Eliades-
We spend a good part of today's newsletter discussing a chart that was sent
out by Ned Davis Research concerning the relationship between the Dow Jones
Industrial Average and the discount rate. The results of the chart are
eye-popping, and we have
reconstructed it for you in today's newsletter. We were not aware of it,
and we are sure the great majority of investors are also unaware of the
importance of a 6% discount rate over the past 75 to 80 years. There have
been only six occasions over
the past 75 to 80 years when the discount rate made an initial rise to 6%
or higher. The dates of those occasions are 1) January 23rd, 1920, 2)
August 9th, 1929, 3) April 3rd, 1969, 4) May 11th, 1973, 5) October 26th,
1977, and 6) September 4th,
1987. Most of you are well enough acquainted with market history that you
should appreciate the importance of those dates. For those of you who are
not, the front page chart in today's newsletter will make it clear how
great a market killer a 6%
discount rate has been. We must admit we had no idea how significant the 6
% level has been for the discount rate in relation to the stock market. We
should also emphasize, however, that the initial move to a 6% level on the
discount rate tells us
very little about the market's short-term prospects, so we cannot rely on
the 6% level as a signal that the market must decline immediately or
dramatically. |
