Reply #52: The Dow Is Crashing! A Story in Pictures by Mike Maloney

[54anickel]

http://goldsilver.com/the_dow_is_crashing.php

On October 4th 2006, the Dow broke its old high of 11,750 set back on January 14th 2000, and from then on all you heard from the financial press was "Dow sets a new, all time, record high"… at least that's all you heard until the correction on February 27th, 2007.

I just don't get it. How can anyone at this point in time (including the financial press) believe they are actually making gains being invested in general equities? On February 20th, the Dow hit its "brand new, all time, record high" of 12,795, and at the writing of this article hovers at 12,560, 6.9% above its 2000 high.

A 6.9% gain over the entire 7-year period… hasn't anyone heard of inflation? Don't investors know that if their portfolio doesn't outpace inflation they are actually losing ground?

The Dow is actually crashing, but if you have not yet educated yourself on the insidious ravages that inflation can have on your portfolio, you can't see it. This is a blind spot investors must be mindful of, and guard against, if they are to prosper.

Anytime that it looks like everything is going up, stocks, bonds, real estate, commodities, and virtually every kind of investment there is, you have to stop and ask yourself, "why?" The only reason the Dow looks like it is going up is because the Fed has pumped so many more dollars into the currency supply, that all asset classes are rising.

Under these conditions, the only way to see where true value lies is to eliminate the dollar from the equation… you have to measure each asset class, not with the dollar, but against another asset class.

Now here's the story in pictures that proves beyond a shadow of a doubt that the stock markets are crashing. You’ve heard the saying "one picture is worth a thousand words". Well, one chart is worth a million numbers, because a chart is simply a picture of at least two sets of numbers, in this case, the price of an item and the date that the item was at that price. Later, I use charts that are a picture of three sets of numbers, the date and the price of one item, divided into the price of another item. These "ratio" charts are my favorites because they reveal true value, and the true direction something is headed. I love charts.

snip>

I like this chart, because it shows you just how much real stuff (on the average) the Dow will buy you. It's the Dow divided by the Commodities Index. Commodities are the stuff you buy, or the stuff that goes into the stuff you buy. What this chart is saying is that you could buy twice as much stuff if you cashed out of the Dow in 1999 as the same number of shares will buy you today. This chart is also saying; "you can take your Dow and stuff it!"



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