Tuesday, August 25, 2009

Dow down 78% this Century (since 1999)

This chart presents the Dow divided by the price of one ounce of gold. The Dow/Gold ratio is the cost of the Dow in ounces of gold. It currently takes 9.8 ounces of gold to “buy the Dow.” This is considerably less that the 44.8 ounces it took back in 1999. When priced in gold, stock market index has been in a bear market for the entire 21st century and currently the Dow Jones Index trading 78% off its 1999 highs.

Remember, Warren Buffett wants you to believe that you lose purchasing power when you are not in stocks and especially when your are in treasuries. See Warren Buffett - the ultimate bull-market manifestation. Its obvious what happened to your purchasing power in this chart...remember that the next time you read an op-ed piece by Buffett in the New York Times.

Also, keep in mind that a roman gladiator could buy a nice new toga, pair of sandles and a haircut and massage for 1 ounce of gold. Today, for the same ounce of gold, you can buy a new suit,  shirt, a new pair of shoes, a tie, a haircut and massage...that's more than a thousand years later...this is an example of what fractional reserve lending and fiat currency does to asset values. It creates the illusion of asset value growth or inflation but does not actually increase your purchasing power. In a world with asset based or value based currency, asset values would trend towards stability rather than instability. Do we have stability? If you say yes...please look at the chart below...if you said no...thank Bernake, the Fed, fractional reserve lending and the host of credit pushing agencies that the Fed inspired...FDIC, SallieMae, FannieMae, Freedie Mac, Federal Home Loan etc.

The recent five-month rally has the Dow (priced in gold) putting in a significant test of resistance downtrend line from 2007.

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