DOW 200k!!!

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Today, as the DJIA topped $26k, rising $1k in a single week, let’s talk about growth.

A naive way to analyze growth is to consider what happens if you see the same growth week after week. For Trump’s first term, there are roughly 150 weeks remaining, which would represent $150k in growth for the Dow in this simple model. That would be roughly $176k.

But more accurately, we should consider exponential growth. In one week, the Dow rose $1k/$25k, which is 1/25 of its value. We can calculate the rate of growth per week using the simple formula ln(26/25) = r, giving a rate that would lead to $9,332k after 150 weeks. That’s $9,332,000 for the DOW!!!

Since last week’s growth was, quite frankly, ridiculous, I think averaging the growth over his first term is more appropriate. From his election on November 8th, 2018 it was 18,589 and today it is 26,000, 434 days have passed. So the annual rate of growth is ln(26000/18589)*365/434 = 28%, which would give us $60k in 3 more years.

A good estimation of the doubling time is to take 70 and divide by the rate of growth in percent. 70/28 is about 2.5, which means with 28% annual growth, we will double ever 2.5 years. So we should hit $50k sometime in 2020, $100k in 2022, and $200k around 2024 or 2025. This isn’t exact, but since growth isn’t always constant, it gives you good estimates. The neat thing is that if we continue with Trump policies after Trump leaves office 7 years from now, we’ll see $400k in 2027, $800k in 2029, $1,600k in 2031, etc…

This kind of growth is frankly, unrealistic and unprecedented. Yet here we are! Why is the stock market growing so quickly? Is it just a bubble?

I think one of the reasons why we see such rapid growth is simply because people are buying stock. They are selling whatever assets they had, and purchasing stock instead. A lot of companies were sitting on mountains of cash, unwilling to invest it in the stock market during the Obama years. Now that the economy shows signs of recovery, they are moving their assets from cash to stocks. This is true for American companies, but it is also true for foreign companies and maybe even governments.

China recently announced that they are no longer going to buy US government bonds. Why? Because they have a better place to put their money. The US government may have to raise bond rates to compete with the attractive stock market because of this. (Or they can just stop borrowing so much money by cutting spending.)

This answers only part of the question, and it points to the root: Why are people so interested in gambling their life savings on the US stock market? Because deregulation, lowering taxes, and encouraging businesses to grow and people to get rich creates wealth. All those “greedy” things that evil capitalists do make it possible for Grandma Mabel to live her later years on her husband’s investment portfolio.

As a postlude, consider this: The larger the economy grows, the more money we need to keep it running. Since people use the US dollar, that means we need to print more. Right now, the banks get to choose how many new dollars to print, and they own every dollar printed. If our economy is doubling every 2.5 years, then they get to print themselves our entire economic growth, which is frankly ridiculous. If anything, that money belongs to the people. Let Congress decide how much to print (their constituents will tell them if money is scarce (deflation, which is very bad), or plentiful (inflation, which is not quite as bad but still bad) and they can print more or less, which they can then use to fund the government. If we’re growing at 28% annually, that means we should be able to print trillions and trillions, funding government completely, and not have to raise a dime in taxes.

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