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Berkshire Hathaway Inc. Message Board

  • hummingbirdair hummingbirdair Mar 18, 2013 1:21 PM Flag

    Dow highs and Inflation

    in the last couple of days, I read (I think in the FT) that although the Dow is reaching new highs , due to inflation, the purchasing power has actually cut 52% off the value of the new high. do folks agree ? and what does this perhaps mean to how high/low it might go from here ? I am betting on a correction of between 5 and 10% this year, barring exogenous shocks,but what do I know ?

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    • You can make the numbers work if you assume 6% inflation and the 52% loss is since the 2000 high. To me that's a serious overstatement of inflation since that time, but ymmv.

      • 1 Reply to astral_tsar
      • a 6% inflation doesnt surprise me, I believe I have remarked a number of times on this "bored" that real inflation in my view was running over 8%.
        health care costs alone- had they been matched by the price of milk, would have a gallon of milk at $48 today since the late 90's..(source CNN documentry "Escape Fire " on Health care- worth watching if they repeat it - coulda wrote that script myself - plse pay attention Missed Investor and NOmorehomes , and eckerliner etc etc ) US getting completely conned on HC, and paying with our lives. Ok I'll stop now, I think you all have read my views on this ad infinitum, if not ad nauseam :-)

    • 1/03/2000--S&P 500-- 1478
      03/06/2009-------------- 666.8 low during crash

      Since 2000 the market is up less than 6% plus any dividends. My guess is that the dividend yield back in 2000 wasn't enough to cover inflation whereas today it's much closer assuming inflation is 2%. But if you net out taxes due there's no way you kept pace with inflation.

      In 1998 you may remember that BRK peaked at about 80,000 per share, fifteen years later we still haven't doubled our money which I find amazing. In February of 2000 you could have bought BRK at 45,000 per share, about the time Buffett offered to buy back your shares in the annual report so if you bought BRK when it was a bargain you've done well.

      Is BRK currently a bargain? Relative to other investments I still think it's an excellent way to participate in a recovery in the U.S. economy.

      • 1 Reply to axpkocop
      • agree, you cant keep pace , netting out taxes. The comparison in FT was with the S&P over 1500,but in "half dollars". the figures you give for BRK, means about a 65% less (dep on what you think inflation really was) + any net out of taxes as a further reduction....since "real money" ie purchasing power, BRK would have to be above +/- 140k just to break even as a retail investor (dep on taxes and purchase point).

        I wonder how many stocks could surpass their 1998 hurdle computed this way ? Know of any lists ? although that might be altogether too depressing...

        I bought after that, my lowest was 67K equivalent A to B

        the Cypress crisis finally blew, its been cooking for a couple of years, but talk about throwing gasoline on it !!!

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