To Fix The Economy, Fix The Dollar

An old adage in the investment business posits that “the economy is not the stock market, and the stock market is not the economy.”  Like all such aphorisms, there is some truth in saying this, to an extent: indeed, equity markets can move for an extended time in seemingly no correlation with the broader economy.  For example, when the Dow Jones Industrial Average reached an all time high of 381 on September 3, 1929, it began a three-year descent, wiping out 32 years’ worth of prior gains by the summer of 1932; it did not reach 381 again until November 25, 1954, twenty-five years later.  Yet industrial production reached 1929 levels by 1939, and the economy grew progressively after the war years by 3.5% per annum.  So much so there was, except for several months in 1946, no problem in re-absorbing 16 million men and women in uniform back into the civilian economy in the United States by 1947.  Likewise, between 1966 and late in 1982, in between 1000-point plateaus, the Dow was flat to down upwards of 30% nominally, and 70% in inflation-adjusted terms.  Yet the economy grew at roughly 2.5% per year in real terms across that time-frame.