We Have A Lot More Inflation Coming Down The Pipe
You think inflation is worse than the ridiculous official figures? You have seen nothing yet. The Central Banks are well into a synchronised hyperinflation mode and have been since June/July of 2005.
Let's have a look at a chart which shows the S&P 500 which is the black line and the predominantly red line is the S&P 500 divided by the Gold price which equals the Gold standard price. Last June/July 2005 it took approximately 2.85 ounces of Gold to purchase the S&P 500 today it only costs 2.11 make no mistake in real money terms or to put it a better way in GOLD STANDARD TERMS the market has completely broken down out of its trading range which was in force since the beginning of 2003. In 2000 it took an average of 5.25 ounces of Gold to buy the S&P 500 so the real loss of buy and hold investing in the S&P 500 since 2000 has been approximately 59.8%. What is far more worrying is that the breakdown since last June/July 2005 is very severe 26% already. Look at it another way in 2000 if you had decided to buy the S&P 500 with your 5.25 Ounces of Gold and today you sold your S&P 500 or SPDR equivalents, today you would be returned 2.11 ounces of Gold. If you had simply kept your 5.25 ounces of Gold then they would be worth today 5.25 X $623 = $3270 instead you have 2.11 X $6.23 = $1314. Not a very good "investment"
At Trendinvestor over the last 2 years we have written extensively about the smoke and mirror world of this Bear Market. Because we are living in a world of paper money whose credibility is extremely dubious being backed by nothing more than the various promises of bankers and politicians? The Bear market originally in Stocks, now real Estate and shortly living standards manifests itself primarily as inflation whose opposite but equivalent effect is purchasing power losses.
The simple fact and dirty truth that they wish kept hidden is that Politicians have made insane promises over the years to the Baby Boomers this is the real cause of the major problem now faced. They have been trying to inflate this massive problem away, the side effects are huge and unsustainable bubbles in the Stock market, Real Estate market, Bond Market and eventually commodities. Make no mistake; The President of the United States of America has 3 very simple choices.
- Pay the money at present purchasing power value and bankrupt the country.
- Tell the Baby Boomers the truth and renege on the promises made by various administrations over the years. Money does not exist at present purchasing power value to pay the promised Pensions and Medicare of the retiring Baby Boomers. There is no argument about this it is a simple matter of basic mathematical fact.
- Keep the insane promises that have been made, but and this is a very BIG BUT the money paid will have radically decreased purchasing power, The Baby Boomers will get there $300 a week as promised, problem is that it will cost $300 for a Starbucks Coffee.
It is now very obvious that they are going for Option 3 above, the easy way out, the Politicians way out!. If you believe that they are going for Option 3, then by definition it is not possible to be Bearish about the Stock market. Because the blatant devaluation necessary to keep the insane promises already made to the baby Boomers will very quickly make valuations cheap, and place a floor under any sustained decline. Go back 2 years and the GAAP PE ratio on the S&P 500 was close to 40 now today it is 18.85 this is the only PE ratio that matters the Pro Forma numbers are simply fantasy and are totally irrelevant. In this short time period the market has moved from suicidal overvaluation to simply historically expensive. The major part of the increased S&P 500 earnings has been nothing more than inflation and accounting gimmicks; real sustainable growth has only played a minor part. Very soon the Stock market will have historical PE ratios that will make it a good long term buy, not quite yet, but at the rate of Dollar destruction we are witnessing at present this time will be far closer than most people expect!
If you believe that they are going for Option 3 above then you must also be a raging commodities bull, this is because commodities are priced in Dollars. If the unit of measure is constantly devalued more units of the devalued currency are demanded by the market for real tangible physical commodities. The supply of nearly all commodities is somewhat inelastic. The supply of printed and electronic Dollars is unlimited and virtually instantaneous.
It is fashionable for the last 10 years or so for the media to talk about the great NASDAQ bull or the Housing Boom or even Peak Oil apparently showing itself by $70+ Crude. The real cause of these booms is the Federal Reserve Bank. Too much cheap money chasing too few stocks houses and now Oil.
They asked J P Morgan in 1913 at a Senate Select Committee Hearing what is Gold. He replied that "Gold is money, and nothing else is". In real money terms in true GOLD STANDARD terms we have at present a severe Bear market in Stocks just look at the graph above and Real Estate and a weak Bull market in Oil. The greatest element of the recent Bull market in Oil has not been supply and demand the popular notion that has only played a limited part this is the smokescreen, this is the spin. Far more important has been the blatant devaluation of the measuring unit of Oil the FEDERAL RESERVE NOTE whose value is determined at will, with exclusive monopoly powers by the FEDERAL RESERVE BANK. The sad truth is that the American economy has morphed into an inflation manufacturing machine, which is then spun as "growth" and "productivity". The eventual price to pay for this great lie is a severe and enduring bear market in living standards. Keynesianism is simply the long term destruction of the value of money, which is why Gold the "Barbarous Relic" is so hated, it simply exposes the great lie which is Keynesianism.
19 April 2006
We at Trendinvestor have written many articles concerning devaluation and the market linkages and would state that we were probably the first serious analysts to work out the Federal Reserve Banks devaluation game and its effects on the various markets! Please review all our previous articles for yourselves.
At www.trendinvestor.info we offer services for trading the NASDAQ 100 our original system and two new systems for 2006 that trade 20 of the worlds largest International Stock Markets and also the Commodities markets. We also offer a managed account service.
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