Summary

Since the early 1970s the price of the DJIA has declined by a whopping 50% in response to exogenous variables only twice when the value of the DJIA was in line with its price first 1973 and then in 2008.

Both declines were caused by events that had been a long time fermenting. The first was OPEC 1 and the second the Community Reinvestment Act.

The CRA was started by President Carter, expanded by President Clinton and Mr. Obama when he was a community organizer and was compounded by Barney Frank and Christopher Dodd. The chickens came home to roost with Freddie and Fannie collapsing during the Obama Administration with the help of ACORN whose tutor had been Barrack Obama. This took place despite all the efforts of President G.W. Bush to get to grips with the shenanigans at Freddie and Fannie.

The excellent performance of equities this year has made them victims of their own success in so far as many pension portfolios among others are being re-balanced ahead of the year end. Whether by design, through trust indentures, or by desire, as seems to be the case with CALPERS’ announced intention to consider moving from a 50% equity weighting to 34%, the result is to push longer rates down.

The shift from equities into the highest-duration Treasuries is flattening the yield curve by forcing down the yields on long bonds. This, in conjunction with a continuing rise in dividends, are pushing up the dividend discount value of the DJIA to 43,533 which is spurring on the continuing price rise.