Inflation adjusted Dow – what is it telling us?

Sun, Aug 18, 2013 - 7:51am

The 34 year long term bond cycle resists government attempts to manipulate it, because it is the government interference cycle!

The Dow, the index which is around for so long that we consider it almost irrelevant nowadays. We look towards the wider based averages to pull in a greater number of stocks, in the hope that a 2000 stock average will be more relevant and less manipulated due to the greater number of issues that comprise it.

But do not write the DJIA off so fast. This venerable old lady of averages has a value that is actually enhanced by its age. The DJIA in its former glory as the Dow Jones 30 has been through the mill so to speak, it has seen world wars, and booms, and busts, and depressions. It shows us how the economy reacts under presidents who sat for a second or even third term, and I firmly believe that these individuals do things differently than one term presidents, especially later in their careers.

So to get started with the graphics let us have a quick look:

Yes! That’s the one we all know so well. The 1929 crash is visible over there on the left, then after it the depression trading range, with 2 world wars, and then the meteoric rise up into the 1960s then the 1970s recession with the oil booms, and the gold crash and rise, and after stagflation it rose again through the 1990s to the top in 2000, and we are crawling through life within the depression towards the right hand side.

OK, now that is firmly refreshed in your mind, please take a look at this chart of the Dow over at Macrotrends:

It's a great chart and thanks to Macrotrends for making it interactive and publicly available so that I can link to it.

This has a different look to it. The 2000s high is there, and the 1929 high is there, but there is another high in the middle, at 1966. This is the inflation adjusted Dow, which is the DJIA divided by the CPI index for each date. We can now see the growth of the 1960s in all its glory, when the baby boomers were born amid plenty, or relatively good amounts of it compared to other periods in the 20th century.

The inflation adjusted Dow is very interesting because it has a similar cyclical structure as eg bond yields. Bonds also have an approximate 30 year cycle you see. So if we look at the inflation adjusted Dow, it becomes relatively simple to look back and find a period that from the point of view of interest rates and their direction of trend, is similar to today.

So now that you have seen that chart I will move your attention back to the unadjusted or nominal Dow, but I will place a cycle on my chart to reflect the bond market and interest rate scene upon the unadjusted DJIA. We see that this is the inflation adjusted Dow to a large degree. Here it is:

I appreciate that on this chart you can hardly see the highs and lows in the 1930s and 1960s, but that cycle reflects them reasonably well for the purposes of this discussion article. It also happens to reflect the underlying momentum of the annual Dow figures, so an RSI of eg a monthly chart should have a momentum high in the 1965 area too if anyone wants to try it.

We need to zoom in a little on the last decade maybe to see more.

There is the last wave with the 30+ year cycle added. it is set with it's high more in accordance with the stocks than the bonds, so on a bond chart the high might be earlier or later, but it's about the same length.

Now at this stage I’d like to draw something about the actual turning form or shape to your attention:

The new highs which the Dow has made, since 2000, are not present in the inflation adjusted Dow. Long term holders of DJIA component stocks during the past 13 years have made no capital appreciation, except for dividend income received.

We also are aware of the nagging long term cycle which is pointed downwards at the moment.

Let’s consider that cycle for a moment. In particular I would like to highlight certain dates and the intervals between then:

The lows here are lined up with the inflation adjusted lows, and seem to be timed about when the stagflation periods come to an end. The absolute price low in the Dow usually seems to arrive during the decline period, which is prior to the low dates shown here.

So this is interesting. It shows that the government and Fed print, and pump, and they even change the way that the CPI is calculated to make inflation appear lower than it really is, .... and still the Dow fails to make new highs, and still the 17 year cycle moves slowly and without deviation towards it’s conclusion. Well their predecessors were doing the same stuff in earlier waves of this cycle, this cycle is their actions to a large degree. They are in it - not controlling it.

There is for example an interesting article about second term presidents and their economic performance here:

So it seems that every 34 years approximately bonds make a high, there’s a recession or depression, and the stock market goes down to sideways while the government stagflated and financially represses with negative interest rates. This stagflation prevents growth until they wake up and stop doing it. But a closer inspection of these periods shows that there are usually 3 or 4 sub waves within the long wave. The lesser waves within the big wave seem to represent the effects of the various government entities as they thrash about within the economy.

I suggest that we will still get these minor swings within the big one, but without any requirement to get specific which would lengthen this article rather a lot - in the broad sense - the charts provided here suggest that the big one still has a few years to go yet.

Argentus Maximus


This is not investment advice. It is personal opinion only. It is put out there by the author for discussion purposes and to invite critique, to stimulate debate, entertain, and ideally create a lively beginning for a reasoning process among readers who interact with each other and may lead towards a better financial understanding of the times we live in. People wishing to trade financial markets should get professional advice, and be aware that it is relatively easy to lose more than you invest in financial markets.

The author posts daily commentary on the gold and silver markets in the TFMR forum: The Setup For The Big Trade. More information about the author can be found here: RhythmNPrice

About the Author


vonburpenstein · Aug 18, 2013 - 7:57am

no way....

Nothing like a first first to go with my first cup of the to read the post

Maximillion · Aug 18, 2013 - 8:09am

Red alert

Video unavailable

Sorry it's a bit off thread but it is important, as the last time this happened was in 1937 = Wars coming?

vonmises · Aug 18, 2013 - 8:28am

Dow Jones weekly shows just

Dow Jones weekly shows just how long this market has been pushed up - Dow Jones works well as a confirmation for the S&P500.

4.5+ years - one of the longest "bull runs" in the history of markets.

boatman · Aug 18, 2013 - 8:49am


Kondratief/Kress cycle 120 year LOW is in late 2014---can it be forestalled with QE?

we will see.

my professor guy's wave count is wave 5 up at 16,800DOW in the middle of oct.[a famous seasonality for a dow high n crash]

then look out below

current dow pullback is over as of now..........he says

and while he is a longterm gold guy...........says our 2 week up in metals is over............for now. 

good post, argentus.......

TomMack · Aug 18, 2013 - 8:52am

main thread?

tooth.. (2nd) maybe......i have been having hard time following the flow of the thread(s). i frequently give lcs updates which now seem off topic on most threads.

 edit: anyway the lcs had plenty of everything...prices for ASE's were silver spot +$3.50 $1.45 buy/sell spread on silver ASE's $1.62 on 90%... and gold eagles were still spot plus $58 buy/sell spread $35 on gold eagles.

sengfarmer · Aug 18, 2013 - 8:55am

top ten!!

I eat my peas with honey.

I've done it all my life.

It do taste kind of funny.

but it keeps them on the knife.

ee cummings :)

F.Capra · Aug 18, 2013 - 8:57am

Excellent Analysys and Very Timely, Argentus

Correcting the apparent high in the Dow with the nominal CPI really lets us see through the "smoke and mirrors"! These cycles suggest: Short the Dow. Short the Long Bond. Long Gold, Silver and the Miners.


benque · Aug 18, 2013 - 8:59am

Peas on a knife

Dudley Doright was drummed out of the RCMP for eating his peas with a knife.

Moral: Do NOT buck the system!

Ha! Watch me!

Edit: Pass the honey, honey.

DeaconBenjamin · Aug 18, 2013 - 9:50am

Europe faces tuberculosis ‘time bomb’ as new strains of the dise

Europe is facing a “time bomb” of rising costs to control tuberculosis as drug-resistant forms of the lung disease spread, a pioneering study has found.

Often thought of as a disease of the past or one restricted to marginalized communities, TB is already inflicting annual direct costs of more than €500-million ($687-million) on the region and another €5.3-billion in productivity losses.

The study, by health economists based in Germany, also suggests the economic burden of TB far outweighs the likely costs of investing in much-needed research to develop more effective medicines and vaccines – something they said governments and the drug industry should do urgently.

“We know that new drugs and vaccines are very expensive [to develop], but if you take these costs into consideration, then everything is justified,” said Roland Diel, a health economics professor at Germany’s University Hospital Schleswig-Holstein in Kiel, who led the study.

The emergence of strains that can’t be treated with even the most powerful of drugs has turned TB into one of the world’s most pressing health problems.

According to the World Health Organization, TB infected 8.7 million people worldwide in 2011 and killed 1.4 million. As many as two million people may have drug-resistant strains by 2015, the Geneva-based health agency says.

gold slut TomMack · Aug 18, 2013 - 10:06am


I am sure that there are many others out there, not just me, who find the LCS reports from around the world both interesting and informative.

Don't stop your LCS updates (or stacking)yes

sierra skier · Aug 18, 2013 - 10:08am

Nice Graph

On the inflation adjusted Dow. This goes a long way to explain what I have been thinking about even though they have everything looking just dandy. In todays world our leaders have our financial markets falsely tuned up to look great when in reality the bottom is falling out. Your inflation adjusted graph with the 30+ year pattern goes a long way to showing what is truly going on. This helps explain the feeling I have that things aren't right even though the markets look great, but it is the manipulations that have been covering the reality of todays markets.

If this pattern is to carry through we will be in for some slow and difficult economic times along with the possibility of political and military unrest.

· Aug 18, 2013 - 10:15am

Three stagflations compared

The implications for gold ..... in 1976 gold bottomed, after stocks bottomed. Gold then outperformed during the stagflationary period, at the end of which the Dow took over leadership again and moved ahead until 2000.

In the 1930s gold and silver bottomed in 1931, gold first and later silver. Here is a chart:

The Dow bottomed in 1932 which was both the actual and real terms low:

The Dow:Gold Ratio is most interesting.

Interested readers might like to look at this chart of the ratio, and then move the vertical dateline ruler to July 1976, which was the gold low. Then look at where we are today and compare the ratio chart's form.

sierra skier · Aug 18, 2013 - 10:22am

QE Manipulated

As Well.

Thanks for the great post Argentus.

The Doc · Aug 18, 2013 - 10:24am

Gold & Silver Shorts Are

Gold & Silver Shorts Are Still in Freak-Out Mode!

On this week’s Metals & Markets The Doc & Eric Dubin cover:

  • Blast through $21 silver, as we forecast last week, demonstrates a major change in market psychology
  • Short covering and new long buying repeats end of week pattern from last week; expect higher prices next week!
  • Long-term interest rates moving higher combined with….
  • Political lunacy over the budget and debt ceiling coming in the Fall will provide gasoline for the bullion bull market fire
  • The Doc’s analysis of wholesale bullion market trends
SD Weekly Metals & Markets: Silver Shorts in Freak Out Mode
sierra skier · Aug 18, 2013 - 10:26am

Dow/Gold and Gold/Silver charts

What I see with these two charts is when it begins to take less Gold to buy the Dow and Silver catches up to Gold in the GSR, Silver has the opportunity to preform with stellar results. Of course only time will tell but if what I am reading in these two charts comes about I will be glad I am holding PMs and especially Silver.

¤ · Aug 18, 2013 - 11:15am

UST Charts - Long Term Comparison's

Thanks Argentus, nice job yes



Chibster · Aug 18, 2013 - 12:28pm

22 Silver Coins

I'm so tired of this whole rigged market and lies in the mainstream media. 

About the Dow adjusted to inflation: We are in a secular bear and the trend is shown with the Dow measured and adjusted to inflation. The Dow cannot fight the Super Cycle. It is coming down. The aging demographics and debt notes won't support it. 

The Powers That Be are preparing the public subliminally with shows on NatGeo, TLC, History Channel ... etc:

Doomsday Preppers

Storage Wars

Naked and Afraid

American Pickers

Barter Kings

Pawn Stars

Cajun Pawn Stars

American Restoration


American Digger (spike tv)

Surviving Alaska

Survivor (Outwit, Outplay, Outlast)


How to noodle for catfish with your bare hands, how to catch good eatin' crocs, how hard it is to mine and dig for gold...

There are even subliminal messages in movies with Joseph Gordon-Levitt & Bruce Willis in "Loopers" (silver is money, gold, yuan, china, America is a slum). Hugh Jackman, Russell Crowe, & Anne Hathaway in "Les Miserables" (silver is money, French revlt'n no middle class, elite class, starvation, homelessness, social and political unrest).

We are going to end up in a bartering culture. Many of the shows listed above demonstrate the importance of the hand shake to settle a deal.

These subliminal messages from TPTB are called "MEMES"

  1. An element of a culture or behavior that may be passed from one individual to another by nongenetic means, esp. imitation.
  2. An image, video, etc. that is passed electronically from one Internet user to another.

I've been also meaning to post up one of my favorite survivor "teachers" on the alternate media. His name is NoStressMike. He recently posted a very good video on how his wife's grandfather made it through the late 18o0's after he left his country with only 22 silver coins

22 Silver Coins

Here's another good video posted from NoStressMike on how to use Gold & Silver in a real world situation (his own experience).

How to Use Gold & Silver

I have connected the dots. I do everything I can to show those in the world around me (friends, relatives, co-workers, strangers, new acquaintances) how these dots are connected and what it all means. 

turnoffthewater · Aug 18, 2013 - 1:17pm

Monetary base and credit market debt ratios


I always learn and enjoy your posts while following the setup forum and now here in main street. So, a big thank you!

I understand about the stagflation scenario and inflation adjusted dow ratio. Ben is fighting debt deflation and transfering the fiat wealth to the banks who purchase Tbills to make the % spread and support the FED. Not much of the printed fiat is making its way into the monetary system. At this point

it appears deflation is winning. Or am I just reading the chart incorrectly? If so, how does the chart fit into the equation? Here are two other charts I thought were interesting.

Obviously, inflation or loss of faith in fiat is necessary to move Au higher but if Au is now July '76, then we are in for a monstrous move in the future.

But maybe we won't have the move until the total credit market debt is more manageable?

A good sign is JPM is going long metals maybe to replenish the GLD since they were told or decided to get out of the commodities business.

Your comments would be appreciated. And thanks again. TOTW

GoldMania3000 · Aug 18, 2013 - 1:27pm

Great post AM. as always

Great post AM. as always GREAT!!

SE · Aug 18, 2013 - 1:58pm

@ argentus

Regarding deflation - I think what you are seeing instead is 3 things: 1) debt implosion; 2) credit contraction; and 3) deleveraging. What do you think?

· Aug 18, 2013 - 2:00pm

The chart showing the price

The chart showing the price of gold as a % of the monetary base shows gold breaking new lows. At face that's bad as it suggests gold is shuffling away from being money, during the 100 year period of the chart, (and also the period of existence of the Fed !).

I am not sure and this would need to be thought out carefully, but the quantity of gold is surely also relevant there? I wonder what a chart showing the quantity of gold above ground x the price of gold as a ratio of the monetary base (number of dollars) x 1 (value of dollar in dollars) would look like?

Yes deflation is winning, despite Bernanke throwing everything he had at it. Some time in the future people will come to realize what would have happened if he had not done the things he did and his reputation will improve. But to give all the reflation money to the culprits that crashed it instead of to those ripped off was .... well history will judge that too.

Gold and commodities and interest rates are sniffing for the first signs of growth, and seeing early signs in Europe. They may be correct or wrong about that, but I believe that underlies the present situation. Now that places the Fed and dollar in a trap caused by interest cost, so that would be the reason why gold (in dollars) will move upwards faster. This will produce bizarre creativity of accounting by the Fed and US government I expect. Revaluing GDP upwards by 5% all the way from now back to the 1900s last week is such an example.

The natural way is for capital to rotate via bonds-stocks-commodities. The Fed will want to make capital go bonds-stocks-bonds-stocks. This was the successful risk on risk off scenario they played for so long. Who knows what they will do next? The chart suggests that things will go a certain way over the next couple of years. I doubt they can stop it. But they will do stuff to try I guess.

An interesting point will be: when the Dow falls towards the bottom of that broadening range next - how far does it go before turning up? Recent history says it will make a higher low, (lower in real terms!). That would signal a parabolic rise in gold and silver if they are not already in one. The devil is in the detail as usual. Is this it? (Looks good so far) Or is it the next rise? (another last selloff coming our way?) New lows don't have to be lower lows either. A staircase sneak beginning (if possible!) allows for more than one higher low to be formed before escape velocity is attained. We have no alternative but to do the best we can with incomplete good information available and voluminous misinformation around us.

About that last chart:

Did you notice that the cred debt is almost down to the levels of 1984? What's interesting about that is that by my reckoning the 1970s recession breakout from stagflation to inflation was approximately 1982. You can see the accelleration clearly on index charts. Now is that just a coincidence or is it some kind of fundamental economic retracement to a parameter representing a previous solid footing? I would think it's not a coincidence.

· Aug 18, 2013 - 2:16pm

Debt implosion, credit

Debt implosion, credit contraction and deleveraging ... as reflected by the the price of stocks ... yes.

But the Dow price is also measuring inflation (the other side of stagflation), credit expansion, and fresh money supply too. It's on the knife edge between both sides and trying to stay 3-6 months ahead of the present, which is why it's beginning to oscillate once again.

The government, Fed and PPT can't hold the Dow (or anything) steady in value, if they themselves are unsure of what they must do next and whether that will succeed! The prices will forecast their indecision and doubts as a realized outcome valuation.

Bugzy · Aug 18, 2013 - 2:18pm

Interesting developments

Previous poster posted about a UK conservative: Hollobone (Kettering). Re Conscription - private members bill.

Well... after brief peruse: This same guy currently has another private members bill to re introduce CAPITAL PUNISHMENT into the UK

Check it out.

I will add however that; hardly any private members bills make it all the way to law...but tyranny is coming fast... and where is the media on this?

James Burke · Aug 18, 2013 - 2:47pm

There is no more Gold and

There is no more Gold and Silver in the planet

Kitco make you rude

The government of Canada claims to have 3 tons of gold. Meaning that it has sold 297 tons since 1968. Socialism is expensive.


CANADIAN SOCIALISM: WHERE IS CANADA GOLD ? CANADIAN SOCIALISM | WHERE IS CANADA’S GOLD Americans tend to hold the view that Canadians, their neighbor to the north, are staid, bland, conservative and tend to look down on American culture. All of it false.

ag1969 · Aug 18, 2013 - 3:05pm

Flea Market Report

Even with the bump in price, not much silver at the flea market today. The guy I always talk about here who has been saying he would not bring any silver to the Flea Mkt. at these prices had three half dollars today. There was a BU 64 Kennedy Half, A BU 63 Franklin Half, and a VF 43 Liberty Half. He has $12 marked on each one of them. I was willing to pass on them but Mrs. ag1969 chimed in and said she would give him $30 for all three and he said OK. She then turned to me and said, "Happy Birthday", as my birthday is Tuesday.

Argentus, thank you very much for this post, I enjoyed it. This was the line that struck me: "Well their predecessors were doing the same stuff in earlier waves of this cycle, this cycle is their actions to a large degree. They are in it - not controlling it." AM

I have said before here that if you look at TPTB mantra: "Out of Chaos, order." I would tend to agree with you. I am not in the camp that they are controlling every facet of a worldwide fiat collapse. They just can't. But I also believe that they create the chaotic conditions op purpose because they know no matter what happens they will profit from it. Bankers always profit from both sides of any conflict. All they need to do is get the ball rolling and the money starts flowing.

turnoffthewater Norm · Aug 18, 2013 - 3:11pm

Re:The chart showing the price


" suggests gold is shuffling away from being money" Scary thought but tell that to all the central banks, chinese, indian hoarders and people that were paid out in fiat for their Au accounts because there wasn't enough in the vaults. So try and tell Ben that his bond-stock-bond-stock pumping will work on a global scale. Will be interesting to see what comes out of the G20 meeting

Maybe someone can provide the answer to the monetary base/above ground Au ratio. I never can seem to find an accurate above ground volume, I can't believe the World Au councils numbers.

Ben did the best he could do considering what was handed to him but I'm sure people are pissed off because the banks were reflated and no fiat went into circulation to benefit main street.

I didn't think about the GDP revision, good memory. I guess they will play with the formulas CPI, GDP and whatever makes the numbers look good going forward. That's the reason the system is dead, unreliable and needs to start over in my humble opinion.

"incomplete good information available and voluminous misinformation" How true lol "1970s recession breakout from stagflation to inflation was approximately 1982" Yes but where will the tax money come from to service the debt? Most people these days live pay check to pay check. Maybe France's Holland will be a candidate in 2016 or the bail-ins will happen. Crazy mixed up world but really enjoy your thoughts and analysis. Thanks TOTW

Oboma · Aug 18, 2013 - 3:42pm


Are you saying we are getting ready for a dow crash or something. I'm not clear as to your conclusion. Also do you believe gold is going to take out new highs or the next two years. I can't tell from your post if you are just someone who trades gold or you actually believe in gold as an asset that will appreciate. You have many short term calls, but I don't get that you believe in gold overall as an investment area. I'm ok with that, but im just trying to understand where you stand. When I read Turds post, im very clear on where he stands. But my suspicion is that you are not being clear for maybe various reasons. Yes i know we can go up or down...depends on this and that. But that's everything.

I'm just trying to understand where you stand overall and better understand your posts as I, honestly, can't always figure them out. Now that could be me and I'll accept it. I'll live with that I'm not maybe the smartest person.

I'm just trying to solve for is this a place to be in or not. I see the trading forum, but I don't want to trade.

What Percentage of your assets are in actually gold or silver bullion. Mine is 40%.

Orange · Aug 18, 2013 - 4:09pm


What an asshole and he is a journalist who's job it is to seek out the truth.

Never buy Time or the other main stream media. Spread the word.

sengfarmer · Aug 18, 2013 - 4:20pm


Well it looks like our local friendly coin shop is a thing of the past. My friend went down last week and besides the high premiums he was also charged sales tax....without getting a receipt.

I sent another fellow down there and he was charged $25 for some run of the mill Morgans. I had him ask for the receipt which the dealer then made out and gave him but the dealer didn't make or keep a copy for himself??

There goes anonymity.

I will go check it out myself tomorrow.

edit: it recently changed hands

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