Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
CoronaVirus Pandemic Day 76 Trend Forecast Update - Infected 540k, Minus China 1715, Deaths 4920 - 23rd Feb 20 -
Ways to Find Startup Capital - 23rd Feb 20
Stock Market Deviation from Overall Outlook for 2020 - 22nd Feb 20
The Shanghai Composite and Coronavirus: A Revealing Perspective - 22nd Feb 20
Baltic Dry, Copper, Oil, Tech and China Continue Call for Stock Market Crash Soon - 22nd Feb 20
Gold Warning – This is Not a Buying Opportunity - 22nd Feb 20
Is The Technology Sector FANG Stocks Setting Up For A Market Crash? - 22nd Feb 20
Coronavirus China Infection Statistics Analysis, Probability Forecasts 1/2 Million Infected - 21st Feb 20
Is Crude Oil Firmly on the Upswing Now? - 20th Feb 20
What Can Stop the Stocks Bull – Or At Least, Make It Pause? - 20th Feb 20
Trump and Economic News That Drive Gold, Not Just Coronavirus - 20th Feb 20
Coronavirus COVID19 UK Infection Prevention, Boosting Immune Systems, Birmingham, Sheffield - 20th Feb 20
Silver’s Valuable Insights Into the Upcoming PMs Rally - 20th Feb 20
Coronavirus Coming Storm Act Now to Protect Yourselves and Family to Survive COVID-19 Pandemic - 19th Feb 20
Future Silver Prices Will Shock People, and They’ll Kick Themselves for Not Buying Under $20… - 19th Feb 20
What Alexis Kennedy Learned from Launching Cultist Simulator - 19th Feb 20
Stock Market Potential Short-term top - 18th Feb 20
Coronavirus Fourth Turning - No One Gets Out Of Here Alive! - 18th Feb 20
The Stocks Hit Worst From the Coronavirus - 18th Feb 20
Tips on Pest Control: How to Prevent Pests and Rodents - 18th Feb 20
Buying a Custom Built Gaming PC From Overclockers.co.uk - 1. Delivery and Unboxing - 17th Feb 20
BAIDU (BIDU) Illustrates Why You Should NOT Invest in Chinese Stocks - 17th Feb 20
Financial Markets News Report: February 17, 2020 - February 21, 2020 - 17th Feb 20
NVIDIA (NVDA) GPU King For AI Mega-trend Tech Stocks Investing 2020 - 17th Feb 20
Stock Market Bubble - No One Gets Out Of Here Alive! - 17th Feb 20
British Pound GBP Trend Forecast 2020 - 16th Feb 20
SAMSUNG AI Mega-trend Tech Stocks Investing 2020 - 16th Feb 20
Ignore the Polls, the Markets Have Already Told You Who Wins in 2020 - 16th Feb 20
UK Coronavirus COVID-19 Pandemic WARNING! Sheffield, Manchester, Birmingham Outbreaks Probable - 16th Feb 20
iShares Nasdaq Biotechnology ETF IBB AI Mega-trend Tech Stocks Investing 2020 - 15th Feb 20
Gold Stocks Still Stalled - 15th Feb 20
Is The Technology Stocks Sector Setting Up For A Crash? - 15th Feb 20
UK Calm Before Corona Virus Storm - Infections Forecast into End March 2020 - 15th Feb 20
The Growing Weaponization of Space - 14th Feb 20
Will the 2020s Be Good or Bad for the Gold Market? - 14th Feb 20
Predictive Modeling Suggests Gold Price Will Break Above $1650 Within 15~30 Days - 14th Feb 20
UK Coronavirus COVID-19 Infections and Deaths Trend Forecast 2020 - 14th Feb 20
Coronavirus, Powell and Gold - 14th Feb 20
How the Corona Virus is Affecting Global Stock Markets - 14th Feb 20
British Pound GBP Trend and Elliott Wave Analysis - 13th Feb 20
Owning and Driving a Land Rover Discovery Sport in 2020 - 2 YEAR Review - 13th Feb 20
Shipping Rates Plunge, Commodities and Stocks May Follow - 13th Feb 20
Powell says Fed will aggressively use QE to fight next recession - 13th Feb 20
PALLADIUM - THIS Is What a Run on the Bank for Precious Metals Looks Like… - 13th Feb 20
Bitcoin: "Is it too late to get in?" Get Answers Now - 13th Feb 20
China Coronavirus Infections Soar by 1/3rd to 60,000, Deaths Jump to 1,367 - 13th Feb 20
Crude Oil Price Action – Like a Coiled Spring Already? - 13th Feb 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

How the Dow Jones is getting killed - Due to loss of purchasing power

Stock-Markets / Analysis & Strategy Feb 16, 2007 - 06:46 AM GMT

By: Money_and_Markets

Stock-Markets

If you think the U.S. stock market is doing okay, I hope you're sitting down. In this issue, I'm going to give you information that will shatter that myth and pin your eyes wide open. And if you're heavily invested in stocks, don't worry. By the end of this article, I'll give you some steps you can take to protect yourself.

Let's start with a chart that I've made for you. It shows the Dow Jones Industrials from January 3, 2000 to February 6 of this year, and it is expressed in terms of the number of ounces of gold that the Dow can purchase.


I'm using gold, because gold is the only true form of money around. But mind you, since gold reflects the value of the greenback, this chart is also reflective of the purchasing power of the Dow in terms of the U.S. dollar.

chart is also reflective of the purchasing power of the Dow in terms of the U.S. dollar

Let me put this chart into context: On January 3, 2000 the Dow was trading at 11,357. Put another way, if you bought every stock in the Dow back then, you'd have invested $11,357.

That same $11,357 on January 3, 2000 would have also bought you 39.3 ounces of gold.

Now, fast forward to late last week, when I performed this study. On February 6, 2007 the Dow was trading at 12,666.

In pure nominal terms, the Dow has gained 1,309 points since January 2000, or 11.5%. We'll ignore the fact that that's a lousy return over seven years. At least the Dow was up, right?

Hardly! In terms of the Dow's purchasing power, the Dow of February 6 only buys 19.39 ounces of gold. In other words, it's lost 50% of its purchasing power when measured in real money!

Let's Compare the Dow's Performance To Other Everyday Assets

In early 2000, the median home price in the U.S. was $169,000. If you had $1,135,700 invested in the Dow back then, you could have bought 6.72 median-priced homes.

Today, the median price of a home is $221,000. And your $1,135,700 in the Dow is worth $1,266,000. Yet in terms of the number of homes your investment in the Dow will purchase, you can only buy 5.72 homes today ... that's 16% less purchasing power.

And remember, that's just the national median home price. If you live in California, New York, Florida, or New England — your investment in the Dow Jones back in 2000 now buys you 2.5 homes or less. Put another way, the Dow buys you 50% to 70% less in terms of real estate.

The Dow has failed to keep pace with rising energy costs, too. In January 2000, the national average for a gallon of unleaded gas was $1.45. The Dow would have purchased 8,832 gallons back then.

Today, despite its 1,309 point rise, the Dow will only buy 5,556 gallons (based on the national average of $2.30 a gallon). So, the Dow has lost 37% of its purchasing power when it comes to unleaded gas.

Dow purchased 430 barrels of crude. Today it purchases exactly half that amount of oil — 215 barrels. That's a whopping 50% decline in the Dow's purchasing power

It's even worse when you look at crude oil. In January 2000, the Dow purchased 430 barrels of crude. Today it purchases exactly half that amount of oil — 215 barrels. That's a whopping 50% decline in the Dow's purchasing power.

Some people might argue that these are just cases of other asset prices going through the roof at a much faster pace than the Dow's appreciation.

But that's exactly the point! Most stocks are losing ground, and if you're invested in them, you're not even keeping pace with inflation.

Even the magazine and newspaper prices have been shooting up at a much faster rate than the Dow!

In 2000, the U.S. Periodical Services Price Index — a measure of the subscription cost of periodical publications paid for by U.S. libraries — stood at 241.54. The Dow would have bought that index 47 times over.

The latest data available is from 2005, when the index stood at 349.79. The Dow of today would only purchase that index 36 times over, representing a 24% loss in five years. And this particular example is actually a little biased in favor of the Dow!

Everywhere you look, it's the same result over and over:

  • Based on the Turner Construction Cost Index, a measure of the cost of building commercial and residential properties, the Dow now builds 30.4% less property than it did in 2000.
  • The average in-state tuition for a four-year public university was $1,500 per academic year in 2000. Today, it's $5,836. So while the Dow would have bought 7.57 years worth of college tuition in 2000, today it buys 2.17 years. That's a whopping 71.3% decline!
  • The Dow now buys 55% less silver than it did in 2000 … 63% less copper … 45% less corn … 37% less wheat … even 43% less rice!
Today's Dow will purchase 12% less of Spain's Ibex 35 than it did in early 2000

And if that still doesn't convince you, consider the loss of purchasing power in the Dow compared to foreign stocks.

Today's Dow will purchase 12% less of Spain's Ibex 35 than it did in early 2000 … 41% less of Australia's All Ordinaries Index … and a whopping 42.6% less of Shanghai's A Index.  

Bottom line: Despite a rise of 1,309 points in the last seven years, the purchasing power of the Dow is getting slaughtered by just about every asset under the sun . The same goes for the Nasdaq and the S&P 500. So if you're placing most of your money in U.S. stock markets, you're losing out big time.

What's Behind This, and What You Can Do to Protect Your Portfolio

As I just showed you, the Dow has lost half of its purchasing power when measured against gold over the last seven years. Looking at it another way, general price levels are up 50% in the last seven years. That's average annual inflation of just over 7% per year.

The primary force behind all this is the falling value of the U.S. dollar.

Unlike U.S. stocks, when the value of the dollar plunges, tangible assets and foreign stock markets often rise in value.

Hence, I do not recommend investing in broad-based U.S. stock markets. Their potential is severely limited right now. A sliding dollar would continue to wreak havoc on these investments.

Plus, corporate profits have likely peaked. That could be another major drag on U.S. stocks.   

So, here are some steps to consider taking:

First, if you want to invest in U.S. stocks, stick with select natural resource companies like the ones recommended in my Real Wealth Report .

Second, look into getting a direct stake in gold.The best way is through the streetTRACKS Gold Fund (GLD). Each share represents 1/10 of an ounce of gold. The fund eliminates storage and shipping worries because the gold is held in trust for you.

Third, if you aren't doing so already, start diversifying your money to select overseas markets.

Best wishes,

by Larry Edelson

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.MoneyandMarkets.com


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules