DOW 36,000 Redux

Doug Henwood dhenwood at
Fri Aug 20 07:48:39 PDT 1999

Michael Pollak wrote:

>I love the way they use an entirely different formula from the first time
>around and somehow finagle it to end up with exactly the same weird
>estimate of 36,000 that just happens to be in the title of the forthcoming
>book that they've been flogging since June.

Their major theoretical claim - that investors have been mispricing the risk of stocks for several centuries - is truly hilarious. (Risk, of course, is defined in the financial analyst's sense of volatility, of deviation from expected returns, and not the colloquial sense of the possiblity of suffering a loss). There's nothing even in recent empirical experience to offer any support for this wacky notion. But if you accept it, then once the Dow hits 36,000 - a one-time adjustment to this new notion that stocks are no riskier than T-bills - after that the stock market should return just what T-bills do - an average real rate of 0.45% since the early 1930s. How boring that would be!


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