Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Saudi Arabia Eyes Total Dominance In Oil And Gas Markets - 7th Jul 20
These Are the Times That Call for Gold - 7th Jul 20
A Reason to be "Extra-Attentive" to Stock Market Sentiment Measures - 7th Jul 20
The Beatings Will Continue Until the Economy Improves - 6th Jul 20
The Corona Economic Depression Is Here - 6th Jul 20
Stock Market Short-term Peaking - 6th Jul 20
Gold’s Major Reversal to Create the “Handle” - 5th July 20
Gold Market Manipulation And The Federal Reserve - 5th July 20
Overclockers UK Custom Build PC Review - 1. Ordering / Stock Issues - 5th July 20
How to Bond With Your Budgie / Parakeet With Morning Song and Dance - 5th July 20
Silver Price Trend Forecast Summer 2020 - 3rd Jul 20
Silver Market Is at a Critical Juncture - 3rd Jul 20
Gold Stocks Breakout Not Confirmed Yet - 3rd Jul 20
Coronavirus Strikes Back. But Force Is Strong With Gold - 3rd Jul 20
Stock Market Russell 2000 Gaps Present Real Targets - 3rd Jul 20
Johnson & Johnson (JNJ) Big Pharma Stock for Machine Learning Life Extension Investing - 2nd Jul 20
All Eyes on Markets to Get a Refreshed Outlook - 2nd Jul 20
The Darkening Clouds on the Stock Market S&P 500 Horizon - 2nd Jul 20
US Fourth Turning Reaches Boiling Point as America Bends its Knee - 2nd Jul 20
After 2nd Quarter Economic Carnage, the Quest for Philippine Recovery - 2nd Jul 20
Gold Completes Another Washout Rotation – Here We Go - 2nd Jul 20
Roosevelt 2.0 and ‘here, hold my beer' - 2nd Jul 20
U.S. Dollar: When Almost Everyone Is Bearish... - 1st Jul 20
Politicians Prepare New Money Drops as US Dollar Weakens - 1st Jul 20
Gold Stocks Still Undervalued - 1st Jul 20
High Premiums in Physical Gold Market: Scam or Supply Crisis? - 1st Jul 20
US Stock Markets Enter Parabolic Price Move - 1st Jul 20
In The Year 2025 If Fiat Currency Can Survive - 30th Jun 20
Gold Likes the IMF Predicting a Deeper Recession - 30th Jun 20
Silver Is Still Cheap For Now - 30th Jun 20
More Stock Market Selling Ahead - 30th Jun 20
Trending Ecommerce Sites in 2020 - 30th Jun 20
Stock Market S&P 500 Approaching the Precipice - 29th Jun 20
APPLE Tech Stock for Investing to Profit from the Machine Learning Mega trend - 29th Jun 20
Student / Gamer Custom System Build June 2020 Proving Impossible - Overclockers UK - 29th Jun 20
US Dollar with Ney and Gann Angles - 29th Jun 20
Europe's Banking Sector: When (and Why) the Rout Really Began - 29th Jun 20
Will People Accept Rampant Inflation? Hell, No! - 29th Jun 20
Gold & Silver Begin The Move To New All-Time Highs - 29th Jun 20
US Stock Market Enters Parabolic Price Move – Be Prepared - 29th Jun 20
Meet BlackRock, the New Great Vampire Squid - 28th Jun 20
Stock Market S&P 500 Approaching a Defining Moment - 28th Jun 20
U.S. Long Bond: Let's Review the "Upward Point of Exhaustion" - 27th Jun 20
Gold, Copper and Silver are Must-own Metals - 27th Jun 20
Why People Have Always Held Gold - 27th Jun 20
Crude Oil Price Meets Key Resistance - 27th Jun 20
INTEL x86 Chip Giant Stock Targets Artificial Intelligence and Quantum Computing for 2020's Growth - 25th Jun 20
Gold’s Long-term Turning Point is Here - 25th Jun 20
Hainan’s ASEAN Future and Dark Clouds Over Hong Kong - 25th Jun 20
Silver Price Trend Analysis - 24th Jun 20
A Stealth Stocks Double Dip or Bear Market Has Started - 24th Jun 20
Trillion-dollar US infrastructure plan will draw in plenty of metal - 24th Jun 20
WARNING: The U.S. Banking System ISN’T as Strong as Advertised - 24th Jun 20
All That Glitters When the World Jitters is Probably Gold - 24th Jun 20
Making Sense of Crude Oil Price Narrow Trading Range - 23rd Jun 20
Elon Musk Mocks Nikola Motors as “Dumb.” Is He Right? - 23rd Jun 20
MICROSOFT Transforming from PC Software to Cloud Services AI, Deep Learning Giant - 23rd Jun 20
Stock Market Decline Resumes - 22nd Jun 20
Excellent Silver Seasonal Buying Opportunity Lies Directly Ahead - 22nd Jun 20
Where is the US Dollar trend headed ? - 22nd Jun 20
Most Shoppers have Stopped Following Supermarket Arrows, is Coughing the New Racism? - 22nd Jun 20

Market Oracle FREE Newsletter

AI Stocks 2020-2035 15 Year Trend Forecast

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