Posted on
October 12, 2008 in
I’ve bet HCCLA past-president Pat McCann lunch that the DJIA will close below 6000 before it closes above 9,000 (all in 2007 dollars) again.
Anyone else want a piece of that action?
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I’m interested. But how do you discount to 2007 dollars? Is there a standard way to do that? And why?
2007 dollars just to pick a number, because I know that the value of a 2007 dollar is fixed. 2008 dollars, up till now, are worth pretty close to the same as 2007, but that could conceivably change in the next two months.
If the dollar crashes (so that the $10,000 DJIA in 2009 is the equivalent of a $9,000 DJIA in 2007), Pat “loses”.
I’ll take that bet. But we can we make it a pecan pie?
Sure. You have a good pecan pie place in New York?
It will have to be a cheesecake from my end, but I’m not worried.
Adjusting for inflation is certainly fair, but given how close the DJIA is to the upper target, a lot depends on how you do the calculation.
The inflation reports in the newspaper are usually based on the Consumer Price Index for All Urban Consumers, All Items. Using the average for 2007 and the most recent value (August) then 6000 and 9000 become 6339.84 and 9509.77, respectively.
You lawyers are a sneaky bunch. You’ve spotted yourself hundreds of points, and with Friday’s close at 8,451.19 you’ve nearly doubled the distance to the high target.
If we switch to a more moderate index such as the GDP Deflator, then using the 2007 mid-year value and the most recent value for 2008, those numbers become 6094.65 and 9141.98.
So, I’m sorry to geek out, but I think you can see why this is important.
I’ll tell you what, let’s use the CPI, but with one tweak: We’ll leave out the highly volatile and seasonal costs of food and energy. Using the 2007 average v.s. the most recent monthly figure, the targets are 6151.36 and 9227.04.
I’ll take that action.
Now how do we define “lunch”?
Oh, I just saw Scott’s suggestion. Eli’s Cheesecake world headquarters is two miles from here, if that works for you. Or I can do Chicago-style deep-dish pizza if you can suggest a comparable Houston food.
The original proposition was 5,000 / 10,000. He spotted me 1,000 (as it turns out, 1339), so I spotted him 1,000 (as it turns out, 490.23). It seemed fair to me at the time.
I don’t see any good reason to exclude food and fuel. If $9,000 would buy 2,000 gallons of gas and 1,000 cheeseburgers in 2007, then it’ll have to buy 2,000 gallons of gas and 1,000 cheeseburgers for you to “win”. That’s part of the deal — the Dow has to increase in value compared to the things other than stocks that we could spend our money on.
Sure, it’s volatile, but We’re still twice as far from my target as from yours.
I propose that we use the monthly CPI figure whenever the Dow gets close to 9,000 (or 6,000). If the Dow stays at 8,000, I can “win” if the CPI goes up to 276.46 by my math. (Not likely, right?)
We’ll define “lunch” as the midday meal. We’ll settle up whenever we’re in the same town. Or I’ll send you a pecan pie from Goode Co. if you like.
Agreeable?
You fool! You fell victim to one of the classic blunders! The most famous is never to get involved in a land war in Asia. And only slightly less well known is this: never go in against your father when a Goode Company pecan pie is on the line.
I accept your proposition for the pecan pie.
Deal. Somehow I just knew you were going to talk me into it.
That last time we saw inflation that would push the CPI to 276.46 was during the Ford administration, and it took about 3 years. So it’s possible, but not likely.
Now if the Dow will just spike 1058.58 tomorrow…
Alright. Dad, Windy, you’re in. 7,000 with a CPI of 241.90 will get me there too.
C’mon OPEC!
Count me in. Best pecan pie I’ve ever had comes from Byerly’s — local to me — but if you’d prefer, I’d substitute another local delicacy, if I lose. (You don’t want lutefisk. Trust me.)
Clark, how did the apple roll so far from the tree? He really got himself stuck in a sinkhole on this one, and for a Goode’s pecan pie to boot!
He brought me one when he came up here, and it was awfully good.
I’ll take some of that action. How about $100? We can let AHCL be the bagwoman.
The wager is lunch, not pie or money, because that’s a bet I can’t lose. SHG and dad are exceptions.
DJIA 9041.38.
I think if I were a politician, I would proclaim that the market has spoken, and your mumbo-jumbo about inflation and waiting until the market closes is a plot to steal the election, er, the bet.
The wager is lunch? Okay. Three Forks in Austin when, I mean if I win. If I lose, what’s comparable in Houston? Strip House?
Stop trying to add terms. Betting window is closed.
“Not only are you a cheat, you’re a gutless cheat as well.”
— Lonnegan to Gondorf, “The Sting”
That was beneath you. I’m the master of my offer. If, in the unlikely event you win (
8974.648943 and falling so quickly that I’m not going to bother updating before posting), you would be happy with tacos at Arandas (where I had breakfast on 7th Street this morning) and pleasantly surprised by strips at III Forks, take the bet.Ah, I was worried that you wouldn’t take my quote from The Sting in a carefree vein, but then I figured surely AHCL has told him what a light-spirited guy I am. Okay, you’re on.
9387.61? That’s quite a sound defeat.
Interesting result, eh?
sctexas, given the inflation index we chose and the dates we used, the actual upper target number right now is 9509.77, so lunch is still in play.
If Bennett had agreed to use the one of the other indices I discussed, he would have lost. If we had used January 2008 as the basis instead of the 2007 average, he would have lost.
This is exactly why I insisted on nailing down the method we would use to calculate inflation—both the index and the date range. If we hadn’t agreed ahead of time, Bennett and I would probably be accusing each other of trying to cheat. There’s a contract law lesson in here somewhere…
9509.77 is the target number (in August 2008 dollars) until Thursday, when the September CPI is scheduled to be released.
I’ll admit that things are looking good for Pat McCann and his pie-eating cohort, though; I’m counting on some really terrible market-related news in the next 22 hours crushing the market.
There’s a reason I’m not an investment banker, you know.
When I took that bet, it was a straightforward matter, uncomplicated by Windy’s unduly prolix concerns and detailed complications that followed. I seem to recall 9000 in 2007 dollars, and “2008 dollars, up till now, are worth pretty close to the same as 2007, but that could conceivably change in the next two months.” It seems to me that if 2008 dollars are “worth pretty close to the same as 2007,” then a 387 point overage should more than cover.
Of course, I’m just a lawyer.
They’re not worth that close, but you’ll get your pie anyway. If the market crashes again tomorrow and never recovers, can I have a cheesecake?
As my favorite gal says, “you betcha!”
Oooh ouch. Today had to hurt those of you who got in after Windy Pundit’s rules clarification.
The targets until the 18 November closing are now 6331.08 and 9496.61.
I concur with those numbers, Other Mark’s dad.
At this point, I’m counting on dropping fuel prices to lower the CPI and on politicians to figure out a way to pump up the Dow before the election.
The DJIA closed today above 9000 in 2007 dollars (9625 in today’s dollars).
Thanks.
My pleasure.
Your dad doesn’t waste any time, does he?
So…Lunch some time?
He so infrequently actually wins a bet against me.
Yes, lunch. Probably up there — Jen was born in Chicago, and enjoys visiting.