In Real Money, the Dow has Crashed 58%

Discussion in 'Economics' started by Martin Gale, Nov 14, 2007.

  1. "In this chart I measure the Dow with money, not currency. It took almost 45 ounces of gold to buy 1 'share' of the Dow in 1999. Today it takes less than 19. Another way of saying it, if you sold 1 'share' of the Dow in 1999 you would have been able to buy 45 ounces of gold. Today if you sold 1 'share' of the Dow, the proceeds would only buy you 19 ounces of real money. So measured in real money, the Dow has crashed 58%."

    Chart attached.
  2. That is such nonsense. Adjusted for inflation the dow is up a lot.
  3. gnome


    Classic illustration of "inflation + currency debasement" in action.

    The Dow will "soar" to 100,000+, but it won't be good news for hardly anybody.
  4. Too bad that chart doesn't show a longer time frame. The Dow at 19 oz of gold is still very high. It has hit 1 oz on two occasions.
  5. I don't have the data, but I'm guessing one of those occasions coincided with the U.S. government's confiscation of gold (i.e., 1933).

  6. gnome


    Probably 1980 too, when gold = $850. The Dow was still <1000 then.
  7. That sounds about right.

  8. While I don't disagree with the premise of the article, the author isn't objective and fair in his analysis. I don't expect him to be fair given that his career is in precious metals though.

    I did an analysis of about 20 different precious metals funds with more than 20 years of historical performance. I found the same thing every time I did a comparison to either the DOW or the S&P.

    A 10 year chart (1997-2007) has precious metals dramatically outperforming broad based indexes, to the tune of 6 to 10X returns. This is consistent with the author's paper as he was also using 10-year charts for comparison.

    However, if I compare charts from 1987 to 1997, the broad based equity indexes dramatically outperform the precious metals funds. In fact, during that period, PM funds returned almost 0% before accounting for inflation.

    In fact, $1000 gold purchase in 1970 has almost an identical return to $1000 investment in the DOW in 1970.

    IMO, you can't simply select a short period of time that supports your argument and discard all other information.
  9. Good post. Thanks.
    #10     Nov 14, 2007