This is Not a Bull Market: Stocks Are Not Up, and They’re Headed Even Lower 81 comments
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How do you measure wealth generation?
1) Average annual gains?
2) Gains relative to an underlying index (the S&P 500)?
3) Gains relative to inflation?
Of these three, the last is the only real means of gauging wealth creation or destruction. Commentators have been going bananas over the fact that stocks are up 20%+ since their bottom of 666. No one mentions that this rally may actually be induced by the Federal Reserve pumping trillions of dollars into the financial system.
Similarly, no one mentions that adjusted for inflation, stocks are still WAY down from their peak during the Tech bubble.
Source: Crossing Wall Street
As you can see, stocks entered a bear market in earnest following the Tech Crash. Yes, in number or nominal terms, the Dow has risen. But you have to remember the dollar lost roughly a third of its value from 2001 to today. Measuring stocks or anything in dollars between now and then was like measuring with a ruler that was continually shrinking.
Also, bear in mind that the above chart is using the Government’s phony measure of inflation: the Consumer Price Index [CPI] which DOESN’T include food or energy prices. Using accurate inflationary data, stocks are down even more in real terms.
My main point is this: inflation is an ever-present reality in the post WWII era. Investors need to be protecting themselves from this beast at all costs. You can do this by:
- Buying gold
- Buying commodities or real assets
- Buying companies that can offset inflationary costs by raising the price of their products
I suggest having some money in all three. It’s the only certain way to protect your wealth from inflation. The Feds are cooking up an inflationary storm of epic proportions, pumping TRILLIONS of dollars into the financial system. Stocks may rally like a rocket-ship from here. But in real terms they’re still tanking.
After all, if the Dow hits 30,000, but you’re celebrating by drinking a $150.00 coke… are you really any richer?
Disclosure: I personally own gold and agricultural commodities
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This article has 81 comments:
The Fed's policy of inflating assets faster than the general rate of price and wage inflation has simply been exhausted, and although attempts to resume it are apace, further efforts of ZIRP/QE will simply result in price inflation greater than asset inflation, and, most likely, also greater than wage inflation.
That may, strange as it sounds, result in a return to deflation, if the US government is forced to reverse course and the largest spender is forced to stop spending. Obama is an Alynskyite, which makes him a pragmatist.
The world economies cannot adjust quickly enough to the US consumer going from being a spendthrift to a penny pincher. Demand may continue to shrink at record rates and this may have been a suckers rally in gold and commodities.
Correction, if you read my comments you will note i have been predicting and calling this an inflationary bear market rally.
Not to blow my own horn or anything but i predicted 666 as the current bottom also..........Take that Cramer!
Interesting comment. Similar in tone to many here on SA. Could say a lot about the mindset of the general investing public (or maybe just about the mindset of people who make comments on sites like this). Why would a person "like" the idea of stocks going down? A short-seller...who stands to gain from a decline? Or, an investor...who wishes to buy a favorite stock at a lower price? Or...maybe just a guy who doesn't own stocks, and relishes the idea that those who do will suffer losses?
Either way...notwithstanding the concerns expressed by some financial pundits that currents levels of bullishness are evidence of the inevitability of further declines, I'm glad to see the bears are as pessimistic as ever here on SA. Makes me think this rally could still have legs.
On May 24 08:52 AM Steven Alexander Fortin wrote:
> I like the name of the post but the post doesn't explain why stock
> are headed lower, it doesn't even mention it.
Comparing the current valuation of the market to its irrationally high peak is an exercise in irrelevance. Because the DJIA is still way off its high, the 50% increase I've enjoyed since entering the market at the end of February is not real? I should be buying real estate and gold instead? Ask the guys in California and Nevada how they're faring with their real estate "investments" of 5 years ago. Tell me how my now-retired friend has outpaced inflation with the gold he bought at $450 in 1988?
Your concluding statement, viv a vis the stock market, is no more germane to real estate or precious metals. After all, if gold goes to $3000 an ounce, but you’re celebrating by drinking a $150.00 coke… are you really any richer?
On May 24 09:33 AM TATyszka wrote:
> I don't understand the point of this statement: "Similarly, no one
> mentions that adjusted for inflation, stocks are still WAY down from
> their peak during the Tech bubble."
>
> Comparing the current valuation of the market to its irrationally
> high peak is an exercise in irrelevance. Because the DJIA is still
> way off its high, the 50% increase I've enjoyed since entering the
> market at the end of February is not real? I should be buying real
> estate and gold instead? Ask the guys in California and Nevada how
> they're faring with their real estate "investments" of 5 years ago.
> Tell me how my now-retired friend has outpaced inflation with the
> gold he bought at $450 in 1988?
>
> Your concluding statement, viv a vis the stock market, is no more
> germane to real estate or precious metals. After all, if gold goes
> to $3000 an ounce, but you’re celebrating by drinking a $150.00 coke…
> are you really any richer?
>
>
>
>
My take is the author is showing us what inflation does to prices.While they are higher on say a pricetag level,they are lower in the sense of value.I dont believe he is nessasarilly calling a direction of the market,but calling plays of value.
On May 24 08:52 AM Steven Alexander Fortin wrote:
> I like the name of the post but the post doesn't explain why stock
> are headed lower, it doesn't even mention it.
On May 24 08:54 AM JMac wrote:
> The inflation/deflation debate is a US dollar debate, which remains
> unsettled. Last weeks action furthered the inflation argument.
> But, if the US cannot sell its securities, it may be left with rising
> interest rates.
>
> That may, strange as it sounds, result in a return to deflation,
> if the US government is forced to reverse course and the largest
> spender is forced to stop spending. Obama is an Alynskyite, which
> makes him a pragmatist.
>
> The world economies cannot adjust quickly enough to the US consumer
> going from being a spendthrift to a penny pincher. Demand may continue
> to shrink at record rates and this may have been a suckers rally
> in gold and commodities.
On May 24 08:43 AM prudentinvestor wrote:
> You are right. I would add that a multi-generation peak in the value
> of stocks and real estate is now behind us (after adjusting for actual
> inflation, not reported inflation which may be inaccurate). Stocks
> peaked ca 1999, and real estate ca 2006, and after adjusting for
> true inflation, both are unlikely to recover these peaks for several
> decades.
>
> The Fed's policy of inflating assets faster than the general rate
> of price and wage inflation has simply been exhausted, and although
> attempts to resume it are apace, further efforts of ZIRP/QE will
> simply result in price inflation greater than asset inflation, and,
> most likely, also greater than wage inflation.
the great majority of people are net loosers from greenspan's attempt to fight deflation after 9/11. Not of course Chuck prince, et al.
On May 24 08:43 AM prudentinvestor wrote:
> You are right. I would add that a multi-generation peak in the value
> of stocks and real estate is now behind us (after adjusting for actual
> inflation, not reported inflation which may be inaccurate). Stocks
> peaked ca 1999, and real estate ca 2006, and after adjusting for
> true inflation, both are unlikely to recover these peaks for several
> decades.
>
> The Fed's policy of inflating assets faster than the general rate
> of price and wage inflation has simply been exhausted, and although
> attempts to resume it are apace, further efforts of ZIRP/QE will
> simply result in price inflation greater than asset inflation, and,
> most likely, also greater than wage inflation.
On May 24 09:20 AM maxe wrote:
> "No one mentions that this rally may actually be induced by the Federal
> Reserve pumping trillions of dollars into the financial system."
>
>
> Correction, if you read my comments you will note i have been predicting
> and calling this an inflationary bear market rally.
>
> Not to blow my own horn or anything but i predicted 666 as the current
> bottom also..........Take that Cramer!
Around the beginning of the meltdown in October I read a series of articles, but I can't remember where to find them, by a guy showing that even though stocks had been rising in numerical terms, the goods and services equivalent buying power of those inflated stocks was flat or declining.
So if a stock sold for $10 in 1960 and the same stock sold for $30 in 2008, it looks like its 'value' has tripled. But if a pair of jeans sold for $6 in 1960 and the same jeans sell for $60 in 2008, then the price of your stock has lost purchasing power when you go to convert its 'value' into jeans.
Graham Summers is making this same point. Even though stock prices have risen a lot since 1928, consumer prices have risen more. So if you bought a basket of stocks at 1928 prices and sold them at the recent peak in 2008, you would have actually lost purchasing power when you convert your stocks into consumer goods.
So if Summers is saying stocks are still going down, what he is implying is that he thinks consumer price inflation will continue to rise faster than stock price inflation, which would mean that stocks are not a good means of holding value.
I agree that some stocks will not hold value going forward, but I think others will. The index may not hold its value, but individual stocks might. The US$ has been declining recently relative to other currencies and it seems the powers in Washington and Wall St and the Fed are doing their best to make sure this trend continues by inflating the US$ money supply. So stocks whose prices are denominated in US$ may go up, but their foreign exchange value could still go down.
The US imports a lot of commodities, especially oil, so it will take more inflated US$ to buy the same basket of imported commodities. If you believe this is what is happening then good stocks to hold would be energy and other commodity stocks, because the US$ price of these imported commodities will rise along with US dollar inflation.
The CDN$ has been rising relative to the US$. I bought Suncor (SU-Toronto) near its bottom and have enjoyed watching its share price double. I recently bought OPTI (OPC-Toronto) in a really depressed state. Both of these are Alberta tar sands companies and I think they are good long term stores of value. But who knows? Cap and trade or other government attacks on the energy industry may make these the worst kind of stocks to hold.
Gold seems able to hold its value but gold prices could also be manipulated by big players like central banks, Wall St banks and hedge funds. And if we ever go back to a gold-backed international currency system, will our gold be confiscated like it was in 1933? Nothing is certain. The future is not predictable.
One of the very reasons to hold gold is this whole dilemma.
On May 24 10:01 AM JMac wrote:
> Inflation adjust gold if you're going to inflation adjust the market.
> Then compare realtive increase/decrease.
> I do not understand the neg. vote to this comment.
There are lots of trolls who give negatives simply because they can.
Listen to your inner voice. Look around you, talk to the people in your life - your family, your neighbors, your fellow workers (if you are fortunate enough to still have co-workers) - and then decide in your own heart of hearts whether you think things are getting better or not, or whether you or the most important people in your life see things getting better anytime soon.
The financial and political media, the government, the brokers, the banks, the people of power, the spinmeisters all have their own agendas, their talking points, their motivations, their OPINIONS, because they are all incentivized politically, financially and philosophically to convince you that THEIR contrived reality is the correct reality, that THEY know better than you how things in your life really are and will be in the future.
The US dollar index has collapsed from 120 to 80 since 2001 - are YOUR dollars buying more or less food for your family today, who do you know is obtaining jobs today, or losing jobs, going on unemployment, running out of unemployment, starting a business, shutting down a business... who do you know is buying a house, losing a house, trying unsuccessfully to sell a house.. buying a car, building an addition? What is the topic of conversation at the local coffee shop, the gym, the supermarket line? What do your children ask you about at the dinner table - are they happy, well adjusted, optimistic, thriving, or are they acting out, having trouble at school, trouble sleeping, asking you uncomfortable questions that suggest an underlying fear they had never exhibited before?
This financial catastrophe we are all living through is a heinous thing, a fearsome attack on most of the things we as a People have heretofore held to be true and inviolable, it is transforming our malleable national soul, our optimism, our hope for our collective future, but more and more it is also a terribly PERSONAL event that will forever mold our individual consciousness and our outlook on what we expect from our leaders, our economy, our community, and it will affect how we value our family, our friends, the people we interact with every day for the rest of our lives.
There are a hundred articles we can read every day that will gladly overwhelm us with charts and facts and numbers and learned quotes and OPINIONS.
But at the end of the day we must all look inwardly, and in the cold harsh light of reality decide for ourselves what is the right thing to do for our investments, the important people in our lives, and our conscience.
On May 24 09:18 AM beach7 wrote:
> One day I read that Stocks are heading up, the next day I read that
> we are still in a Bear Market. Worse yet, from two separate writers
> of the same Publication, 2 totally different ideas. No matter if
> it is Seeking Alpha or the Wall Street Journal. After listening to
> the Media for the past 30 years, I've come to the conclusion that
> they are right 50% of the time just like all of us. The Political
> Media has an agenda and is seldom right. I have seen that when the
> Financial Media writes Good Positive Stories the Market Goes up.
> When they write negative stories the Market goes down. Who do we
> listen too?
Or consider this: If the Great Moderation of the last 25 years has seen the purchasing power of the consumer dollar cut by more than half, imagine what 6 percent inflation would do.
On May 24 10:33 AM derryl wrote:
>even though stocks had been rising in numerical terms, the goods and services equivalent buying power of those inflated stocks was flat or declining.
>
> So if a stock sold for $10 in 1960 and the same stock >sold for $30 in 2008, it looks like its 'value' has tripled. But >if a pair of jeans sold for $6 in 1960 and the same jeans >sell for $60 in 2008, then the price of your stock has lost >purchasing power when you go to convert its 'value' into >jeans.
That's the problem with choosing one data series to make a point. It doesn't present the complete picture, much less a clear and accurate one. Tyler Durden wrote a recent (ostensibly "shocking") article showing how the dollar has declined in value by 94% over the past 76 years. What he didn't show, though, was that 76 years ago, the average annual earnings were 94% less. So, essentially, your wages have kept you even with inflation, and anything else you have made from the stock market, gold, real estate, or what-have-you, is alpha.
www.mutualfundwealth.com/
On May 24 08:09 AM DONE_SONZ wrote:
> It's like magic until ya look behind the curtain.Good article.
Stocks, on the other hand, are a totally different deal. The 1999/2000 high, as adjusted for size of GDP and risk free interest rates (as represented by the 10-year treasury yields), will probably not be seen for another 50-75 years. However, adjusted for size of GDP and interest rates, todays market is currently at 16% of that high, and when we were at 677 on SP500 (the low) and interest rates (10-year treasuries) were yielding 2.7%, we were at 6% of that 1999/2000 high. Stocks are grossly oversold, even for a slightly deflationary economy. They will be the investment to be in for the next 7-10 years, as that 16% of the high level works its way back up to 50% - 60% of the high.
I'd submit, though, that there are a substantial number of people (I include myself in this) who view Au not primarily as a commodity like Cu or soybeans, but rather as Money, as in "Store of Value". It functions really, really well in this role because of its universal acceptance when things really go south from Leave-it-to-Beaver-Land.
It is important to recognize this. It is also important to recognize that psychology may make PMs go parabolic; as usual, the trick will be figuring out when exactly to take profits. At some point I'll be a seller, although I'll always maintain a hedge in gold.
May be our smart people should spend more efforts in the latter important things, other than for short term personal gains; at the end, even if one gains by investing in gold and commodities, the real gains are really very limited when all things are taken into considerations, unless there are progressive improvements in job creations, in real estate demands, and in general investments, including the stock markets.
The focus here is on sharing information and strategies for wealth preservation and growth. There are plenty of other sites for solving economic problems and changing the world if that is your objective. I appreciate that I can come here for ideas, advice, brainstorming and strategies for investing without going off on a hundred misdirected tangents.
Cam
On May 24 02:09 PM Responsibility wrote:
> We have many smart people advising people what to invest for personal
> gains, but these smart people have seldom advises for how to improve
> the economy. I wonder how will buying gold or investing in gold or
> in commodities can create good jobs for people or reduce trade imbalance
> or balance the deficit.
>
> May be our smart people should spend more efforts in the latter important
> things, other than for short term personal gains....
As a small businessperson and employer, I find nothing wrong with trying to figure out how to protect the wealth that I have created (such as it is) for me and mine...something to figure into your equation. I reckon others feel the same. Fact is, I feel that a lot of our economy is based on smoke and vapour, and I think I'm not the only Producer of Goods and Services who feels a little put upon when asked - or told - to acquiece to the grand plans of moguls and governments. Something to think about. I do truly enjoy these sorts of discussions...there may be hope for the lot of us, yet.
Here are the correct figures.
1/1928 - 4/2009
S&P 500 (nominal) - 4.89 % CAGR
S&P 500 (after inflation @ 3.14%) - 1.7%
S&P 500 (with div. reinvest.) - 9.13%
S&P 500 (with div. reinvest & after inflation) - 5.81%
As you can see dividend reinvestment accounts for 70% of "real" returns.
The key point is big inflation = big returns. So if inflation is coming, why would you not want to invest in realestate and stocks?. Buffet made exactly the same point.
Why do you think he owns so much coke stock? if coke is $150 a bottle, be wants a piece of the action!
On May 24 11:04 AM Freya wrote:
> TAT: like the positive I just gave you, Just because you are right.
>
>
> No commentator believes his/her comment is irrelevent, ergo its a
> Good comment.
>
> If I answer somone's question and receive a thumbs down just for
> answering it, I have an automatic policy of Giving Myself a Thumbs
> Up.
>
> You Can do it, everyone Can do it.
On May 24 11:33 AM accountant wrote:
> In the early eighties, gold was over $800 per ounce and the gold
> advocates could see no end to the increasing prices. Today, gold
> is a bit over $900, which, ajusted for inflation back to early eighties,
> puts it at about $300 in early eighties dollars. It was a lousy
> investment then - and will prove to be a poor investment today in
> 20 years from now - though not as bad as it was in eighties, but
> still a poor investment. Reason? - 98% of all gold mined still exists,
> as such, there is too much gold in the world to support a significant
> increase in prices. Gold over a certain price level looses its functionality
> - and therefore, its value.
>
> Stocks, on the other hand, are a totally different deal. The 1999/2000
> high, as adjusted for size of GDP and risk free interest rates (as
> represented by the 10-year treasury yields), will probably not be
> seen for another 50-75 years. However, adjusted for size of GDP
> and interest rates, todays market is currently at 16% of that high,
> and when we were at 677 on SP500 (the low) and interest rates (10-year
> treasuries) were yielding 2.7%, we were at 6% of that 1999/2000 high.
> Stocks are grossly oversold, even for a slightly deflationary economy.
> They will be the investment to be in for the next 7-10 years, as
> that 16% of the high level works its way back up to 50% - 60% of
> the high.
of "666". In metaphysical terms this number signifies bondage to materialism, enslavement of some kind (increasing government control of the called free market system?). Last week I observed on ESPN commentary along the lines of creating a "new market" by one of the members of a house subcommittee. This rally could be quite deceptive, damaging to unwary investors. Don't see it lasting very long.
EDT
Chicago, Illinois
Prechter pointed that out in his books but did not follow his own rules when the Market Crashed in 1987. At that point in time, the Constant Dollar Dow had not gone to new all time highs.
The Point is that in Real Terms, the Dow has gone up. No matter what the so called Analyst says, his own Chart Tells the Truth.
And like the Inflationary figures he likes to bandy about, he has decided not to include the Deflationary forces at work in the Housing markets for the last few years.
Pick and choose, I pick whatever I can to support my View.
The Dow-30 was valued at 240 in 1928. So in relation to gold, and having no growth whatsoever, I would expect it to be valued at 240 times 47.85, or 11484 this past Friday. It was valued at 8277. That means that in 81 years of holding the market, I have lost 27.9% in real purchasing power, as purchasing power relates to gold. To rub salt into the wound if I sold everything, I would have a capital gains tax to pay on all of my (HA HA HA HA) capital gains. i.e. 8277 - 240 = 8037 times 15% = $1205.55 in capital gains tax. So my real loss is more like -38.4%.
But, guess what? When I bought that Dow-30 in 1928 I conservatively anticipated that I could expect a 1% per year growth rate on average. That would have compounded by 124% over the 81 year stretch. So 240 times 124% plus the 240 would have my Dow worth 537.60 (in 1928 dollars) That is a 25,724 Dow -30 value in today's dollars. Do you get the picture??
A very good article as an eye opener. I hope I have opened a few more.
I am a market timer and have a very good model to guide me through this. When one can compound gains at more than 25% per annum on average the effects of inflation are well overcome, and gold is used primarily to measure how badly our dollar is being ruined systematically, and how the system is systematically raping the buy and hope type investor.
Check me out....StrategicTrendT...
"No one mentions that this rally may actually be induced by the Federal Reserve pumping trillions of dollars into the financial system."
Uh, It's more like everyone mentions that. It's not exactly an original thought.
And "[T]he Government’s phony measure of inflation: the Consumer Price Index [CPI] which DOESN’T include food or energy prices."
Wrong again. According to the Bureau of Labor Statistices, which compiles the CPI, the BLS has not removed food or energy prices in its official measure of inflation.
From the BLS Web site: "The BLS publishes thousands of CPI indexes each month, including the headline All Items CPI for All Urban Consumers (CPI-U) and the CPI-U for All Items Less Food and Energy. The latter series, widely referred to as the "core" CPI, is closely watched by many economic analysts and policymakers under the belief that food and energy prices are volatile and are subject to price shocks that cannot be damped through monetary policy. However, all consumer goods and services, including food and energy, are represented in the headline CPI. Most importantly, none of the prominent legislated uses of the CPI excludes food and energy. Social security and federal retirement benefits are updated each year for inflation by the All Items CPI for Urban Wage Earners and Clerical Workers (CPI-W). Individual income tax parameters and Treasury Inflation-Protected Securities (TIPS) returns are based on the All Items CPI-U."
Interest rates will go up because:
1. Capital (not dollars) is scarce.
2. Credit worthiness of U.S gov't and population is declining.
3. Either Fed raises rates to "mop up" excess liquididty or inflation ignites.
4. Social Security becomes a net seller of bonds.
Gold may or may not outperform other commodities, but it will maintain a store of value. After interest rates rise - look for 15% mortgages - it will be time to sell gold and buy financial assets.
Those who dislike AU will be given an economics lesson.
Made famous by a 19th century French painter, it became the symbol for glory and wickedness that symbolized ancient Rome. Hmm...
On May 25 08:20 AM dividendmachine wrote:
> where the Dow has
> lost more than 20% my investment paid more to me in dividends than
> I paid for the stock
>
> And my Mo Pm and KFT shares have appreciated over 200% in that time
> span
>
> buy the right stocks at the right prices and you will build wealth
> like Buffett
Second point to consider: Does anyone know the actual number of shares (of stocks) available out there in any given day? Combine this with the shrinking amount of money available for investing resulting from job losses, mutual fund & 401-k redemptions, and you get the picture...stocks have nowhere to go but down!!! No rocket science needed here!
The thing to know is how inflation will affect various investments. One big mistake many investors make is to forget that inflation drives up the price of everything while the value of the dollar is lowered. Initially inflation will drive up the cost of commodities as people spend rapidly to keep from holding dollars that are worth less each day. This drives down the price of stocks in comparison but creates the stock investor's dream: an artificially deflated stock market. You see, those higher prices will soon make their way throughout the economy and into stock prices. Look at the 1980's as an ideal time to invest BECAUSE of inflation.
The wise investor is always on the lookout for markets that are artificially inflated or deflated as they offer the opportunity to generate above average profits. The typical investor often finds himself coming to the game late. If you want an example of that just watch the vast majority of pundits and analysts on CNBC as they would look like fools by telling you to sell short during a rising market in late 2007 (or now) and would similarly look foolish telling you to go long in March 2008; July 2008; November 2008 or March 2009.
Right now the market is up 30-40% in two months...what to do, what to do?
Buy low, sell high; it's easier said than done.
Take a look at history and you can see that we are in a deflationary period and that inflating the economy only serves to balance things out. Likly the deflationary period will lengthen greatly to adjust for the extra inflation and we should not expect high growth any time in the next several decades like we saw after the dramatic deflation we had in the early 1930's.
It is almost certain we will see the same type of anemic growth that Japan has has for two decades now.
How to invest? Gold doesn't seem to make sense in deflationary periods but because of the uncertainty of such times Gold offers a valuable stability. Also, inflation is likely to rear its ugly head now and then or even permantently as the Fed plays around with things they really can't control, as history shows quite clearly.
The stock market is likely to suffer no matter what simply because it had become so bloated. Bear market rallies will serve to entice those who want to make up what they lost on the quick while either inflation or deflation serve to revalue stocks to more reasonable levels. The major indexes are still over their trend averages and valuations remain rich as investors refuse to give up the 20 Price/Earnings valuations that they became so used to in the last two decades.
fredissy, if you bought anything in 1928, you would either be Long Dead or in some Care Center.
Very funny! But the point of the article was to engage in an exercize in relative values. What part of gold costing 47.85 times more now than it did in 1928 did you not understand?
This is not a forum for stupid attacks like yours. By the way.... I am 105 years old.....I am not in a day care center....I am sure I could beat you in an arm wrestling contest....and, I used to date your grandmother back in 1928!!
After all, if the Dow hits 30,000, but you’re celebrating by drinking a $150.00 coke… are you really any richer?"
Your point is really mute although right. Bottom line - still need to buy stocks now? No, DOW is headed to 5000. Because the sentiment is bullish now.
Your chart's blue line with the line horizontal line looks to me that a "Double Top" formation had been complete and is ready for a sharp decline.
Much had been crystal-balled about the market's movement form here. The incentives for a vigorous business spurt in investment, which are the driving engines behind a new bull market, are just no there, at least for now and the near future. Too much debt, rising unemployment, dwindling corporate profits.
Teutonic
Indeed the price of goods and services are linked to inflation and can be extrapolated for future years from previous year. Yes, we cannot deny a $1 item now will cost $5 in 20 years and must have been around for 20 cents 10 years back as inflation and purchasing power are integral parts of economics. Here we can talk about CPI, PPI and all other economic indicators reflecting the price of GOODS & SERVICES.
However this does not apply to the price of equities, a company share price of $10 ten years back cannot be assumed to be worth $50 now, what happened to Enron, WCOM and many others DOWn the drain. On the other side Google, Microsoft and the like should not be worth more than $5 splits ignored.
Present value can only be linked to earnings, net worth and future potential to name few, and Market value is only what traders are willing to pay for the shares and may not (does not) reflect true Present value.
By all circumstances, present value and market value have nothing to do with inflation, projected growth or no growth at all. It is dependent on the success and failure of companies, industry sectors, markets and the economy as a whole.
Market price is only linked to earnings potential and future speculation. Investment is all about how much money we expect to make, otherwise GM @ $30 in the 60’s should be at least $100 by now.
Thank you for reading.
In turbulent times, only the most aggressive and sharp minds will prevail, not to mention large and strong institutions. Hence, most of us retail investors must suffer.
Savings will not help much against hyperinflation. Gold could go back to $300, Gold has after all been one of the worst investments of the last many decades.
Demand will not pick up for a very long time. People kept waiting until 2005 for the tech demand to pick up and it never did. Now they are waiting for the commodity demand to pick up. Meanwhile there is a bubble brewing right now that retail investors will be told to buy when it is close to bursting.
I will say that we must hold onto some of those dollars since we will have high interest rates sooner or later. A 20% sure return on USD savings will be great rather than putting money on commodities which will not see the demand at 2006 levels for another 10-15 years.
On May 24 09:18 AM beach7 wrote:
> One day I read that Stocks are heading up, the next day I read that
> we are still in a Bear Market. Worse yet, from two separate writers
> of the same Publication, 2 totally different ideas. No matter if
> it is Seeking Alpha or the Wall Street Journal. After listening to
> the Media for the past 30 years, I've come to the conclusion that
> they are right 50% of the time just like all of us. The Political
> Media has an agenda and is seldom right. I have seen that when the
> Financial Media writes Good Positive Stories the Market Goes up.
> When they write negative stories the Market goes down. Who do we
> listen too?
On May 24 08:54 AM JMac wrote:
The inflation/deflation debate is a US dollar debate, which remains unsettled...
Here is another simple measure. I bought $10,000 worth of shares in a growth stock fund in early March. When I now look at my statement it claims that those shares are now worth $13,563. It looks like those stocks are UP to me. Even if I adjust for inflation (#3) or annualize (#1), they still seem to be up quite a bit... ;-)
GNE
On May 24 08:52 AM Steven Alexander Fortin wrote:
> I like the name of the post but the post doesn't explain why stock
> are headed lower, it doesn't even mention it.
Also, if the above chart is correct and is indicating that on an inflation adjusted basis stocks are now at 1965 levels, then one might also see that as a generational buying opportunity (I'm not necessarily arguing that, just posing it as a possible point of view).
I do think that it is possible that we have seen a generational financial panic bottom recently. Check my new piece: seekingalpha.com/artic...
On May 24 10:01 AM JMac wrote:
> Inflation adjust gold if you're going to inflation adjust the market.
> Then compare realtive increase/decrease.
On May 25 02:38 AM fredissy wrote:
> The Dow-30 was valued at 240 in 1928. So in relation to gold, and
> having no growth whatsoever, I would expect it to be valued at 240
> times 47.85, or 11484 this past Friday. It was valued at 8277.
> That means that in 81 years of holding the market, I have lost 27.9%
> in real purchasing power, as purchasing power relates to gold.
> To rub salt into the wound if I sold everything, I would have a capital
> gains tax to pay on all of my (HA HA HA HA) capital gains. i.e. 8277
> - 240 = 8037 times 15% = $1205.55 in capital gains tax. So my real
> loss is more like -38.4%.
> But, guess what? When I bought that Dow-30 in 1928 I conservatively
> anticipated that I could expect a 1% per year growth rate on average.
> That would have compounded by 124% over the 81 year stretch. So
> 240 times 124% plus the 240 would have my Dow worth 537.60 (in 1928
> dollars) That is a 25,724 Dow -30 value in today's dollars. Do
> you get the picture??
> A very good article as an eye opener. I hope I have opened a few
> more.
> I am a market timer and have a very good model to guide me through
> this. When one can compound gains at more than 25% per annum on
> average the effects of inflation are well overcome, and gold is used
> primarily to measure how badly our dollar is being ruined systematically,
> and how the system is systematically raping the buy and hope type
> investor.
> Check me out....StrategicTrendT...
A falling dollar and inflation have the same net effect: higher prices for things priced in dollars, and dollars are what most of us view the gold price with. Since other countries are also inflating their fiat currencies, the forex comparison is complicated, but it's significant that "commodity" currencies such as CAD and AUD rally right along with gold, while the picture of USD vs. other non-commodity currencies is mixed. Therefore, if one has investments in the Australian and Canadian commodity producers and being paid dividends in their currencies, there is a dual benefit.
I don't think it's likely that US stocks will appreciate at anywhere near the rate of inflation we're likely to see in the near future. The fundamentals argue loudly against this. If more people sell than buy, the stock prices are going down, in spite of inflation. Gold prices, meanwhile, will at least match the inflation rate. People who own gold will benefit by paying off their fixed-rate mortgages way early. I'm personally looking forward to that.
I didn't think so. The title of this article/opinion piece is totally illrelavent in time and space. So to is the "methodology" that creates the false foundation of this article in so much as it asserts the realvancy for an infaltion adjusted "dow".
It's as bricki says.
seekingalpha.com/artic...
...your instructions then were: "This is dollar positive and negative for commodities. Invest accordingly."...but NOW we need to protect ourselves from the "beast"...well, gee, thanks...I think maybe I'll just go flip a coin, instead.
Gold offers no real returns. No thanks.... I'll stick to my huge income stream from MLPS and other yield securities such as preferreds. Gold offers bupkis. No dividends. Just wasted opportunity. Unless it is a short term tactical trade in periods of geo-political turmoil.
Oh, did I mention being up over 70% YTD, and 120% since November? Lots of positive real opportunities and not a pipe dream hoping for failure and meltdown. While you guys are waiting for your big "break", I am doubling my money.
Lastly, love all the intentional omission of the dividends when discussing stocks. Many are out there with increasing distributions. (see MLPS). Alerian MLP index is up over 525% since 1/1996. Over 31% annualized. Stick that in your GOLD pipe and smoke it.
It would be nice to read a positive article on Seeking Alpha sometime instead of the same tired negativity.
theburningplatform.com...
You should do the same (as best you can).
National Health Care discussion in America proves Americans are absolutely crazy. Unless you think homeless guys buying 50" HDTVs is sane.
Also, what happened to dividends? This is interesting from a price index perspective, but dividends are a key contributor to overall performance, and they are effectively being ignored. Thrown those into the mix, particularly if reinvesting dividends back into the market, and the prognosis changes considerably. I've yet to see a gold bar provide me with any type of a dividend over time.
I'm curious as to what you use to measure actual inflation that you mentioned in your comment? The CPI is obviously a total joke.
On May 24 08:43 AM prudentinvestor wrote:
> You are right. I would add that a multi-generation peak in the value
> of stocks and real estate is now behind us (after adjusting for actual
> inflation, not reported inflation which may be inaccurate). Stocks
> peaked ca 1999, and real estate ca 2006, and after adjusting for
> true inflation, both are unlikely to recover these peaks for several
> decades.
>
> The Fed's policy of inflating assets faster than the general rate
> of price and wage inflation has simply been exhausted, and although
> attempts to resume it are apace, further efforts of ZIRP/QE will
> simply result in price inflation greater than asset inflation, and,
> most likely, also greater than wage inflation.
On May 27 01:21 AM Smackdown wrote:
> Shorts tend to be a bunch of lemmings regurgitating the same vomit.
> Chart this, technicals that. All BS in this market that changes
> everyday. No offense. ;)
>
> Gold offers no real returns. No thanks.... I'll stick to my huge
> income stream from MLPS and other yield securities such as preferreds.
> Gold offers bupkis. No dividends. Just wasted opportunity.
> Unless it is a short term tactical trade in periods of geo-political
> turmoil.
>
> Oh, did I mention being up over 70% YTD, and 120% since November?
> Lots of positive real opportunities and not a pipe dream hoping for
> failure and meltdown. While you guys are waiting for your big "break",
> I am doubling my money.
>
> Lastly, love all the intentional omission of the dividends when discussing
> stocks. Many are out there with increasing distributions. (see
> MLPS). Alerian MLP index is up over 525% since 1/1996. Over
> 31% annualized. Stick that in your GOLD pipe and smoke it.<br/>
>
> It would be nice to read a positive article on Seeking Alpha sometime
> instead of the same tired negativity.
Currently long bonds and TIPS are not signaling inflation - so don't jump on the inflation bandwagon.
I own JNJ PEP MMM ABB CHL among others.
If a new car that used to cost $20,000 is marked down to $1,000 and you only have $100...would you consider the car "cheap"?! What good is the price of stocks going down (even if it becomes a much better value) if one doesn't have the funds to purchase it?! Now is probably a great time to buy stocks, that is, if you didnt lose most of your money already iin real estate, stocks, and/or job. Madoff was responsible for the loss of $50 billion....how much more money did Paulson's actions cause us to lose?! Nobody ever talks about how Paulson is a crook and he can and will get away with it.
I only have a little money left to invest in an IRA (to protect the little money I have left) because I will have to file for bankruptcy.
One thing made me feel better was when I spoke with two different people about one of my huge losses......one said he had lost almost all his money on a failed investment and seemed like it didnt bother him as much as I thought it would (seems like he moved on or something) and with another person who was almost a millionare but had cancer (and said he would trade all his money for good health).
On May 28 10:49 PM Worldisflat wrote:
>
> The fact that the 'pros' come out in force in the last hour is not
> news, just as the fact the the first hour of the day has always been
> amature hour. And the TICK is of some use but, like many other indicators
> of prior value, it too has become full of statistical noice to the
> point of becoming only marginally valuable. i found this interesting
> site of xrl.us/stocksrf lots of links to finance and economics
> articles
You can find new Levi's (considered high quality) jeans on sale for $10 fairly easily if you just look around. Considering inflation, $10 compared to $6 in 1960 is really not that bad. Try e-bay if you don't believe me. You can also find clothes made with new materials that are better than any materials available in the 1960s -- and for fairly cheap. Furthermore, you can find technology built based on today's commodities which wasn't available in the 1960s. Look at the iPhone for example. Such technology was only the subject of science fiction in the 1960s! This puts a higher intrinsic value on the commodities themselves, because they are now being used to build technology that vastly changes the way we live.
The point is, it's just not fair to compare today's world with the 1960s in such a restricted fashion. The game has changed. So, compare stock prices until you are blue in the face, but you're missing a vital piece and I challenge you to include what I've described into your thinking. If you do, I believe you'll see that we aren't behind at all. At worst, we're even, and at best, we're much further ahead.
Frankly I'm tired of all of the naysayers and doubters, of the cynics and critics. I think it's important to be a skeptic, but you people are just downright negative. It gets old. Maybe you should go out and get some exercise or take a load off some other way, because to me it's obvious that something is causing a doom-and-gloom attitude (especially on Seeking Alpha) when what we need right now is optimism tempered with skepticism and a nice healthy dose of pragmatism.
I don't see that here, not at all.
Now, please proceed to prove me right and click on the thumbs-down icon.
On May 29 06:40 PM chaad wrote:
>
> Look what's happening. We got record deficits, sky high unemployment,
> jobs going away,
>
> corruption on the highest levels of government, a tax thief as our
> sec. of state, and a perpetuation of Greenspan's and bush's fiscal
> policies. just inflate your way to prosperity huh? **** the middle
> class. Who needs them, as long as the elite can further solidify
> their power with every uptick in the DJIA. and the dumbfounded, ignorant
> populous aren't helping matters.
>
> I came across this interesting site..check it out url.moosaico.com/10424
> lots of finance & econ articles
>
> .
Your logo says "Investment Reseach"
(missing the "r")
Just FYI.
Thx
On May 27 08:33 AM pockyclips 2020 wrote:
> Not to mention that the Dow of 1928 isn't the same Dow of 2009. I
> believe GE is the only stock left of the original Dow. So this metric
> is also suspect.
On May 29 09:17 PM LivingFractal wrote:
> Most people take the glass-is-half-empty approach, like you have
> here. Look at the other side of the story. People live longer, and
> have more leisure time. The overall quality of life has increased,
> despite your waxing and waning about inflation and corruption and
> the rich stealing money from the middle and lower classes. Entertainment
> is richer and the culture we live in is finally starting to take
> the enlightened viewpoint of racial and gender equality. We have
> elected a black president -- this wouldn't have been possible in
> the 60s.
>
> Frankly I'm tired of all of the naysayers and doubters, of the cynics
> and critics. I think it's important to be a skeptic, but you people
> are just downright negative. It gets old. Maybe you should go out
> and get some exercise or take a load off some other way, because
> to me it's obvious that something is causing a doom-and-gloom attitude
> (especially on Seeking Alpha) when what we need right now is optimism
> tempered with skepticism and a nice healthy dose of pragmatism.<br/>
>
> I don't see that here, not at all.
>
> Now, please proceed to prove me right and click on the thumbs-down
> icon.
On May 24 08:52 AM Steven Alexander Fortin wrote:
> I like the name of the post but the post doesn't explain why stock
> are headed lower, it doesn't even mention it.