How Inflation Concealed the DJIA's Precipitous Decline over the Last Decade 12 comments
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The DJIA may seem to have been stagnant since the bursting of Nasdaq bubble (give or take 10%, depending on when you measured the price level), but taking a closer look at these major market indices paints a much more clear picture of reality. Sure it is roughly the same level (hovering around 9-10k) around 2000, but nominal values have distorted the true performance and likely fooled many retail investors into thinking they have at least broke even (though even that is not a comforting feeling either). But as we have been able to ship much of our inflation abroad for the time being in addition to fooling the everyday investor into thinking inflation has been rather benign over this time period, most things in the investment world require taking a closer. Looking behind the smoke and mirrors often paints a much more disturbing picture, as is the case regarding the Dow Jones. To give a rough idea behind what I mean it is best to compare the performance of the DJIA to such things as Oil, Gold, Silver or a more mainstream comparison in the USD index.
- Oil: 30's - 40's
- Gold: $275 - $280
- Silver: $4.75 - $5.00
- USD Index: Approx 130
Many other comparisons can be made but the most popular commodities (at least most often mentioned in mainstream finance today are the aforementioned), in addition to the precious metals being considered a "worldwide currencies". So to put the real return (or lack thereof), here is a rough comparison to the performance of the asset classes mentioned above and the DJIA.
Oil 10 year performance: approx 100%
Gold: 250%+
Silver: 235%+
These DJIA obviously pales in comparison to these various asset classes, but this can alternatively be viewed by looking at the dollar debasement of the US dollar over the same time period. For those who don't know, the US dollar index is the dollar measured against a basket of other industrialized nations currencies. This method (though flawed in its own right as many countries has debased their currency, still represents approx a 42%).
On one last note, the dictionary have conveniently changed the definition of inflation from "an unnecessary increase in the supply of money in credit " to "an increase in consumer prices." Like Jim Rogers says, "Printing large amounts of money has historically caused a rise in prices," which has not shown its ugly face in the form of skyrocketing prices as of yet, but like everything else, we can't defy the laws of gravity. In other words, just because the massive increase in the supply of money of money and credit has not yet shown up in consumer prices means absolutely nothing as history has shown us.
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What language do you speak? I take it you're not an English major.
I would add, in addition to the theme that the real value of the Dow is less than appears, that whenever a company, for example, GM, is headed to oblivion, another company heading up is substituted in its place. Hence, comparing the Dow of the '30's or the '70's to the present Dow is comparing apples to oranges.
2.The great majority of the US lower class confuses increasing money in the form of rising transfer payments with increasing purchasing power and eagerly sells itself into bondage to the upper class. Many middle class Americans also suffer from money illusion and fail to or refuse to distinguish between real and nominal prices. They do notvalue the distinctions between money and real income and wealth.
Both high taxes( direct, indirect or in the form of mandates and regulations) and currency debasement occur near the end of the life of a once admirable, powerful, prosperous and vibrant polity. Both are signs that moral decay amongst the ruling class is far advanced.
3. In the USA in 2009, taxes, mandates and currency debasement are the principal economic weapons of Big Government. They are being deployed simultaneously. A ruling class that economically torments and coerces its own citizens must either metastasize into a physical tyranny to retain power or be overthrown. Persistent high taxes, malicious regulation and currency debasement cannot coexist with democracy and free markets.
'Through economic history, concentration of power and the corruption of the ruling elites has lead to debasement of the prevailing currency. Inflation has always ensued. The power to debase currency is even more cruel and vicious than the power to tax. Both are designed to the pillage the many at the expense of the very few. Inflation is an even more effective form of plunder than taxes because no one can escape it(while the anointed few profit from it as the value of their assets and their guaranteed income or revenue increases even faster than inflation). However, inflation also allows the Bosses to weave the web of money illusion into which the majority willingly ensnare themselves.'
On Sep 30 10:06 AM Graham and Dodd Investor wrote:
> Viewed in commodity terms, U.S. stocks have done really poorly, as
> is the case during the "bad" 18 years of a 35-36 year cycle.
And if you're using the DJIA as a benchmark against your own portfolio, surely you are making adjustments there.
Also, don't forget to add in the dividends for the DJIA as you do for the dividends you receive.
On Sep 30 08:19 AM Tony Petroski wrote:
> Mr. Hyperinflation: I think you have written an article that many
> will agree with.
>
> What language do you speak? I take it you're not an English major.
>
>
> I would add, in addition to the theme that the real value of the
> Dow is less than appears, that whenever a company, for example, GM,
> is headed to oblivion, another company heading up is substituted
> in its place. Hence, comparing the Dow of the '30's or the '70's
> to the present Dow is comparing apples to oranges.
People,who bet in 06 on inflation and the dollar falling against their hard asset don't seem very happy with their leveraged bets today.
Now it's time for commodities...the "real assets"
Dön't be scared with deflationary forces like unemployment,falling wages... the 2006 hyperinflation story is back...LOL
If you take an average of everythings costs over the last 8 yrs the cost is 100% higher. This means about 12%/yr inflation so even taking dividends, cap gains into account you lost big time.
Not only did you lose but retiree's, pension holders and many other lost 50% of their wealth. Yet I bet you are still republicans, right? When are you going to learn that paying reasonable taxes, good regulations, GAP accounting, etc is far better than under repubs? Now before 2000 we paid taxes enough to balance the budget and most everyones real income increased nicely and we had a great economy. Don't forget it was Bush who bailed out the banks, auto companies, AIG. Obama just had to clean up the mess and keep us out of depression.
So next time you see repubs spouting off remember what they did to the US. And help the Dems bring us back, fix our problems of health care costs, energy independence, better regulations of banks, markets, SS, medicad/care, trade balance. Being short term selfish like repubs leads to destruction. We need long term thinking or we will go into hyperinflation again.
Myself I bought, paid off in 5 yrs a modest, eff home in 92 and built an EV so I am doing well. I suggest you do the same to survive the coming energy prices that will late next yr throw us back into recession because repubs, oil/coal dems are not doing the things needed to get us off oil.
In all that time, I have never once heard a commentator grouse that the numbers were deceptive. The public knew. but official media ignored the truth. Do they really think the the average guy is so stupid? You didn't have to be a Harvard scholar to see that your groceries, fuel and other necessities were increasing exponentially while income stayed within the "norm".
But then...Social Security benefits and other indexed Government outlays would have had to be adjusted as well, so why let the truth interfere with the delusion?
Damn that Bernanke... now he's even got his fingers in the dictionary printing business.
And don't worry about your English... anybody can make a typoo. You've produced a good straightforward article that every Joe Mainstreet should read, because the media won't tell them the truths that you've observed.