The Dow Jones Industrials are currently hitting new highs above 13000, but so what? If the January 2000 old bull market high of 11722 represents more consumer purchasing power than the current May 2007 highs of over 13000, then the May 2007 highs of over 13000 are no big deal. Due to inflation, the Dow Jones Industrials and other major stock indexes have actually been losing investments for the past seven years no matter what the talking heads on CNBC are saying. A picture, or in my case a table is worth a thousand words. So let us consider the following table of prices for various stock indexes, commodity prices, levels of debt for consumers and the Federal government along with absurd inflation indexes published by the US Department of Labor.

* Steel Prices From April 01 to May 07
** January 2000 = 1.00
*** US Currency in Circulation (CinC)

This list includes items that are not on people minds everyday, but if anything on the above list became unavailable it would not have to be reported on the evening news for you to notice its loss. The items on the above table are all essential for a modern standard of living and must be paid for daily by business and consumers. As you can see, thanks to inflation, prices for - things - are up significantly no matter what Consumer Price Index (CPI) and Producer Price Index (PPI) say. But note the items that have failed to keep up even with CPI and PPI - the major US stock market indexes. With the exceptions of the Dow Transports & Utilities, major stock indexes have failed to appreciate at a rate higher than government inflation as measured by CPI and PPI for the past seven years.

Pension, mutual funds and insurance companies have to place hundreds of billions of dollars in the stock market. Their size limits what kind of companies that they can invest in and therefore are often happy to match the investment industry's common benchmarks of the S&P500 or Dow Jones performance. In fact, over the past decades, trying to beat the market has become an old fashioned concept for big money. Large money management institutions, acting on behalf of their Fortune 500 client's pension account, typically create an index product that is the Dow Jones or S&P500. If they want to get a little more performance out of their portfolios they may place a percentage of their funds into a Russell 2000 (small company) index product. It wasn't always this way. During the 1980s much effort was spent on trying to beat the market, but money managers found surpassing the returns of the major indexes during a major bull market a very difficult thing to achieve when investing billions of dollars. That is why in the 1990s "indexing" managed money to a major stock index became a standard industry practice as it was profitable, even after inflation, with little risk to the funds invested or a money manager's career.

But that was during the 1980s & 90s. After January 2000, those investments that would routinely provide profits above the inflation rate clearly changed from financial assets to real assets like energy and metals. But these markets are actually too small for the big money to transfer an appreciable amount of their funds into. Big whales need oceans to swim in, they avoid swimming pools. So don't expect the big money to forsake indexing to the major stock indexes anytime soon as they are just too big to fit in anywhere else. Interestingly, one of the new fashion trends in finance is the Electronically Traded Funds (ETF) which are nothing more than index products for the masses.

When the public becomes interested in any financial trend, it is usually a sign that the trend is nearing its end. Another sign that a trend is near its end is when a formerly popular trend starts causing more pain than gain. Forget the much ballyhooed 13,000 plus on the Dow - dirt encrusted ingots of copper and steel out performed the Dow by 20 to 1 during the past seven years! You had better believe that someone is jumping up and down for happiness, but the investing public is clueless of this new but firmly established seven year trend. This will change someday when small retail investors start feeling the pain of having their living expenses rising much faster than their assets. Also in the next 10 years pension funds - like your 401K - will have to become net sellers of shares to fund their pension liabilities no matter what price the market may offer. Until then, don't expect the investing industry or the public to change their ways. After all, if the public is excited about a seven year gain of only 14% on the Dow, there is no need to promise more, no need to associate a connection between stock returns and inflation if no one is making a squawk.

And speaking of inflation, just what kind of measurement of inflation is the CPI and the PPI? Not much of one. The above information listed on the table (except for the government inflation statistics) are real dollars talking and they are saying that higher prices, much greater than the "experts" would have you believe have been a fact of life since January 2000.

So if it's vital to know what the rate of inflation is for real return investing and if CPI and PPI are not an accurate inflation measurement; what is? I confess I don't know what the rate of inflation is, and I really doubt anyone in or out of the government knows either. Still, as an investor I must come up with a rate of inflation that is real world and easily determined or risk losing purchasing power, over time, due to inflation's erosion on the dollar. For me it makes sense to utilize the annual increase of my property tax as the yearly inflation benchmark to determine if I am making an inflation proof return on my capital.

This makes good sense because local politicians have exactly the same problems as we all do with local and national inflation, plus they have little to no control over their spending. So we can count on them to always increase our real estate taxes in excess of the inflation rate, what ever it may be. Plus the calculation is very easy as we only have to do it once a year and our county officials will make sure we have all the information we need to write them a check to pay their property tax.

Forget CPI as a useful real world inflation index to deflate your investment portfolio. Trust me, if you can consistently beat the rate of increase of your property taxes, you will gain purchasing power with your wealth over time. It is a good target to shoot for. If you can't do this, most likely you will have problems maintaining the purchasing power of your wealth over time.

Looking at the above table, those items that exceeded my property taxes provided a greater than inflation rate of return over the past seven years. The below table shows a random sample of companies on the Dow Jones Total Market Indexes, who produce or provides services to minerals and energy companies, have in fact beaten my, and most likely your, property taxes' rate increase.

Not everything in the above list that beat my property taxes are in energy or minerals, but I would not want my money in the home construction stocks or in the financial industry like insurance companies for the next seven years. I do like companies in the energy and mineral sectors, especially gold and silver companies. Don't forget that everyone in China and India wants a refrigerator and that will make copper mining very profitable for the next ten years as it has been for the past seven. And in fairness to indexing to a major stock index, I would think anyone who purchased an ETF index product for energy, minerals or even the American Stock Exchange (AMEX) would beat inflation by a good margin. Note: The AMEX is the place where mid size natural resource companies like to have their shares traded. I don't know if an ETF is available for the AMEX Composite , but if you can buy a AMEX ETF - go for it!

No one can say with certainty what the future holds for us, and making predictions about what the next seven years will bring investors has its hazards to anyone who would do so. But market history can help us here as to what we can expect to happen with our current market trends. The old bull market started in August of 1982; a chart of the Dow Jones or the S&P500 will tell us that, however the American public did not become a nation of "investors" until a full ten years into the last bull market. By that I mean to say that in 1984, two years after the birth of the bull, few people even thought about the stock market. In most social circles it was hard to find anyone who had an account with a stock broker. Ten years later in 1994, making money in the stock market was even a popular theme on TV shows like Seinfeld. And why not? Everyone who watched CNBC knew that over the long run people would always make money in the stock market.

The point is this - the public always comes to the party late, and then stays too long after the good times have left the building. The accelerating price trend in things and the lagging trend in financial assets, like stock, are now firmly established if not recognized by the majority of the investing public. I expect these two trends to continue for at least another seven years, during which the public will some day recognize what is happening to prices both real and financial and dump stocks to buy minerals and energy for investment purposes. At that point the price of metal, food and energy will greatly increase in their rates of appreciation and the stock market will crash.

I don't see how a massive bear market in stocks can be avoided in the next seven years. It was common knowledge for the past two decades that the bull market was driven by pension money coming into the market. What is going to happen when this pension money starts to flow out of the stock market? Wall Street will become a very ugly place to be, that's what!

And for the next decade, that's my story and I'm sticking to it.