Doing the Market Limbo
Looking at the Dow Jones index over the last few decades, I am musing on how low the Dow might go. It’s down to 1997 levels, but by 1997, the market was already buoyed by the Netscape IPO and the beginnings of the Internet bubble. Derivatives got started in the 1980s. The Dow peaked at just under 2700 in July of 1987, a level it did not see again until January 1990. It then climbed to about 3800 by July of 1994, then really took off, hitting 8800 in January of 1998. We all know what it’s done since then.
My question, which is purely speculative, since I’m not an economist, is why any of the value reflected since 1990 was derived from anything but speculation? What is the cut-off point in the value of the Dow that shows where the line into fantasy was crossed?
Good question and one I was discussing at work today. My coworker wondered if it has to reset lower–adjust for the false value, then adjust for destruction of companies that were fine in 198X. Whenever coworkers scoff, I point out that Nasdaq had only recovered to half its high before this bear market.