is almost exactly the same as last January, just fifteen months ago, when the Dow was only 12,633.

gasoline vs dow Reality Check: The Dow Jones Industrial Average vs. Bananas

But to match its high of 10,718 gallons set in March 1999, the Dow would need to almost triple from where it’s at today.

Look, there’s nothing wrong with investing in great companies. But it’s important to recognize that the ‘buy and hold’ strategy espoused by the vast majority of financial advisors has been a serial loser for the last 10-15 years.

Given that you can’t eat or fuel up your car with stock certificates, it’s important to remember that we all live in an inflation-adjusted world. And that there are serious, serious consequences to out of control money printing by central banks.

Anyone who doesn’t understand this system need only refer to the rules of the popular board game ‘Monopoly’:

“The Bank never goes broke. If the Bank runs out of money, the Banker may issue as much as needed by writing on any ordinary paper.”

Have a great weekend.

 

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Fri, 03/08/2013 - 16:39 | 3313173 diogeneslaertius
diogeneslaertius's picture

indeed *smokes pipe*

Fri, 03/08/2013 - 16:53 | 3313193 TruthInSunshine
TruthInSunshine's picture

Do a gallon of gas vs the Dow as of July 4th 1999, bitchez.

DJIA was approx 2000 points lower than now (but MUCH higher in real terms) while gasoline was $1.04 a gallon.

The Dow would have to be at 45,000 (in other words, higher than even James Glassman's DOW 35,000 target) to HAVE KEPT PACE WITH GASOLINE PRICES (which doesn't even include the TRILLIONS in "investments" vaporized from the hands of "investors" along the way, plus survivorship bias casualties stacked on top for extra salt in the open wounds).

Print, Bernank, Print!

Fri, 03/08/2013 - 17:17 | 3313268 hedgeless_horseman
hedgeless_horseman's picture

 

 

http://pricedingold.com/dow-jones-industrials/

 

Great news, Simon!  The web address www.pricedinbananas.com is still available!  I was suprised Bernanke doesn't already own it.

Fri, 03/08/2013 - 17:24 | 3313320 Jason T
Jason T's picture

Horseman's my man!  keeps it real.  eats his food by the sweat of his brow.

Fri, 03/08/2013 - 19:07 | 3313633 icanhasbailout
icanhasbailout's picture

Speaking about horses, we should really weight the beef vs. DJI chart based on the amount of actual real beef in each ton of labeled beef.

 

Also the energy content of a gallon of gas has gone down, since a gallon of gas isn't a gallon of gas anymore, but gas and corn gas substitute - so that's not apples-to-apples either.

Fri, 03/08/2013 - 19:22 | 3313671 Supernova Born
Supernova Born's picture

Nothing reflects the whole of the economic situation as comprehensively as does the price and availability of ammo.

Sat, 03/09/2013 - 05:33 | 3314437 Boris Alatovkrap
Boris Alatovkrap's picture

Ammo, horses, bananas... Boris is prefer to gauge market by comparison for price of vodka.

Sat, 03/09/2013 - 14:04 | 3315066 mkhs
mkhs's picture

And the amount of ethylene glycol in vodka means?

Sat, 03/09/2013 - 17:54 | 3315669 TruthInSunshine
TruthInSunshine's picture

BLS hedonic quality adjustment in the CPI- e.g. Sterno may not yet be the equivalent of Findlandia Vodka, but we'll get there, oh yes we will.

  If hamburger is too expensive, a horsemeat Ikea meatball is less expensive, and fan equivalent food for purposes of tabulating BLS "inflation."

New Inflation Gauge Would Cut Benefits, Hike Taxes : NPR

The inflation measure under consideration is called the Chained Consumer Price Index. On average, the measure shows a lower level of inflation than the more widely used Consumer Price Index.

 

The chained CPI assumes that as prices rise, consumers turn to lower-cost alternatives, reducing the amount of inflation they experience. For example, if the price of beef increases while the price of pork does not, people will buy more pork.

I have a better idea: If you're cold, just sleep outside in the snow, and you'll fall into a warm lull harkening death. That'll cut expenses. Substitute that. If you're hungry, instead of buying and eating food, don't. You'll really save some money that way. Screw medical coverage/treatment and driving. You don't really need to see the doctor & you can walk to wherever your going - cha-ching, money in the bank.

Sat, 03/09/2013 - 05:33 | 3314438 Go Tribe
Go Tribe's picture

I want to see the Dow priced in escolar chart.

Sat, 03/09/2013 - 00:34 | 3314243 Hohum
Hohum's picture

TiS,

Well, the net energy from oil extraction has dropped a lot since 1999.  Or so 9 million dollar wells in the Bakken suggest.

Fri, 03/08/2013 - 16:49 | 3313195 francis_sawyer
francis_sawyer's picture

If you get desperate Simon ~ you can make yourself some 'bananadine' paste & pretend you're high...

Fri, 03/08/2013 - 16:41 | 3313177 DoChenRollingBearing
DoChenRollingBearing's picture

I just had a banana right before lunch (hey I was hungry, OK?)  Bananas are CHEAP here in Peru.

Fri, 03/08/2013 - 16:46 | 3313192 ParkAveFlasher
ParkAveFlasher's picture

Ecuadorian bananas = the best.  Cacao too, for that matter.  And girlfriends.

Want I want to know, though, from Simon Black, is the Dow priced in llama jaws. 

Fri, 03/08/2013 - 17:00 | 3313248 DoChenRollingBearing
DoChenRollingBearing's picture

I have not been to Ecuador, so I will accept what you write as true re bananas and cacao.  They tell me it is pretty and tranquil (like our just completed visit to Cajamarca, near the Ecuadoran border), except for port city Guayaquil.

My Peruvian wife and I might disagree with you about Ecuadoran women...

Fri, 03/08/2013 - 16:42 | 3313183 soopy
soopy's picture

Quite.

Fri, 03/08/2013 - 16:44 | 3313189 fonzannoon
fonzannoon's picture

first off Simon reads ZH and ripped off a poster's monopoly comment the other day. secondly this all seems bullish for stocks.

Fri, 03/08/2013 - 16:53 | 3313215 saints51
saints51's picture

He sure did. Was about to post the same thing until you pointed him out ripping off another one of our posters. I will say the comment our ZH fellow member posted was fucking awesome.

Fri, 03/08/2013 - 16:59 | 3313232 ParkAveFlasher
ParkAveFlasher's picture

Pladizow's MONOPOLY comment went all over the hard money circuit ... saw it on JS Mineset and Jesse's Cafe.

Simon Black is a fiction - a ruse, a canard, a prevarication, a lie, Mr Hobbes.(sic) (sp.)

 

Fri, 03/08/2013 - 17:01 | 3313255 saints51
saints51's picture

Damn, seems a lot of journalist love them some ZH and the members.

Fri, 03/08/2013 - 17:24 | 3313321 Boozer
Boozer's picture

Not much escapes unnoticed around here.  Some very sharp minds loiter on ZH.

Fri, 03/08/2013 - 17:22 | 3313318 McMolotov
McMolotov's picture

Simon Black, International Man of Mystery.

Is it true that Chuck Norris nervously checks under his bed each night to make sure Simon Black isn't under there waiting to get him?

Fri, 03/08/2013 - 17:40 | 3313362 zanez
zanez's picture

Chuck Norris sucks dick for cab fare, then walks home.

Fri, 03/08/2013 - 17:56 | 3313414 ParkAveFlasher
ParkAveFlasher's picture

No.  But it is true that Chuck Norris stores his gold with Chuck Norris.  Nobody will ever touch it.

Sat, 03/09/2013 - 03:04 | 3314358 John_Coltrane
John_Coltrane's picture

Firstly, we all know plagerism is the sincerest form of flattery.  And secondly, even with the borrowed comment this post is quite excellent for Simon and an interesting alternative from what we all know about the dow prices in gold or silver.  The dow average is FAKE, FAKE, FAKE.  But like the BLS fake employment stats, the MSM keeps pushing this "story". 

Fri, 03/08/2013 - 16:46 | 3313196 mdtrader
mdtrader's picture

Nothing can stop the markets now. Not even non POMO days. 

Fri, 03/08/2013 - 16:46 | 3313198 SheepleLOVEched...
SheepleLOVEcheddarbaybiscuits's picture

I would like to see a historical chart of how much ammo dow will buy

Fri, 03/08/2013 - 16:47 | 3313201 secret_sam
secret_sam's picture

    But it’s important to recognize that the ‘buy and hold’ strategy espoused by the vast majority of financial advisors has been a serial loser for the last 10-15 years.

The more intelligent "retail" investor has had this realization.  That's why there's so much "money on the sidelines."  Heh.

The only folks who still really talk about the "conservative estimate of a 5% return" are the financial pitchmen, the elderly, and the idiots.  Most of the idiots appear to work in the mainstream media.

Fri, 03/08/2013 - 16:48 | 3313203 Yen Cross
Yen Cross's picture

     What's for dinner honey?/ Fryed bananas.

     What's for lunch honey?/sliced bananas.

     What's for breakfast honey?/banana pudding. 

     Honey, have you seen the dog?

 

Sat, 03/09/2013 - 14:11 | 3315082 mkhs
mkhs's picture

Yesterday's dinner?

Fri, 03/08/2013 - 16:50 | 3313206 Smuckers
Smuckers's picture

In order to get this through to the banksters...you need to price the DOW in hookers and cocaine.

Sat, 03/09/2013 - 09:50 | 3314643 newdoobie
newdoobie's picture

$300 for a $20 trick? That’s a 1500% price hike? Makes arena beer prices look downright reasonable by comparison.

www.cosbysweaters.com/2012/06/13/nba-finals-driving-hooker-inflation-in-...

Fri, 03/08/2013 - 16:52 | 3313212 adr
adr's picture

Even in an inflation adjusted world consumers still set prices. Since nobody would buy beef at the Wall Street inflated prices my local supermarket had to unload a ton of it this week. No pink slime double irradiated bullshit in a tube either. Fresh ground and cut right in front of you. Ground beef $1.99lb, Strip Steaks $5lb, whole tenderloin $8lb, English roast $1.29lb, Brisket $2.99lb.

They even had king crab for $8lb.

The thing with food is that it goes bad. Better to get zero profit instead of eating the loss.

Fri, 03/08/2013 - 16:57 | 3313238 ekm
ekm's picture

Yes, to unload the inventory.

But if they're not making any money, they won't be able to remain in business.

 

You see, there is deflation when prices drop 10%, but there is 100% deflation when the company closes down.

Fri, 03/08/2013 - 17:28 | 3313331 MeelionDollerBogus
MeelionDollerBogus's picture

Only works once. Then if prices stay up, inventory is LOWER on the next buy & prices stay up for consuming eaters. Keep repeating this no-buy mantra & soon there's a no-store mantra.

Fri, 03/08/2013 - 22:59 | 3314087 spinone
spinone's picture

The prices will go down until you can't find it anymore.  Just means they are liquidating the herds because the cost of feed is too high because of the drought.

http://www.therepublic.com/view/story/0a45ddbae54147ecbfca25b3e59409a9/KS--Livestock-Slaughter

 

Sat, 03/09/2013 - 00:48 | 3314262 BooMushroom
BooMushroom's picture

Eventually reverting back to grass-fed beef, and farmland used for human-edible food. So it's not all bad.

Or it all goes to ethanol anyway. Who knows?

Fri, 03/08/2013 - 16:52 | 3313213 Freewheelin Franklin
Freewheelin Franklin's picture

Well, the US is a Banana Republic. 

Sat, 03/09/2013 - 14:19 | 3315108 mkhs
mkhs's picture

And what is wrong with that, other than the fraud, corruption, lies, cheats, psychopatic dictator warlords, etc.?

Fri, 03/08/2013 - 16:54 | 3313219 A Lunatic
A Lunatic's picture

This illustrates the need to store all of your charts in some exotic foreign location........

Fri, 03/08/2013 - 16:55 | 3313223 saints51
saints51's picture

Almost closing time. Its time to pump this mother fucker up and hammer PM's. Thats ok, Gives us more time to stack at a discount.

Fri, 03/08/2013 - 16:59 | 3313246 Yen Cross
Yen Cross's picture

yep

Fri, 03/08/2013 - 17:12 | 3313286 saints51
saints51's picture

YenC, think we get one more real good buying oppurtunity. If 28.15 to 27.85 fails on silver can see it heading a lot lower do to some compression. Thats why I am thinking one more real good chance at a discount. It keeps going down will keep buying. Now I need to search around to find some good deals to load my boat before the fishing trip.

Fri, 03/08/2013 - 17:20 | 3313306 Yen Cross
Yen Cross's picture

 I think you are a smart man ;-)  I'm working on the Z/H forum thing. I'll let you guys know when I finish up some other distractions.

Fri, 03/08/2013 - 16:55 | 3313229 Cheeseus Sonofdog
Cheeseus Sonofdog's picture

Doritos were $1.69 for a 15oz bag in 2000. Today you pay $4.39 for a 10oz bag. 

Fri, 03/08/2013 - 17:16 | 3313294 ParkAveFlasher
ParkAveFlasher's picture

And, back then, no feces.

Fri, 03/08/2013 - 17:17 | 3313298 Aegelis
Aegelis's picture

Us americans put our chips 'all-in' for junk food.

Fri, 03/08/2013 - 19:14 | 3313652 e-recep
e-recep's picture

that means one thing : their revenues will plummet like a rock. the consumer is extremely sensitive to price hikes.

Fri, 03/08/2013 - 16:57 | 3313233 DaveyJones
DaveyJones's picture

Dow Jones vs The Bandidos

I grow tired of this criminal shit

Fri, 03/08/2013 - 16:57 | 3313237 WhiteNight123129
WhiteNight123129's picture

Short Treasuries BITCHEZ!!!

 

Fri, 03/08/2013 - 16:58 | 3313243 Vuke
Vuke's picture

Monopoly is a great game. Unfortunately, it always ends shortly after midnight when someone gets control of the board.

 

 

Fri, 03/08/2013 - 17:01 | 3313253 Yen Cross
Yen Cross's picture

 Or an orgy breaks out.

Fri, 03/08/2013 - 17:02 | 3313259 Vuke
Vuke's picture

Usually, in my case, it's a revolt.

 

Fri, 03/08/2013 - 18:11 | 3313488 DaveyJones
DaveyJones's picture

but in Monopoly, every player has equal odds to the get out of jail free card   

Fri, 03/08/2013 - 17:01 | 3313251 hannah
hannah's picture

jack welch(yesterday on CBNC) said that 'the fed is pumping the market' but so what , it is a party so lets all relax and enjoy it....kinda like theold rape joke...! so the fed is printing money with no exit strategy and we are all going to die but fuck all lets enjoy the ride...!

Fri, 03/08/2013 - 17:02 | 3313258 wagthetails
wagthetails's picture

priceless article.  excellent.

Fri, 03/08/2013 - 17:07 | 3313269 WhiteNight123129
WhiteNight123129's picture

It is not criminal,

Every time money is printing it goes in the following assets and in teh following order.

1. Interest rates go down

2. Land price goes up

3. All interest bearing securities.

and finally

4. Commodities.

Why commodities last? Because it takes time for the money to circulate out of financial assets and go into the real economy. Today it is going in the real economy. When it goes too much in the real economy the fed has to stop pumping. The Equities are just the hose to flower the pot (the real economy), when you have enough liquid going in teh pot, the Fed has to stop printing money, the hose (Equities) flattens out while the economy is expanding not because of credit but because of money. That is something which can turn quite inflationary unless we have a wall of interest rates and a GO-STOP_OG has Soros mentioned in his last Davos interview (at 11 minutes).

 

Fri, 03/08/2013 - 17:08 | 3313273 Edward Fiatski
Edward Fiatski's picture

But... but... Bananas don't grow on trees, no?

Fri, 03/08/2013 - 17:13 | 3313283 Yen Cross
Yen Cross's picture

 The $ has a 5% premium over October of 2007, and has half the purchasing power.  Welcome to Printfest Infinity. Leave anything tangible with the checkin clerk. (it will text your item number) beep beep- beeep-- beep<

Fri, 03/08/2013 - 17:14 | 3313290 Aegelis
Aegelis's picture

Uncanny how appropriate this is:

"There's a fruit store on our street
It's run by a Greek
And he keeps good things to eat but you should hear him speak!
When you ask him anything, he never answers "no"
He just "yes"es you to death, and as he takes your dough He tells you
"Yes, we have no bananas
We have-a no bananas today"


http://www.elyrics.net/read/l/louis-prima-lyrics/yes,-we-have-no-bananas...

Fri, 03/08/2013 - 17:18 | 3313302 Haager
Haager's picture

Compare the Dow with the economy now and then, the quality of living, social live. Then we may start talking about 'valuable'.

Fri, 03/08/2013 - 17:20 | 3313314 eddiebe
eddiebe's picture

kinda hard to buy and hold bananas or gasoline though.. Or dollars for that matter.

Fri, 03/08/2013 - 17:23 | 3313316 debtor of last ...
debtor of last resort's picture

In the end, we all will stumble over the peel.

Fri, 03/08/2013 - 17:33 | 3313343 UnRealized Reality
UnRealized Reality's picture

Soooooooo, invest in nothing so you don't get fooled with nominal. GEEZ, DUH, you have to be kidding me.

Dow in 1985 was 1,000, a 1350% increase after 27 years, a 50% annual return.I'm pretty sure that beat inflation, again, GEEZ.

Man, what a bunch of clueless. No wonder Gold is taking it on the chin with misinformation flying like this.

What's the average age at ZH, including staff, 24. WOW, with all that market experience you guys will be rich any day now.

 

 

Fri, 03/08/2013 - 18:12 | 3313491 mind_imminst
mind_imminst's picture

That sounds good on the surface UnrealizedReality, but "buy and hold" from 1985 would not work out in reality. If you had bought all 30 DOW stocks in 1985 and held them until today, you would not have a gain of 1,350%, you might even have a NOMINAL loss (ignoring inflation). Kodak anyone? Bethlehem Steel? Inco? Woolworth? GM (big lol).

In essence, if you consistently picked the DOW winners year after year and dropped the DOW losers (some real huge losses and bankruptcies since 1985), then yes, you would have a 1,350% gain. And therein is the fallacy of the DOW and why it is difficult to compare different years and decades.

Fri, 03/08/2013 - 19:18 | 3313662 akak
akak's picture

BINGO!

But I suspect that you would never be invited as a guest on CNBC with that realistic, if unwelcome (to all the stock pimps) message.

There is NO such thing as the DOW --- there are only serial, manipulated, cherry-picked DOWs.  The DOW is NOT representative of long-term-held stocks as a whole, not by a long shot.

 

Fri, 03/08/2013 - 18:34 | 3313547 Jean Valjean
Jean Valjean's picture

Um, 1.5 raised to the 27th is 56815.

The dow would have to be 56,815,000.

GEEZ, DUH

Fri, 03/08/2013 - 22:30 | 3314017 socalbeach
socalbeach's picture

Graph of gold divided by the Dow.  Anytime the gold line is below the horizontal black line (current value of ratio on a log scale), you would have been better off buying gold vs the Dow.  If the Dow price doesn't includes dividends like Stockcharts, the graph understates the value of holding the Dow. 

1985 was one of the times you would have been better off buying the Dow, but from 1991 to the present (except last couple years) you would have been better off holding gold.

http://research.stlouisfed.org/fredgraph.png?g=gne

Fri, 03/08/2013 - 17:37 | 3313354 CuriousPasserby
CuriousPasserby's picture

And you don't even get the damn certificates any more....

Fri, 03/08/2013 - 17:51 | 3313409 WTF_247
WTF_247's picture

Inflation boosts earnings of almost all companies.

There is a reason why the Fed targets 2-3% inflation rather than stable prices (which means unchanged):

Raise prices each and every year and sales "miraculously" rise as well.  Earnings are 3-5% higher each and every year with the business treading water.  Just keeping the same amount of transactions as the prior year guarantees higher earnings for the most part.

Take away this automatic improvement and the stock market looks much uglier.  The game can only keep going as long as wages follow inflation.  Any prolonged period of time where they do not and eventually the game falls apart as sales start to drop because people do not have money to buy as much. Of course this can be partially hedged with an increasing population and workforce.

 

 

Fri, 03/08/2013 - 17:56 | 3313428 secret_sam
secret_sam's picture

     Raise prices each and every year and sales "miraculously" rise as well.

That formula worked for a long time, but now that the consumer is tapped out, the fact that wages have been declining since 1970 starts to cause a bit of a problem.

Sales can only rise when your target market can find a way to pay the rising price. 

Retail had a good run, but I guess it's over.  Same for clothes, "premium brand" anything, and most entertainment products.

Fri, 03/08/2013 - 18:57 | 3313605 Freewheelin Franklin
Freewheelin Franklin's picture

yes we have no bananas.

 

https://www.youtube.com/watch?v=jT6JkceQ9FU

 

 

Fri, 03/08/2013 - 19:21 | 3313666 akak
akak's picture

 

it’s important to remember that we all live in an inflation-adjusted world.

But, but, according to one ZH piglike creature, adjusting prices for inflation proves that there is no inflation!  Right?

 

Fri, 03/08/2013 - 19:45 | 3313718 Morphine Drip
Morphine Drip's picture

But you face 10 years of anal rape for printing 1 c-note on your own. Pretty much the equivalent of getting 10 years for pissing in the ocean.

 

Fri, 03/08/2013 - 19:45 | 3313719 hooligan2009
hooligan2009's picture

so if the dow hasn't kept pace with basic goods..it must be bullish for dow stocks right?

ya ya ..i know...heh

Fri, 03/08/2013 - 21:26 | 3313931 hairball48
hairball48's picture

Its's more fun to go here: http://www.gti.net/mocolib1/prices/allyrs.html and price this shit in terms of gold over the last 100 years.

I like to find items which haven't changed much, if at all , in some cases. Plot the nominal price in dollars of the item against the item's price in gold. (I used an average price for gold for the year in question.)

 

Fri, 03/08/2013 - 22:15 | 3314009 egoist
egoist's picture
Fri, 03/08/2013 - 22:32 | 3314036 Bansters-in-my-...
Bansters-in-my- feces's picture

"Everyone knows that inflation exists."

 

 Na uh......NOT Orly...... She says der ain't no inflation.

 Silly bunny.

Sat, 03/09/2013 - 14:42 | 3315200 mkhs
mkhs's picture

Have you seen this:

http://www.youtube.com/watch?v=FDoW8sJ7HMI&feature=pl%C2%ADayer_embedded

They say these get removed quick, so don't delay.

Sat, 03/09/2013 - 00:55 | 3314271 syntaxterror
syntaxterror's picture

Those charts are all bullshit because our best in the world government says inflation is 1%.

Sat, 03/09/2013 - 02:26 | 3314339 Mike Cowan
Mike Cowan's picture

This article is why I read Zero Hedge. Burn in hell Fed. 

Do NOT follow this link or you will be banned from the site!