How to read the news

Here are excerpts from three news stories from 7-Mar-2008 Marketwatch.com, as they were written, and as I would read them. In each case, I have simply taken the USD figures given in the story and converted them to gold grams, then reworded the story to fit the new numbers. In some cases, I've added YTD data to put the reported figures in a larger perspective.

I'm preparing a special report on how to do these calculations, and shortcuts that make it easy to translate anything you're reading from "dollarese" into language that you can understand and act upon.

As you read the examples below, you'll see that some numbers are more or less unchanged. These involve time periods where the value of the dollar is pretty stable, as it usually is from day to day, or where it has made an excursion up or down in value and ended at about the same level as at the beginning of the period.

You will also see some cases where the change in value is dramatically larger than the dollar figures would suggest. These are usually cases where the declining value of the dollar is adding to the decline in the value being reported. Of course, a rising dollar would also add to the increase in value of an asset or security.

And then, there are cases where measuring in gold completely reverses the meaning of the statistics being given in dollars – these are the fun ones!

Ready to explore the world from a new perspective? Great! Here we go!

More on How to read the news

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New Home Price Chart

I've added a new chart to the US Home Prices page. The Case-Shiller Home Price Index is calculated on a monthly basis by Standard and Poors, using a sophisticated algorithm. Several major markets are tracked and then combined into an overall composite index.

The index, called the CSXR, is scaled with 100 as the value for January 2000. I have taken the index values, multiplied by the gold value of the US Dollar for the month in question, and rescaled the result so that January 2000 again has index value 100.

At the end of 2007, the index stood at 74.3, down from a high of 146 in 2005, and about the same as its level ten years earlier, at the end of 1997. Based solely on the decline of the USD in January and February of 2008, the index should be about 60 at this point, and lower if home prices have fallen, as I expect they have on many of the tracked markets. This looks like an area of strong support from a technical perspective – but will it hold?

Never forget that any value given in dollars is "subject to change at the whim of the management". Keep your eye on true value: price things you care about in gold.

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Chart Updates

As the likelihood that an official "recession declaration" will be issued for the US economy increases, true prices of many items continue to fall. Gasoline, for example, is now at it's lowest price in about 10 years. Uranium also continues to slump, ending January at 2.63 grams per pound.

Stocks (as indicated by the Dow Jones Industrials at 474) were last this low in September of 1996. But in those days, they were on the way up – about 15 years into a 20 year bull market – just leaving the foothills behind in the dramatic run-up to almost 1400 gold grams in 1999.

Some commodities have rallied, however. Platinum in particular has shot up dramatically – from about 54 to over 70 grams/oz in the last month. Silver is also showing some strength.

Going forward, remember that the tax refunds, rate drops, and mortgage relief plans all amount to devaluation of the money in in your pocket and in your bank and brokerage accounts. Never trust values given in fiat currency: they are subject to the whims of those who issue that currency. Keep your eye on the true value of your investments and assets – their value measured in gold.

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2008 Gets Underway

With the US Dollar making new lows, and the stock market in disarray, 2008 is off to a shaky start. The Fed is faced with few options, none of them very pretty. If they cut rates to try to soften the recession and prop up asset prices, they further lower the value of the currency those assets are priced in, hurting their true value. But the political consequences of doing the right thing – letting a recession wring the weakness out of the economy – are just too painful to seriously contemplate, especially in a presidential election year.

For the most part, commodities have stayed reasonably priced. Crude oil, gasoline, silver and platinum are all trading in the ranges they have occupied for several years. And even uranium, which saw a tremendous spike in 2007, has returned to about 3 grams per pound.

There are lots of opportunities out there. Just be careful to look at the true value of what you're buying – as measured in gold – and don't be fooled by the inflating dollar prices that are sure to follow in the wake of the monetary stimulus that is likely to be unleashed in the coming months.

ps – There are problems with the automatically generated charts for CAD, Copper and Wheat. I am working to update these so they will display properly. I'll let you know when they're working again. Thanks for your understanding!

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Black Monday

Twenty years ago, on 19 October 1987, the stock market took a terrific drop… 22.6% as measured by the Dow Jones Industrial Average.  But look at the chart of the DJIA since 1900 and see if you can find the crash.  It's there, just a bit over 2 years before 1990… but it's a pretty small hiccough in the long bull market from 1980 to 1999.

I'm not too worried about one-day wonders (or horrors.)  I'm worried about the steep drop in the value of dollar denominated assets of many types, including large industrial stocks, since 1999, and as the dollar continues to shrink in value, it's more important than ever to keep your eye on the ball, and keep your investments growing in gold value!

You can use a strategy that protects you, like trailing stops measured in gold.  Or invest in stocks that are rising in a falling dollar environment – mainly resource stocks, value plays and well managed, fast growing small caps.  Whatever your strategy, I can help with custom charts to keep you focused on the true gold value of your investment options.

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USD overtakes CAD

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In their race to see who can become worthless first, the US dollar has overtaken the Canadian dollar! 

During today's trading, the USD hit 42.20 milligrams of gold, while the CAD traded for 42.41 mg.  Can the USD maintain it's lead or will the CAD be able to recover it's advantage?

Ottawa is hampered by an excess of oil, mineral depsoits and other natural resources, but it's socialist government has plenty of pulling power when it fires up new entitlement peograms.  Washington, of course, has the Federal Reserve under the command of "Helicopter Ben" on it's side, and is showing it's stuff with drops in the discount and fed funds rates.

I think it's safe to say that this will be an exciting race to watch, especially if you are holding gold, or even better, investments that are growing in gold value!

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New Charts: Wheat and Copper

I've been experimenting with a new charting technology called "Beyond XL Charts".  It allows calculations such as conversion from USD to Gold grams, and taps into online data streams to provide charts that update automatically.  Two new charts have been added using this technology: LME cash copper, and Kansas No. 2 Wheat.

Each chart covers the last ten years, from January 1997 to the present, using weekly closes and the London PM gold fix.

Please take a look, and let me know what you think.

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US GDP in Gold

Based on numbers from the St. Louis Fed, our newest addition to the Charts section of the website shows the US GDP in gold grams – billions of them! 

This series is similar in appearance to the long term DJIA, but with less volatility.  This makes sense, as stocks tend to follow in the footsteps of the overall economy.  But the Dow has it's own sense of timing, peaking about 4 years before the GDP in the 60s, and falling much further during the 70s, then rising over 36 times in value from 1980 to 1999, while the GDP rose a little over 9 times from it's low.  Once again, the Dow peaked first, in 1999, while the GDP kept climbing until 2001.

The last 6 years have been devestating, with the GDP falling by 47% from 1,222 Gg in the Spring of 2001 to 647 Gg  2007.

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A Long Look at the DOW

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The Charts section has been updated with a new chart of the Dow Jones Industrial Average, this one from 1900 to present.  The three big bull markets of this 107 year period, and the following bear markets, are easily seen.  It is clear that a lot of money can be made – and lost – investing in stocks over the long run.

From 1904 to 1929 the Dow grew 12 times in value from 47 to 568 gold grams, then gave up 89% of that gain, ending at 64 grams in 1933.  In the next phase, the Dow grew almost 14 times, to 893 grams in 1966.  This was followed by a long decline, losing almost 96% of it's value, finally bottoming around 37 grams in 1980.  Then the next bull market emerged, growing over 37 times to 1,393 gold grams in 1999.  The 8 years following this all time peak have been a downward march, representing a loss of almost 56% to the August 31, 2007 close of 618.262 gold grams.

What will the future hold?  I would love to hear comments from technicians on this topic… But if the last two market cycles are any guide, I suspect we will see the Dow trading below 200 gold grams sometime in the next 5 to 10 years, and it may not be until around 2035 that a new high is made.

There are many roads that could lead to the 200 gram level; the Dow could move sideways as the value of the dollar shrinks, or the Dow could keep making "new highs" in terms of a plummeting dollar, or the dollar could stabilize or even strengthen while the Dow collapses in nominal terms.

But if your goal is to build your real wealth, the key is to keep your eye on the ball: investing in assets that are growing in gold value, regardless of their price as viewed in the fun-house mirrors of fiat currencies.  The Custom Chart service can help you identify those opportunities, and we will be bringing more tools online in the future as well.

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Charts Updated

After last week's wild ride, I've updated all charts on the site to August 17.  The big surprise to me was silver, which has fallen off of a cliff!  Uranium is continuing it's slide as well, but it still by far the best performer of the last few years.  The DJIA has been weak and volatile, but hardly in free fall, and most other prices also seem pretty mellow when measured in gold.  This tells me that it's the dollar that is gyrating – and the Fed's lowering of the discount rate is a flashing warning that more inflation is dead ahead. 

Watch your profits, and don't be fooled by a shrinking dollar – make sure your real wealth is increasing!  And if you haven't given the Custom Charting Service a try, remember that as a subscriber to the newsletter you can get a FREE chart of the currency, commodity or security of your choice!  See details on the Custom Charts page.  Use this market correction to your advantage – Custom Charts can help!

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