In Real Money, the Dow has Crashed 58%

[Cache Landing]

Quote from stock_trad3r:

That is such nonsense. Adjusted for inflation the dow is up a lot.

This is true.

Since 1970 the DOW is up about 1200% after considering inflation. Assuming of course that inflation is determined by a basket of purchased goods. (either CPI or GDP deflator)

If you consider real inflation to be the value of the $US as it relates to the value of gold, then the DOW hasn't returned or lost anything during that time period.

If you consider real inflation to be related to the M3 money supply, then the DOW has returned about 850% since 1982.

My personal opinion is that using the value of the dollar relative to gold is the poorest way to measure inflation as the change in price of gold has very little correlation to the change in price of frequently purchased goods.

The use of M3 is logical but I don't think it accounts well for actual buying power. I do, however, think that M3 is valuable in measuring inflation as it relates to broad based index nominal values.

GDP deflator (or CPI) are probably the best thing we've got for measuring actual purchasing power changes.

 

[Martin Gale]

1970 value of Gold: $38
2007 value of gold: $810

Increase: 2100%

(not considering inflation)

Quote from Cache Landing:

This is true.

Since 1970 the DOW is up about 1200% after considering inflation. Assuming of course that inflation is determined by a basket of purchased goods. (either CPI or GDP deflator)

If you consider real inflation to be the value of the $US as it relates to the value of gold, then the DOW hasn't returned or lost anything during that time period.

If you consider real inflation to be related to the M3 money supply, then the DOW has returned about 850% since 1982.

My personal opinion is that using the value of the dollar relative to gold is the poorest way to measure inflation as the change in price of gold has very little correlation to the change in price of frequently purchased goods.

The use of M3 is logical but I don't think it accounts well for actual buying power. I do, however, think that M3 is valuable in measuring inflation as it relates to broad based index nominal values.

GDP deflator (or CPI) are probably the best thing we've got for measuring actual purchasing power changes.

 

[Cache Landing]

Quote from Martin Gale:

1970 value of Gold: $38
2007 value of gold: $810

Increase: 2100%

(not considering inflation)

Actually the increase you speak of is only about 2000% increase. Most people forget to subtract the original investment which subsequently inflates the returns by 100%. Just a note for future calculations.

In any case, you have to consider that my statistics accounted only for full years. 2007 hasn't finished yet, so annual data wasn't available. Gold was at $636 at the end of 06' and for most of this year. Gold was relatively flat most of the year until September, after which it took off pretty quick. To be honest, there is no way of knowing if the trend will continue or if this is just a quick spike. In any case, I think that my long-term assessment is less biased.

Think about it this way. If we were having this discussion in July it would be:

Gold -- about 1750% increase
DOW -- about 1750% increase

I'm not interested in the short-term spikes of either. I'm also not saying that gold is a bad investment. Only that it hasn't outperformed stocks over the long term. Nor have stocks outperformed gold over the same period.

 

[Martin Gale]

Point taken. Time frame is everything and sector rotation is vital when trends change.

Quote from Cache Landing:

You have to consider that my statistics accounted only for full years. 2007 hasn't finished yet, so annual data wasn't available. Gold was at $636 at the end of 06' and for most of this year. Gold was relatively flat most of the year until September, after which it took off pretty quick. To be honest, there is no way of knowing if the trend will continue or if this is just a quick spike. In any case, I think that my long-term assessment is less biased.

Think about it this way. If we were having this discussion in July it would be:

Gold -- about 1750% increase
DOW -- about 1750% increase

I'm not interested in the short-term spikes of either. I'm also not saying that gold is a bad investment. Only that it hasn't outperformed stocks over the long term. Nor have stocks outperformed gold over the same period.

 

[Cache Landing]

Quote from Martin Gale:

Point taken. Time frame is everything and sector rotation is vital when trends change.

To be fair to the author, I should say that I don't disagree with his numbers in the context of a 10-year time frame. Also I should probably note that I'm not convinced that the relatively equal performance of gold and stocks over the long term is coincidence.

 

[myminitrading]

Quote from Martin Gale:

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).

That happened when Roosevelt took office, said it was to protect america. That was the biggest fleecing of americans in history.

HAND OVER YOUR GOLD, AND WE WILL GIVE YOU PAPER.GEE THAT GOODNESS ITS ALL SAFE AND SOUND IN FT KNOX HAHAHA.