Thursday, October 16, 2008
History: DOW mean 2010 is 7000?
I am recycling old material as (via Eve) it is now a story in Bloomberg. The picture above shows clear signal on a linear scale. It shows garbage on a log scale.
Here is the log view of 80-now.
It is as if the log scale doesn't convey the information as clearly.
When you see it in linear you see all growth, corrections included, sums up to linear growth. Why is this news?
Very simply because if it were real growth, real growth usually manifests itself with a straight line on log. It is the very definition of log actually since the mathematical definition is that the growth equals a fraction of the whole and that resolves in a exponential.
The point is that it isn't there.
It shows up linear however, and that's news. SOMETHING has been growing linearly lately for the past 30 years and it isn't all growth. Could it be the money supply? WIth a narrow focus on CPI, have we missed the obvious that asset prices were going up in a inflationary signal of monetary levels?
That is what the anemic linear scale tells us. And if you want to look really closely at the log you will start seeing, not a straight line, but in fact, an arc.