13 year bubble

9 June 2008 By Martin Hutchinson

The Dow first passed 4,000 in February 1995. Since then, nominal GDP has risen 95%, but broad money supply has risen 205% as, roughly, has the Dow. Martin Hutchinson argues that, if the market grew in line with GDP, it would trade around 7,800.

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The Dow Jones Industrial Average climbed above 4,000 for the first time on February 23, 1995. Fed Chairman Alan Greenspan, in his biannual HumphreyHawkins testimony, told Congress that day that the Fed was done raising interest rates and might soon begin lowering them. The Federal Funds target rate was 6%.

Nominal GDP in the first quarter of 1995 was $7.3 trillion. In the first quarter of 2008 it was $14.2tr, an increase of 94.5%.

The St. Louis Fed's Money of Zero Maturity was $2.9tr on March 1, 1995. On April, 1, 2008 it was $8.7tr, up 205% or an annual increase of 8.9%, compared with a 5.3% annual increase in nominal GDP.

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