On October 3, 2006, a momentous event occurred. The Dow Jones Industrial Average (DJIA) that had languished in the doldrums since the market collapse that began over six years ago finally surpassed its previous all-time high of 11,722.98 that it reached on January 14, 2000. With a final surge, amidst cheering at many of the brokerage houses, it closed the day at 11,727.34. From the media reports, nirvana was achieved.

At the risk of being stoned by the financial community, I’d like to put this happening into perspective. The first thing to understand is that the DJIA is an index representing a composite of thirty major public corporations. In an earlier time these were regarded as the fundamental underpinnings of America’s industrial community. Things have changed, and today this index is considered far too narrow to represent the nation’s enterprise. The Standard and Poor’s 500 Index (S&P 500) is of far greater significance, and it has yet to exceed the value it attained in early 2000.

To scrutinize matters even more intently, we must not forget that over the past 6-3/4 years it has taken for the DJIA to return to where it was, the dollar’s purchasing power is noticeably less. Irrespective of the government’s reported core inflation rate, over the past half-century a realistic increase in the cost of living has been about 6-1/2 percent annually. On this basis alone, the DJIA should now be more than 18,000, adjusted for inflation, simply to have gotten back to its previous high.

Consider the following statement that appeared in a prominent financial publication on October 4th: “The rebound restores faith in the durability of blue-chip stocks, delivers an emotional lift to investors and raises hopes that the broader stock market, still 12.7% below its 2000 record, will keep rallying and claw its way to a new high as well . . . it’s a psychological boost we can rally around.” I suggest that you consider the source while not forgetting that it is hyperbole that sells both stocks and newsprint.A concluding thought:
Let me remind you of a fundamental rule of thumb that helps to put the enthusiastic reports of a record DJIA in even greater perspective: The greater the amount of publicity that is bestowed by the media upon a subject, the less actual significance it has.

Let me remind you of a fundamental rule of thumb that helps to put the enthusiastic reports of a record DJIA in even greater perspective: