• Home
    Home This is where you can find all the blog posts throughout the site.
  • Categories
    Categories Displays a list of categories from this blog.
  • Tags
    Tags Displays a list of tags that have been used in the blog.
  • Bloggers
    Bloggers Search for your favorite blogger from this site.
  • Team Blogs
    Team Blogs Find your favorite team blogs here.
  • Login
    Login Login form

Dow 22,000, gold $2000, and why it won't mean anything

Posted by on in Uncategorized
  • Font size: Larger Smaller
  • Hits: 3130
  • Subscribe to this entry
  • Print

The infallible Big Mac Index (BMI) tells us that inflation has been cruising along at around 5.4% since 2002. Furthermore, I swear the price of a double cheeseburger is relevant to the latest chapter of my perpetual pooh-poohing of the stock market.

Anyhow, I've been seeing lots of headlines breathlessly awaiting the Dow Jones Industrials' next all-time numerical high, as if the new record would usher in a new era of prosperity, leaving our troubles behind. Here's the problem:

The Dow hit 11723 in January of 2000, which in terms of Big Macs is equivalent to 19,616 today. That makes our current high of 15409 look pretty bad. It's a 22 percent loss in value over 13 years.


I'll make an extremely optimistic assumption, and say that things will continue to putter along the way they are before I drop this bomb:

By 2020, assuming no gains whatsoever, we'll be seeing the Dow at 22,000 and the price of gold busting $2000. All it takes is 5.4% inflation and the total stagnation of equities. We'll also be seeing $5.00 gasoline.

Newcomers, you might be wondering, "why is this guy stuck on Big Macs?"


Full disclosure, I hate Big Macs, but you and I both have to admit the Big Mac is an aggressively priced basket of many, varied goods like labor, electricity, transportation, food, fertilizer and chemicals, fuel, management and advertisement. It represents a typical expense profile (unlike something like software that requires a preponderance of skilled labor and very little material), and it is efficiently produced at low margins. If you can find a more representative collection of expenses that are produced year after year, please let me know and I'll name the new index after you.

For now, I'm sticking by the BMI!



Richard is an engineer by day, and a political activist by night, fighting would-be totalitarians and government busybodies everywhere.