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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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.