"I had no idea how bad it was," my friend Richard Smith told me after crunching the numbers...
Richard (founder of the excellent TradeStops) should know about crunching numbers... He has a Ph.D. in "mathematical systems theory." I'm not sure what that Ph.D. actually means, but I do know Richard is able to take a massive pile of numbers and find a simple way to tell me what they mean. Here's his simple conclusion:
The entire rally in the DJIA from 2003 to the peak in 2008 was actually a continuous decline when priced in gold... Even the super-rally in stocks over the last six months is nothing more than a very weak bounce off the bottom.
The simplest way to ask the big question is like this: How many ounces of gold does it take to buy the Dow Jones Industrial Average (DJIA)? Richard answers:
From a peak of nearly 42 ounces of gold to buy a share of the DJIA earlier this decade, we made it down to a low of almost seven ounces in March 2009. That is a decline in the "value" of the DJIA of 83%.
The implications are scary...
Sure, the man on the street feels good when he sees stock prices are up, gold is up, oil is up, etc. It feels like things are getting better. But it's not the truth...
The truth is the value of the dollar is going down fast. People want to believe differently. They want to believe the creation of money at a record pace by our government is creating wealth. But you don't create wealth on a printing press.
The government's simple goal was to reignite the U.S. real estate market. If you cut rates to zero and make money available, home prices can't fall any more – or so the government thought. The government didn't realize the low rates and money "printing" would lead to higher prices in everything BUT real estate.
A few years ago (summer of 2005), you would have needed 550 ounces of gold to buy an average house. Today, you need more like 150 ounces of gold. That is a 73% decline in the "value" of real estate.
You'll hear on the evening news that home prices are down by, say, one-third nationwide. But on TV, they never account for the destruction in the dollar. In terms of gold, home prices are down by more than 70%... Wow!
Yes, it takes more dollars to buy gold, oil, and the stock market lately. But don't kid yourself... Don't feel better... You are not any richer. The dollar is just dramatically weaker.
Sizing things up in terms of gold is one clear way to see it.
Score a victory for folks bullish on the global economy...
For a picture of this victory, we go to the past two years of action in the Baltic Dry Index. As we mentioned last month, the "BDI" is one of our favorite real world barometers of what's going on. It's the most widely followed gauge of the price it costs to ship raw materials like grain, coal, and iron ore.
The BDI fell 94% in just six months last year as credit – the oil of commerce – was drained from the global economic engine. It's the worst crash we've ever seen an index suffer. But like all economic indicators, the BDI is in rally mode right now...
After striking a bottom below 1,000 last December, the BDI rallied to 4,000 by June. It then corrected to almost 2,000 in September. But as you can see from today's chart, the BDI is set to reach a new 12-month high this week. As long as this index remains healthy, we have to say, "The economy ain't so bad..."
These trends are real and they're pushing gold higher by the day. But the real fireworks will start when Main Street catches gold fever. The gold market is tiny; ergo, any panic out of the dollar by the general public will send gold investments into the stratosphere.
Is It a Gold Bull Market or a Dollar Bear Market? By Dr. Steve SjuggerudFriday, November 13, 2009
In each of the last three months (and in six of the last 11 months) gold has risen month-over-month versus all four major currencies: the dollar, the euro, the yen, and the British pound.
The Ultimate Gold Bubble Test By Brian HuntThursday, November 12, 2009
Gold is enjoying a lot of mainstream press these days. Six years ago, when I would tell someone I was placing a significant portion of my net worth in gold, they'd look at me like I was crazy. Now, they nod and say, "I heard something about gold the other day on TV."
Don't Fool Yourself: America Is "Now a Communist Nation" By Porter StansberryWednesday, November 11, 2009
The stock market seems to believe the government can solve all of our problems with paper money and bureaucratic mandate. My bet is, it doesn't work... at least, not for long.
