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You Must Adjust For Inflation

In 1982, the bears said, "Things are bad, almost like the 1930s." That was their major premise and, as we will see, not an unreasonable one. 

Then the same bears said, The Dow was 200 in the 1930s, versus about 800 "today" (1982).

The (incorrect) conclusion was:"The Dow has 600 points down to go." Wrong.

Here it is, re-cast: The minor premise should have been, "Today's 800 Dow is equivalent to the 1930s 200 Dow, ADJUSTED FOR INFLATION." Then the logical (and correct) conclusion would have been, "The Dow has hit bottom, and has nowhere to go but up."

We are big bears. Some people put us in the camp of Robert Prechter of the Elliot Wave, who believes that the Dow will return to 1980s levels of about 1000.

We believe that the U.S. market is a "sine wave," not a growth vehicle, except for one thing; inflation. What passes for growth in the U.S. stock market is really inflation. (The "real" return, or 90%+ of it, has historically come from dividends.)

Hence we believe that the U.S. market will return to "1980" levels--adjusted for inflation. That would put the Dow in the low 3000s.