The Dow Jones To Gold Ratio 1885 To 2021

brass metal frame

Here’s the Bear’s Eye View (BEV) of the Dow Jones going back to 1885. What's the Bear's Eye View? It's how Mr. Bear has looked at the Dow Jones since 1885, with every new all-time high registering as a 0.00% (or Bev Zero in BEV Lingo), and every daily close not a new all-time high registering as a percentage decline from its previous BEV Zero.

To Mr. Bear, that’s all any new all-time high is worth – a big fat zero.  All he cares about is how large of a percentage claw back he can take from the bulls, and that is exactly what is displayed in the Dow Jones BEV chart below; new all-time highs and percentage claw backs from them since 1885. In effect, the BEV compresses market data within a range of 100% points:

∙       0.0% = new all-time highs

∙       -100% = total wipeout in valuation

The table below lists the specifics:

∙       Feb 1885 to Feb 2021 (every daily close for the Dow Jones since 1885)

∙       Feb 1885 to Aug 1982 (daily closes before current bull market began)

∙       Aug 1982 to Feb 2021(daily closes during our current bull market.)

I’ve placed a red box around the 0.0% and -0.000001% rows, as these rows list the daily new all-time highs (0%) and the days the Dow Jones closed in scoring position (<5% from a new all-time high). This information provides a gauge with which to measure the effects of “monetary policy” on market valuations for the past decades.

The table on the far left samples every daily closing since 1885. In the past 136 years the Dow Jones closed at a new all-time high, or within 5% of one for 25.71% of all daily closings. That’s bullish, but for the first 97 of those years (middle table), the Dow Jones closed at or within 5% of a new all-time high for only 16.75% of the daily closings in the sample. Examining the far right table below (1982 to 2021), the Dow Jones closed at a new all-time high, or within 5% of one in 51.11% of its daily closings in the past 39 years.

Looking at this data, reasonable people wonder why the past 39 years has seen so many BEV Zeros and daily closes in scoring position. It’s as Andrew Bary informed Barron’s readers in October 2007; the Federal Reserve is on the bulls’ side.

“One reason that monster declines are less likely now is that investors recognized something that they didn’t in 1987: The Federal Reserve is on their side.”- Andrew Bary, Barron’s 15 October 2007 issue


C:\Users\Owner\Documents\Financial Data Excel\Bear Market Race\Long Term Market Trends\Wk 692\Table #1  Dow Freq Tables (3 of them).gif

In the chart below I placed a red line at the BEV -40% level, as since 1885 after Mr. Bear has clawed back about 40% of the bull’s gains, the stock market is close to a bear market bottom and it’s time for the bulls to start looking for bargains. The sole exception to this 40% market decline rule-of-thumb was the Great Depression’s catastrophic 89% market collapse (Sept 1929- July 1932).

For the 136 years since Charles Dow first published a fourteen-stock average of 39.07 on February 16, 1885, his now thirty-stock Average is now approaching 32,000 in February 2021. No doubt there has been tremendous economic growth as the Dow Jones’ valuation increased by a factor of 819, but a dollar in 2021 purchases far less than it did in 1885.

C:\Users\Owner\Documents\Financial Data Excel\Bear Market Race\Long Term Market Trends\Wk 692\Chart #1  Dow Jones BEV 1885 to 2021.gif

I placed two additional frequency tables below the above BEV chart to compare market performance of the Dow Jones before and after December 1924.  Before December 1924 “liquidity” flowing from the Federal Reserve did not flow into the stock market. After December 1924, until the Roaring 1920s Bull Market topped on September 3, 1929, monetary inflation did flow into Wall Street.  

In the last five years of the 1920s (right table) the Dow Jones daily closed at a new all-time high, or within 5% of one for 75% of its daily closings – wow!  This is why the 1920s roared, and when this market bubble deflated in the 1930s why everything became so depressing. So, if the past 39 years the Dow Jones has closed at a new all-time high or within 5% of one for 51% of its daily closings, how does today’s stock-market bubble compare with that of the 1920s’ Dow Jones?

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Disclosure: None.

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