Work grew boring; I took a break and watched about ten minutes of CNBC market coverage. I walked back to my cube understanding why the Cialis bottle has a warning about erections lasting longer than four hours. They had a big, giant odometer graphic on their screen with 10,000.xx in lurid, red numbers. It was the most important earnings season in YEARS!!!! They loudly announced.
This overblown hyperbole offers just another example of the American Media seeing the world as the world is not. Tyler Durden at Zerohedge.com patiently explains why the children at CNBC badly need a few minutes of time out rather than recess.
On a real basis (not nominal) the Dow at 10,000 ten years ago is equivalent to 7,537 today!
This means that if you pick a year, present the DJIA in constant dollars and compare across the years, the DJIA has fallen from 12,000 in 2000 to 7,537 today. So, if you start out in 2000, stick $10,000 in a fund that tracks the DJIA and check back in this AM… Pffffttth!!!! (Sound effect of horrified investor spitting coffee on computer screen). That leaves $6,280 of your American Dream.
Just to really twist the knife a wee tad, Durden shows us another happy chart to make our days. The DowGold Index reflects the number of troy ounces of gold to buy an index share of DJIA. In 2000, this price was 40oz. Today the price is 10oz. You can do the $10K math, while I wipe off the computer screen before my boss gets back.
David Goldman (AKA Spengler) explains why this surge in Gold is an ominous sign. In his post “Gold a Hedge and No More – Yet” he examines some of the disadvantages of Gold-bugging.
Even a rather wobbly reserve currency is a better asset than gold, whose price again crossed the US$1,000 mark last week. Gold is far less liquid than US Treasury securities, costly to store and insure, and above all far more volatile in price. Gold’s price volatility since January 2000 (the standard deviation of the daily price divided by the average) is 45%, almost triple that of the US dollar-euro exchange rate.
Spengler’s charts show that the price of gold divided by the US Consumer Price Index has gone from about 1.5 times CPI on or right before 9/11/01 to nearly 4.5 CPI. This means that the value of gold has increased dramatically compared to the prices of things that Americans typically buy. People simply do not trust the USD as much as they used to.
Then he compares gold Vs USD to foreign currencies Vs USD. The Euro has gained somewhat in comparison to the USD since 2000. The 40% appreciation over a decade suggests a gain of 3.4% per year. The Yen has treaded water. Gold has appreciated 250% since 1 Jan 2000.
All of this leaves me wondering exactly what DOW 10,000!!! actually means. Bench-marked against gold, not bloody much. We plow through one more thicket of arithmetic to strip this to the nub.
The charts at Zerohedge.com show the DJIA is at 25% of its 2000 value in terms of gold. The DJIA is at 63% of its value in terms of Year 2000 Constant Dollars. If Gold is considered a valued object of last reserve, this equals just about the 250% figure Spengler quotes in the post referenced above.
The USD has steadily hemorrhaged value against other standards of comparison. This is the only reason the Dow is anywhere near 10,000. Just think what it would look like expressed in Zimbabwean Dollars. Cramer couldn’t wait to buy! Buy! Buy!
So the financial reporters celebrate the skyrocketing DJIA. Politicians tell us the recovery is in full swing. In apposition to the official propaganda erupting from the TV screens, wise, experienced people quietly fill their vaults with gold. They could be buying the DJIA instead, but trade volume suggests they are not.
It’s a reason for the prudent man to worry but not panic. Panic time comes when the Peter Lynches of the world quietly buy survival gear and lots of canned food. In the meantime, anything Cramer tries to sell you is a screaming buy. Your eviscerated dollars won’t buy you a heck of a lot else.
Moe Lane
Steve Maley
Dan McLaughlin
Neil Stevens
Daniel Horowitz
Recommended because I think economics is on the same level as witchcraft.
Xasteius (Diary) Thursday, October 15th at 9:41PM EST (link)Granted, I’ve tried to self-educate myself in macro econ, and I took micro in high school, but still….
Another indicator to watch: <a href=”http://timesandseasons.org/index.php/2009/01/the-mormon-index/”The Mormon Index.
Don’t leave the party, hijack it back!
The only poll that counts is the one at the ballot box.
I don’t want to be Reagan. I want to be a Chance/Soros hybrid.
Ask, "What's happened to my share/claim of world wealth?"
6eorge Jetson (Diary) Thursday, October 15th at 10:19PM EST (link)Measurements are best made with stable units. If your mass stayed constant over your adult lifetime, a timeseries of your weight in Oprah Winfrey’s would show considerable variation.
Similarly, if a Japanese or European investor had exchanged Yen\Euros for dollars in the spring, invested the dollars in US stock market back then, waited until today, sold his US stock holdings for dollars, and then converted the dollars back to Yen or Euros, that investor would be wondering what CNBC was making a fuss about*. The Japanese/European investor wouldn’t have significantly more Yen/Euros now than he did before he made the investment in the spring.
*If the folks at CNBC are smart but misleading, it’s about ratings. They go up for CNBC in good markets.
Whenever Gen'l. Lee got a Yankee newspaper
Achance (Diary) Friday, October 16th at 4:50AM EST (link)the first thing he looked for was the value of the Yankee paper dollar in gold and British Pounds. Were I an enemy commander, I’d figure I was winning right now.
In Vino Veritas
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dave_in_atl (Diary) Friday, October 16th at 12:20PM EST (link)Illusionary bull market or not my stock portfolio is looking great (although I only started investing in Jan
)
I was lucky though… I got out of my silver investment back when it was trading at $20/oz so I pulled over 100% profit seeing as I bought in at $9.50 a few years prior
Also did well with some gold investments, but not nearly as well as silver.
Used all my profits from cashing in my silver to hop into the stock market, and so far I have almost doubled my money in less than a year.