Saturday, 17 October 2009

Dow hits 10,000 - is that good?

The recent rise is the Dow may look to some like signs that this crisis is coming to an end and that "green shoots" are growing everywhere. But first of all it should be pointed out that the rise in the Dow over the past year has been matched by an almost equal drop in the value of the dollar (as measured against a basket of other currencies - the "dollar index").

Dow 1 year ago: 8852
Dow today: 9995
Change: 12.9% (lets open the champagne!)

Dollar index 1 year ago: 82.4
Dollar index today: 75.5
Change: -8.4% (oops!)

Dow as priced in foreign currencies 1 year ago: 729,400
Dow as priced in foreign currencies today: 754,600
Change: 3.4% (better put that champagne away...)

Personally I suspect that even this modest 3.4% real rise in the Dow, owes more to irrational/rational exuberance than anything else.

No comments:

Post a Comment