New Highs in Dow Don't Hold Candle to New Highs in Bread

The hoopla over new record highs for the Dow and S&P is just that -- a lot of noise signifying little or nothing. These kinds of highs feed the bubbles of today as they did those in past years. But it isn't a very good idea to do too much celebrating over these new highs. One has to look back and one has to fold in measures of inflation before cheering.

The hoopla over new record highs for the Dow and S&P is just that -- a lot of noise signifying little or nothing.  These kinds of highs feed the bubbles of today as they did those in past years.  But it isn't a very good idea to do too much celebrating over these new highs.  One has to look back and one has to fold in measures of inflation before cheering.  Bread, after inflation, for example has also hit new highs, but you don't hear about that.  The good times are not here just because the market moves up.  And, the new highs are’nt all they are cracked up to be.  The S&P, a far better measure of the Dow, is only a percent or so higher than it was in March 2000.  But the real measure is the price of basic goods and services over time.  We do not celebrate when goods and services reach new highs -- quite the contrary.  David Leonhardt in the New York Times notes that the price of bread has risen almost one third in the last seven years and that it is a serious mistake "when you overlook inflation (because) you can start to think that every investment is a can't miss investment because its value always seems to be going up."  His point is that "the only meaningful way to measure an investment is to strip away the distortions caused by inflation."His article is worth reading. http://www.nytimes.com/2007/07/18/business/18leonhardt.html?_r=1&oref=slogin It would be wise for all of us to hold the celebration over market highs of recent and balance all this with an appreciation of the real impact of inflation on the things we buy and need most.

 

Ari Socolow
Ari Socolow: Ari Socolow is the Chief Economist and Editor-in-Chief at BestCashCow. He is particularly interested in issues relating to financial literacy and bank transparency. Since co-founding this website in 2005, Ari has been frequently cited in the media as an expert on local and national savings accounts, CD products, mortgage and loan products and credit card rewards products.

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Comments

  • Anonymous

    July 19, 2007

    I'm not really sure of your point. The fact is surpassing a previous high is significant psychologically. It means the market is moving forward. Why not celebrate a little? There's enough doom and gloom out there.

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