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Secular Bull and Bear Markets

beebee
edited December 2012 in Off-Topic
The problem I have with these forecast charts, Secular-Bull-and-Bear-Markets, are that they always expressed them in terms of a deflating currency (US Dollar) or against the tide of an inflating basket of goods. If my currency is being debased through QEs and things that I buy in that currency require more debased dollars aren't all of these "gains" severely misrepresented? I feel there needs to be a better guage for "real gains" than merely gains represented in a fiat currency. The value of gold attempts to do this, but I feel Central Banks have the ability to manipulate even it's value.

Currencies are often strategically made weak or strong when compared to other currencies regardless of the currencies intrinsic value. In my mind, currencies need to be pegged to a basket of goods or services which ultimately equates to real value and actual buying power. The cost (value) of goods and services should be represented the value of a currency. When 2 ounces of silver filled up your car in the 1950's and that same 2 ounces of silver fills up your tank today there's something about this transaction that exhibits a store of value. It would take 10 times as many dollars today to complete this transaction.

Since 2009 a 47% "gain" in the S&P 500 has been signifcantly offset by 22% loss in the value of the dollar as illustrated here using UUP (bullish US Dollar) and SPY (S&P 500):
image

More Currency Debasement ahead...The Japanese Yen:
why-the-yen-has-been-getting-crushed

Comments

  • InvestorInvestor
    I think UUP is a flawed ETF to conclude dollar debasement. In 2009 dollar indsx bottomed around 75. Today it's around 80. So, with respect to that bottom dollar has gained 6.7%

    http://www.marketwatch.com/investing/index/dxy
  • beebee
    Reply to @Investor:

    What does 75 or 80 equate to...bananas? I guess the US currency is the least bruised banana in the republic.
  • InvestorInvestor
    edited December 2012
    Reply to @bee: it's an index measuring dollar to basket of currencies weighted by the volume of trade. Given inflation was also very subdued during this period the run of S&P 500 was very good.
  • beebee
    Reply to @Investor:
    Thanks investor.
  • ronorono
    Hi bee,

    Hope your holidays are great.

    Thanks for the postie and you're spot on. The two issues are the reliability and validity of your metric (i.e. US$) and in this case, they both leave something to be desired. Who made the ruler and are why you measuring your foot to figure out what color to paint your house?

    You mention the reliability and indeed, all fiat currencies devolve into debasement until Captain Price jerks a knot in their ass - most often via nasty inflation. We're fortunate that the dollar is still the int'l standard and store of value safe haven for many. It's helping to keep the roof on. What's keeping the inflationary hounds of hell at bay is lack of velocity. Money is not really circulating sufficiently to pass any inflation through and inflation is being kept in check due to globalism and negative wage pressure.

    I agree that a basket of goods and services is a better way to go and actually, that's where we're all headed right now. More and more CBs are diversifying their wealth away from dollars as are companies and people. It's Econ 201/202 Utility curve stuff. Handsome Al Mandelstamm used hash cubes vs. pitchers of beer - after a while you decide you've had enough of one and want some of the other (it was in '72). Folks are doing that with the dollar. You and I are doing it and so are countries around the world and you know the corporations are. We're diversifying our wealth out of dollars. Good thing folks aren't selling dollars yet in spite of the untiring efforts of our congress.

    That said, where are we now? QE3? QE4? QEnth? We're trashing our currency as fast as everyone else - if not more so. Indeed, we're the least dirty pair of shorts in the hamper. As an aside, I read a while back that they've got to monetize so much of the unfunded liability debt it will result in them halving the value of the dollar over the next decade or so and this is a dollar that's down 96% since the Fed's creation in 1913.

    As for your int'l basket of goods and services standard, I doubt that we'll get to this point officially until after things get crazy as that seems to be the way it always works. Princes will always want to spend more than they have or can squeeze out of their subjects.

    As for validity - wow. What's it all mean? Is the ladder on the right wall? All this real long term inflation adjusted growth in the S&P and how great it is. Geez, if I was to come up with a marketing plan for selling stocks, I'd sure want the brochures to look like this. Pretty picture, what? Case in point. 2012. US markets up ~14% YTD. What a great year. Glad all y'all had so much fun. Cripes, over at www.shadowstats.com john's showing negative GDP since the dot.com meltdown in 2000. Zero inflation? Yeah, buy some health care or education or food or drugs.

    alas and alack,

    peace,

    rono

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