Most Popular
1. THE INFLATION MONSTER is Forecasting RECESSION - Nadeem_Walayat
2.Why APPLE Could CRASH the Stock Market! - Nadeem_Walayat
3.The Stocks Stealth BEAR Market - Nadeem_Walayat
4.Inflation, Commodities and Interest Rates : Paradigm Shifts in Macrotrends - Rambus_Chartology
5.Stock Market in the Eye of the Storm, Visualising AI Tech Stocks Buying Levels - Nadeem_Walayat
6.AI Tech Stocks Earnings BloodBath Buying Opportunity - Nadeem_Walayat
7.PPT HALTS STOCK MARKET CRASH ahead of Fed May Interest Rate Hike Meeting - Nadeem_Walayat
8.50 Small Cap Growth Stocks Analysis to CAPITALISE on the Stock Market Inflation -Nadeem_Walayat
9.WE HAVE NO CHOICE BUT TO INVEST IN STOCKS AND HOUSING MARKET - Nadeem_Walayat
10.Apple and Microsoft Nuts Are About to CRACK and Send Stock Market Sharply Lower - Nadeem_Walayat
Last 7 days
Have US Bonds Bottomed? - 27th June 22
Gold Junior Miners: A Bearish Push Is Coming to Move Them Lower - 27th June 22
Stock Market Watching Out - 27th June 22
The NEXT BIG EMPIRE WILL BE..... CANZUK - 25th June 22
Who (or What) Is Really in Charge of Bitcoin's Price Swings? - 25th June 22
Crude Oil Price Forecast - Trend Breaks Downward – Rejecting The $120 Level - 25th June 22
Everyone and their Grandma is Expecting a Big Stocks Bear Market Rally - 23rd June 22
The Fed’s Hawkish Bite Left Its Mark on the S&P 500 Stocks - 23rd June 22
No Dodging the Stock Market Bullet - 23rd June 22
How To Set Up A Business To Better Manage In The Free Market - 23rd June 22
Why Are Precious Metals Considered A Good Investment? Find Out Here - 23rd June 22
UK House Prices and the Inflation Mega-trend - 22nd June 22
Sportsbook Betting Reviews: How to Choose a Sportsbook- 22nd June 22
Looking to buy Cannabis Stocks? - 22nd June 22
UK House Prices Momentum Forecast - 21st June 22
The Fed is Incompetent - Beware the Dancing Market Puppet - 21st June 22
US Economy Headed for a Hard Landing - 21st June 22
How to Invest in EU - New Opportunities Uncovered - 21st June 22
How To Protect Your Assets During Inflation - 21st June 22
AI Tech Stocks Current State, Is AMAZON a Dying Tech Giant? - 20th June 22
Gold/Gold miners fundamental checkup - 20th June 22
Personal Finance Tips: How To Get Out Of A Tough Financial Situation - 20th June 22
UK House Prices Relative to GDP Growth - 19th June 22
Will Global Markets Be Pushed Deeper Into Crisis Event By The US Fed? - 19th June 22
Useful Things You Need To Know About Tweezer Top Candlestick Pattern - 19th June 22
UK House Prices Real Terms Sustainable Trend - 17th June 22
Why I’m buying the “new” value stocks… - 17th June 22
Optimize Benefits from R&D in Software Product Development with an R&D Tax Credit Software - 17th June 22
Want To Save On Your Business Energy? Here Are Some Helpful Tips - 17th June 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Stocks New Bull Market or Bear Market Rally?

Stock-Markets / UK Stock Market Aug 13, 2008 - 12:42 PM GMT

By: John_Browne

Stock-Markets Despite a series of worrying news items last week, U.S. stock markets managed to deliver strong gains. Time and again, U.S. investors seem to turn lemons into lemonade by assuming each bad data point is an indication that the bottom is in. Is such behavior indicative of a stock market revival or simply evidence of a bear market rally?


For those who strive to think logically, the current market is a challenging environment in which to make money.  The current volatility has been particularly difficult for those who gravitate towards the traditionally conservative “buy and hold” approach.

The small investor is not alone in his confusion.  Of some 90 university endowments and similar foundations followed by Northern Trust, only 20 percent managed a positive return in 2007.  Even those that did struggled hard to achieve an average return of 3.1 percent.  On average, public and corporate pension funds faired worse with negative returns of 4.3 and 5.1 percent respectively.  As a result, investors large and small are willing to believe that any piece of news, good or bad, is the long awaited “all clear” signal that will herald good times on Wall Street. 

So with the dollar appearing to recover (as recession is forecast in Europe and elsewhere) and with foreign stock markets having experienced corrections, is it time to look again at U.S. equities?  If the past decade is any indication, the future looks bleak.

Although the recent U.S. stock performance has indeed been bad, many would be surprised to know that the weakness stretches back much further.  In fact, the major U.S. averages for the first years of this bold, new 21 st century are anything but impressive.

On October 12, 2007, the Dow Jones Industrial Index, against which many investment returns are measured, closed at a nominal high of 14,693.  The media, of course, reported it as a sign of good things to come.

On May 23, 2008, the Dow closed at 12,480 — down just over 15% from its record close.  Not too bad, on the surface, at least.  However, if adjusted by the official CPI inflation from January 2000 of approximately 4% per year (which in reality is far below the rate of actual inflation experienced by real people), the Dow in May of 2008 was worth only 9,856.  If this inflation adjusted figure is compared to the Dow close of 11,723 on January 14, 2000, U.S. stocks were down more than 15% after eight years! And that's using the government inflation figures which are ridiculously optimistic.

In sum, assume an investment of $11,723 in the Dow average high of 11,723 on January 14, 2000. The same money could then have bought approximately 460 barrels of oil, 40 ounces of gold and 9 percent of an average family home.

Some eight years later, the money in the Dow would have increased to $12,480, for a nominal gain of $757, or 6.4 percent. But the $12,480 will now buy 355 less barrels of oil (down 77%), 27 less ounces of gold (down 66 %) and, despite a massive fall in house prices of 15.8%, only some 6 percent of an average family home (down 33%). In short, the investor of 2000 should feel robbed in ‘real' terms, despite a ‘nominal' rise in the Dow of 6.4 percent!

On the other hand, many foreign stock markets and currencies have risen substantially, and have outpaced the costs of typical consumer necessities.  These are the kinds of returns which attract people to stocks in the first place.

With growing evidence of international recession, and increased credit woes, it is likely that the earnings of many American corporations will fall, not rise.  Shrinking earnings will cause PE ratios to rise, based on present stock prices.  This should make the current prices of many stocks look ‘expensive,” as they move violently sideways with a downward bias.

So beware the current rally in the dollar and U.S. stocks.  The fundamentals remain miserable, and stock performance will ultimately reflect this reality.

For a more in depth analysis of our financial problems and the inherent dangers they pose for the U.S. economy and U.S. dollar denominated investments, read my new book “Crash Proof: How to Profit from the Coming Economic Collapse.” Click here to order a copy today.

By John Browne
Euro Pacific Capital
http://www.europac.net/

More importantly make sure to protect your wealth and preserve your purchasing power before it's too late. Discover the best way to buy gold at www.goldyoucanfold.com , download my free research report on the powerful case for investing in foreign equities available at www.researchreportone.com , and subscribe to my free, on-line investment newsletter at http://www.europac.net/newsletter/newsletter.asp

John Browne is the Senior Market Strategist for Euro Pacific Capital, Inc.  Mr. Brown is a distinguished former member of Britain's Parliament who served on the Treasury Select Committee, as Chairman of the Conservative Small Business Committee, and as a close associate of then-Prime Minister Margaret Thatcher. Among his many notable assignments, John served as a principal advisor to Mrs. Thatcher's government on issues related to the Soviet Union, and was the first to convince Thatcher of the growing stature of then Agriculture Minister Mikhail Gorbachev. As a partial result of Brown's advocacy, Thatcher famously pronounced that Gorbachev was a man the West "could do business with."  A graduate of the Royal Military Academy Sandhurst, Britain's version of West Point and retired British army major, John served as a pilot, parachutist, and communications specialist in the elite Grenadiers of the Royal Guard.

John_Browne Archive

© 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