Where to now for the Dow?

As the Dow Jones Industrial Average plunged precipitously on the first trading days that followed the terrorist atrocities of 9/11, Paul O'Neill, the then US Treasury Secretary, ridiculously attempted to reassure investors by predicting that prices would recover and that within a year the Dow Jones Industrial Average would be back in record territory.

Well, at least he was right about one thing. Prices have indeed recovered.

The Dow is again trading at record levels. It's just taken five times as long as he said it would.

Nearly all confidently made predictions about the future of the Dow turn out to be hopelessly flawed.

In the fevered environment of the late 1990s, a couple of American academics wrote a book arguing that globalisation and technology had removed the risk premium traditionally attached to equities and in these circumstances, the Dow should be valued at 30,000, not the lowly figure it then stood at.

That assertion is going to take even longer to come to fruition than Mr O'Neill's.

The Dow, of course, is not a particularly representative index.

The total value of publicly traded shares, both in the US and Europe, remains quite a long way below its turn of the century peak.

Yet with corporate profits at record levels, company finances never stronger, and the world economy apparently heading for a soft landing, not the hard landing you might expect after such a prolonged period of monetary tightening in the US, it is perhaps a reasonable guide to the true state of global economic affairs.

Despite the dangers, the outlook for share prices looks a good deal more rosy than when the Dow was last trading at these levels.

- INDEPENDENT