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…but the stock market

February 5, 2013

Last weekend, I had several interesting conversations with people from different walks of life and age groups regarding the economy. The general perception of our economy was moderate to poor. But, what about the stock market? It’s been going higher. That must be good news.

As regular readers of this blog know, I like to look at the stock market in gold terms. That helps evaluate equity prices adjusted for inflation. Looking merely at the stock market in terms of cash and saying we are reaching all time highs in the Dow is naive at best and disingenuous at worst.

Rather than display stocks in gold terms as I prefer to do, I will look at stocks in terms of $ money supply and terms of crude oil prices.


As you can see the money supply has risen by about 250% since the beginning of this millennium when the Dow was at 11,700 in the year 2000. Therefore, in real terms, the Dow is about 50% lower than in 2000.

Now, let’s take a look at the crude oil price.


Looking at the oil chart, one can imply that the cost of energy has roughly quadrupled since 2000. Compare that to an up 15% Dow from 2000 and the stock market is down by 65-70%.

You can take any relevant price/item to compare the current level of the stock market to. Whether that’s food, tuition, housing…., the findings will be the same. The stock market is down considerably in real terms since 2000. The reason is straightforward: the economy is in poor shape. Look at this final chart below and that says it all.

foodstamps payrolls

Don’t get me wrong. I do not rejoice in being the bearer of bad news. I simply believe that it is necessary to acknowledge a problem in order to solve it. Pretending that everything is fine and that we are in a “recovery” does not help us provide a better future for us and our children.

As for the economy, I expect us to fall back into (official) recession as soon as the next GDP number comes out. After all, we had one negative GDP number last week. Considering both Europe and Japan are already in recession and our tax hikes are about to bite, I would be surprised to see anything but a decline in GDP. As for the stock market, it tends to fall an average of 30% during recessions and it typically does so in real terms so beware!

As for the nominal price of gold and for that matter, anything that can’t be printed such as stocks and oil, Fred Hickey summed it up best at the recent Barron’s round table:

As long as we have unlimited quantitative easing, we have the potential for unlimited gains in the gold price.
–Fred Hickey,, February 2, 2013.


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  3. Steven InDallas permalink

    >> Pretending that everything is fine and that we are in a “recovery” does not help us provide a better future for us and our children.

    No, but it helps the people who profit from the status quo to continue to make money, regardless of the fact that they are consigning the resut of us to a harder landing.

    Or, for a visual: most of us are locked in the cattle cars of a train that is speeding for a cliff and the bridge is out. “They” are in the dining car stuffing their faces with the last of the caviar, before (somehow) safely exiting the train right before letting the rest of us 99-percenters go over the edge.

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