Sunday, March 14, 2010

The DOW in gold, then and now.

Some of you may recall when this blog was still using the old blogger format that there were some graphs posted in the sidebar charting the DOW as compared to various commodities, showing that the real value of the DOW is not nearly what charts and graphs depicting the DOW in dollars shows. The reason for this is that the dollar is losing value - money's "real" value is dropping like a rock.

Here's the old chart:



As you can see here, from 1999 onward, the same number of dollars bought less and less ounces of gold. To put that another way, the "cost" in dollars of gold keeps going up and up not because gold is worth more, but because dollars are worth less.

Now let's translate that information to the "key of DOW," as one of my old professors used to say. Since March of 2009, the price in dollars for various stocks is rising not because there is more inherent value in those companies, but because the dollar has fallen in value as charted in gold. Here is a more recent chart. That straight horizontal line near the bottom is how much 9.5 ounces of gold an equivalent amount of money in stocks would purchase:



The chart appears in this article:

The Market Oracle Online
Stock Market Rally Optical Illusions, “Oil Shocks,” and China’s Headache
Mar 11, 2010 - 12:21 PM
By: Gary_Dorsch

...Yet when viewed through the prism of Gold, measured in “hard money” terms, one can see that the performance of the Dow Jones Industrials was less than stellar. The blue-chip indicator has been locked within a narrow trading band for the past 11-months, fluctuating on both sides of 9.5-ounces of gold since April 2009.

The “green shoots” rally is therefore, an Optical Illusion, simply reflecting the side-effects of the Fed’s hallucinogenic “quantitative easing” QE-drug. Utilizing the chart above, one could argue that the value of the Dow Industrials is artificially inflated by about 2,500-points, engineered by the Fed’s monetization scheme, and ultra-low interest rates...

...So far, the recovery in the economy has been limited to Wall Street’s Oligarchs and S&P-500 multi-nationals, which are profiting from trillions in taxpayer bailouts, virtually unlimited and cheap credit, exports to growing emerging markets, and the use of mass unemployment to slash the wages of Americans working in the service sector, which accounts for 85% of the US-economy.

Meanwhile, top Wall Street firms have paid their employees a record $145-billion in compensation last year, while social programs for the elderly, such as Medicaid and Medicare are being slashed, and millions of other jobs wiped out. The banking oligarchs, whose greed and speculation caused the crisis, refuse to expand lending to the private sector, but instead, utilize zero-percent funds at their disposal, to gamble in the markets, with the backing of government-financed guarantees...

...Thus, the Wall Street Oligarchs were able to return to the gambling table and re-engage in the most hazardous and riskiest forms of speculation. However, one of the consequences of the Fed’s ultra-easy money policies is a surge in crude oil prices above $80 /barrel, - further reducing the purchasing power of Americans’ shrinking wages. Now that oil prices have latched onto the stock market’s joy ride, any attempt by the PPT to catapult the S&P-500 Index rally above the January highs, runs the risk of jettisoning crude oil into the $85-to-$90/barrel region...


As we see from the second chart above, the stock market has not gained any real value over the past couple of years, during the so-called "rally." When viewed in terms of gold, it has changed very little from the crash until now. The gains in the stock market are, as this article states, an optical illusion - backed by nothing real.

And this artificially inflated DOW will have as a side effect increases in the price of oil. As we discussed in the last post, more and more Americans are being priced out of the market as it is concerning gasoline and other petroleum products - the average family can't take much more of a hit to their budget. Yet the Robber Barons of Wall Street play on, filling their lifeboats with your livelihood, and laughing all the way to the bank.

When you buy their stocks and utilize the services of their companies, you are giving them your real paycheck and getting only illusion in return, class.

Don't do it, class. Just say no.

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