Pssst? Want A 2,210,369% Stock Market Gain?
Ceri ShepherdIn the constant search to try and improve my understanding of what is truly the dismal science, occasionally you stumble across a piece of information that is a real gem. In my last two articles $3,000,000 Dollars for a cup of coffee, Parts 1 and 2, I looked primarily at national currency devaluation and its positive affects on the headline number of the national stock market.
The country that I used as an example was Turkey which has had the dubious honour of having one of the most debased currencies in the world in recent years. I think Ben Bernanke did his printing apprenticeship here!. It became so bad that the Government are implementing a new Currency on January 1st 2005, so we now mourn the death of yet another national fiat currency. The new currency is still called the Turkish Lira but it has had 6 zeros lopped off the end!. So 1,000,000 Turkish Lira about 60 cents now becomes 1 Turkish Lira.
With all this devaluation I wondered how the Turkish stock market has performed. I was able to get information going back to 1986 from the Istanbul Stock Exchange for the National 100, which is the Turkish equivalent of the S&P 500. After looking at the figures in stunned disbelief all I can say is.
How about a rise of 2,210,369% over the last 19 years!!. I will repeat that a rise of two million, two hundred and ten thousand, three hundred and sixty nine per cent.
Here is the link, have a look at the figures for yourself! www.ise.org/data.htm
Guess what it is still rising! Forget your puny 500% NASDAQ rise and subsequent bust that was hardly worth calling the broker for, to book a laughable 500% gain over all those years! Turkey often does the whole NASDAQ bull market in a single year. Come on guys and girls, get real this is a true bull market. Can you imagine Kudlow and Cramer working on Turkish TV with these figures, can you imagine all that bullishness? It gets even better we are still at a PE ratio of about 10 on this index so it is still very cheap, so what are you waiting for? get buying now! If nothing else you will be a cocktail party hero "I have averaged 500% return a year, I think George Soros is stuck on a paltry 34%". I am giving you all the stock tip of a lifetime, as its Christmas.
There is only one very small problem, the helpful people at the Istanbul Stock Exchange give us three figures for the headline National 100 index. First denominated in Turkish Lira, the national currency, then Dollars, and finally the new super hard Euro. If we look at the final two figures it is not quite so good, but any good tech CEO would bury this little fact in the small print.
How much "not so good", like a few hundred per cent difference?
Something like that.
Please be more specific?
Ok, Ok - it is up over the same period 788.5% in Dollar terms and 705.79% in Euro terms. I am sorry boys and girls I know that you were all dreaming about the new Porsche or big yacht in St Tropez, but lets be straight up here the figures I gave you were all correct and not a lie, you do not get that very often from the Government or Corporations. I just omitted the small matter of purchasing power. As your spectacular gains are denominated in Turkish Lira which when transferred into a hard currency like the Dollar (I am desperately trying not to laugh after writing that! ), does not buy many Dollars because guess what?. The Dollar over the same period of time has had equally spectacular gains against the Turkish Lira.
Probably a better way of looking at it, the Turkish Lira has devalued catastrophically against the Dollar another fiat currency and they have both devalued against Gold the absolute benchmark currency.
Unfortunately the get rich very quick gains are denominated in a fiat currency that is shortly going to the same place that all fiat currencies eventually end up. RIP.
All of those fabulous stock market gains simply off the back of a devalued currency must be a politicians dream. Think how easy it would be to fool the masses, "Nothing wrong with our economy just look at the level of our stock market". CNBC and BLOOMBERG would go crazy. The whole population would be day trading in the perpetual money making machine that is the stock market, and the word BEAR would be banned in schools.
Let's think about the Dollar for a moment, has it not been in a steep downtrend against nearly all of the worlds major currencies this last two years? Has the stock market over the last two years been in a new uptrend?
Is the Dollar now becoming just like the Turkish Lira? History would dictate that eventually this is inevitably true as all fiat currencies collapse with the fullness of time. In the future, and if we look at the Turkish experience, probably not as long as most would expect. You probably will be paying $3,000,000 for a cup of coffee and the Fed will be knocking 6 zeros off the Dollar.
It is hard to be Bearish regarding the stock market, when the powers that be keep devaluing the Dollar unit of measure. If the purchasing power of the currency falls by an average of 40% like the Dollar has, then the stock market has to rise by 67% just to stand still and balance the purchasing power loss. If you look at the DOW it has largely stood still but what has actually happened beneath the surface is that we have gone from extreme market overvaluation at the peak of a bubble to simply expensive. If the Dollar continues to fall we would suggest that shortly valuations will come back into line with historic norms. A metre is a metre, it is defined and it is not a centimetre. With the relative measurement of fiat currencies the metre can easily become a centimetre. The Dollar is a dog, and in the FOREX market the Euro is perceived at the present time to be a slightly better dog but they are still both dogs!. Gold is not a dog it has true value its unit of measure does not change. Only the dogs change there value relative to Gold.
We believe that America is too debt leveraged now, its economy cannot afford interest rates that would provide support for the Dollar, Also politically for a whole host of reasons which I will explain in my next article they do not want a strong Dollar anyway. Which somewhat changes our bearish outlook for the stock market. We feel that the bear's arguments regarding the stock market were fundamentally correct, however they have not allowed for the affects of persistent Dollar devaluation on Dollar denominated stock market valuations. America by 2000 had to take a big economic punch the bubble had gone too far. It was either a punch to the face = Stock market crash or a punch to the stomach = Dollar devaluation they have chosen a small punch to the face and a bigger punch to the stomach.
16 December 2004
Ceri Shepherd is head of www.trendinvestor.info we use a mechanical primary trend based trading system that since January 1st 1995 has turned $50,000 into $84,357,380 by the end of May 2004 trading the NASDAQ 100. It has also never had a single losing year. Our monthly trading results together with subscription details are available at our website.
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