Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Investing in Crypto Currencies With Both Eyes WIDE OPEN! - 25th Oct 21
Is Bitcoin a Better Inflation Hedge Than Gold? - 25th Oct 21
S&P 500 Stirs the Gold Pot - 25th Oct 21
Stock Market Against Bond Market Odds - 25th Oct 21
Inflation Consequences for the Stock Market, FED Balance Sheet - 24th Oct 21
To Be or Not to Be: How the Evergrande Crisis Can Affect Gold Price - 24th Oct 21
During a Market Mania, "no prudent professional is perceived to add value" - 24th Oct 21
Stock Market S&P500 Rallies Above $4400 – May Attempt To Advance To $4750~$4800 - 24th Oct 21
Inflation and the Crazy Crypto Markets - 23rd Oct 21
Easy PC Upgrades with Motherboard Combos - Overclockers UK Unboxing - MB, Memory and Ryzen 5600x CPU - 23rd Oct 21
Gold Mining Stocks Q3 2021 - 23rd Oct 21
Gold calmly continues cobbling its Handle, Miners lay in wait - 23rd Oct 21
US Economy Has Been in an Economic Depression Since 2008 - 22nd Oct 21
Extreme Ratios Point to Gold and Silver Price Readjustments - 22nd Oct 21
Bitcoin $100K or Ethereum $10K—which happens first? - 22nd Oct 21
This Isn’t Sci-Fi: How AI Is About To Disrupt This $11 Trillion Industry - 22nd Oct 21
Ravencoin RVN About to EXPLODE to NEW HIGHS! Last Chance to Buy Before it goes to the MOON! - 21st Oct 21
Stock Market Animal Spirits Returning - 21st Oct 21
Inflation Advances, and So Does Gold — Except That It Doesn’t - 21st Oct 21
Why A.I. Is About To Trigger The Next Great Medical Breakthrough - 21st Oct 21
Gold Price Slowly Going Nowhere - 20th Oct 21
Shocking Numbers Show Government Crowding Out Real Economy - 20th Oct 21
Crude Oil Is in the Fast Lane, But Where Is It Going? - 20th Oct 21
3 Tech Stocks That Could Change The World - 20th Oct 21
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

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