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'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.
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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.
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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.
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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?
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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.
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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.
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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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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.
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