You won’t hear the bimbos, boobs, and shysters on CNBC talking about this chart. It seems even after a couple of rough years for the barbaric relic, its 12 year bull market has helped it retain its supremacy over the stock market. Now the real question. Over the next ten years, will the Dow/Gold ratio go back to 44 or to 5 or lower? The Dow is at an all-time high and valuations are at levels of 1929, 2000, and 2007. Gold is down 37% from its 2011 highs.
For the ratio to go back to 44 would require gold to drop to $600 and the Dow to soar past 26,000, or some combination thereof. Does that sound likely?
For the ratio to go back to 5 would require gold to hit $2,000 and the Dow to drop to 10,000, or some combination thereof. That would be a 67% increase in gold and a 45% drop in the Dow. Does that sound reasonable?
For some perspective on the long-term performance of the stock market, today’s chart presents the Dow priced in another global currency — gold. Today’s chart illustrates how it currently takes approximately 15.3 ounces of gold to ‘buy the Dow’ (i.e. the Dow / gold ratio) — well off the 44.8 ounces it took back at its peak in 1999. From the 1990 peak until 2011, the Dow (priced in gold) endured a massive bear market. Since 2011, gold has struggled while the Dow has continued to rally. All of this has resulted in the Dow (priced in gold) rallying in a well-defined, upward sloping trend channel. Despite this strong rally, however, the Dow (priced in gold) remains well below its 1999 peak.
“Regardless of the dollar price involved, one ounce of gold would purchase a good-quality man’s suit at the conclusion of the Revolutionary War, the Civil War, the presidency of Franklin Roosevelt, and today.” – Peter A. Burshre
LIES, LIES and more LIES
Blackrock Stunner: S&P 500 Profits Are 86% Higher Than They Would Be Without Accounting Fudges
Submitted by Tyler Durden on 12/26/2014 10:05 -0500
We have previously observed that while pundits are happy to focus on non-GAAP earnings which over the past several years have become a total farce, the reality is that GAAP EPS for the S&P in 2014 will be 1.3% lower than a year ago, and that as a result of crashing energy company profits, 2015 GAAP EPS will be lower still, meaning that contrary to the propaganda, the US will see two consecutive years of declining wage growth. That said, not even we expected to read the following shocker revealing just how naked the corporate profitability emperor truly is, and coming from the world’s largest asset manager on top of everything.
Presenting the stunning punchline from Blackrock’s 2015 Investment Outlook:
Corporate earnings are a key risk. Analysts predict double-digit growth in 2015, yet such high expectations will be tough to meet. Companies have picked the low-hanging fruit by slashing costs since the financial crisis. How do you generate 10% earnings-per-share growth when nominal GDP growth is just 4%?
It becomes tempting to take on too much leverage, use financial wizardry to reward shareholders or even stretch accounting principles. S&P 500 profits are 86% higher than they would be if accounting standards of the national accounts were used, Pelham Smithers Associates notes. And the gap between the two measures is widening, the research firm finds.
So assuming 126 non-GAAP, accounting-levitated 2015 S&P consensus EPS, this means the real EPS is… 67x? Which in turn means that the real forward P/E as of this moment is over 30x! Then again, judging by the buying frenzy being unleashed in the S&P, it is time to BTFATH with both hands and on margin, because as long as nobody admits the truth, one must buy, buy, buy.
How about this crap, made me want to vomit up all the main stream spin…
http://www.politico.com/magazine/story/2014/12/everything-is-awesome-113801.html?hp=l3_3
This is only one of many paragraphs of B.S.:
“Come to think of it, the 62 percent of Americans who described the economy as “poor” in a CNN poll a week before the Republican landslide in the midterm elections were also wrong. I guess that sounds elitist. Second-guessing the wisdom of the public may be the last bastion of political correctness; if ordinary people don’t feel good about the economy, then the recovery isn’t supposed to be real. But aren’t the 11 million Americans who have landed new jobs since 2010 and the 10 million Americans who have gotten health insurance since 2013 ordinary Americans? It’s true that wage growth has remained slow, but the overall economic trends don’t jibe with the public’s lousy mood. And the public definitely does get stuff wrong. A Bloomberg poll this month found that 73 percent of Americans think the deficit is getting bigger, while 21 percent think it’s getting smaller and 6 percent aren’t sure. In fact, the deficit has dwindled from about $1.2 trillion in 2009 to less than $500 billion in 2014. My favorite part is the mere 6 percent who admitted ignorance; 73 percent are definitely sure the shrinking deficit is actually growing.”
You could just as easily normalize the Dow to chinchillas and proclaim it is up, down, sideways, whatever. How about normalizing it against car value? How about against inflation? How about we just divide the market by any number less than 1 and greater than 0 and pretend it is relevant?
Gold is not bad stuff, if you had bought stock tracking funds in 1980…and an equivalent amount of gold, you would now have far more dollar value than gold, you could liquidate your market holdings, buy more gold, and then ask how STUPID you were to buy that gold in the first place, as opposed to MORE stock tracking funds.
Hey Johnny
Natural gas under $3. How’s that working out for ya?
North Dakota Williston Basin Sweet crude now trading at $40 per barrel. Ouch!!!
I sure hope you aren’t leveraged Johnny. Shattered dreams and delusions of easy money.
I’m guessing Johnny missed the 12 year gold bull market. Those are the ones most vocal when gold drops by a fraction of what it went up over the 12 years.
Out of all the inane, clueless and ostrich-confirming conversations I had Wednesday night, the #1 oft repeated was hearing the tales of the investing geniuses, whom all mocked me based on my suggestions of PMs back in ’08/’09.
I just laughed, said, “yep, I’m an idiot,” and casually mentioned the number of “geniuses” I knew in 1999, and 2007.
“It doesn’t matter, the market ALWAYS comes back.”
Cognitive dissonance is a national past-time.
The bulk of our friends, families, neighbors and others are in no way mentally or physically preparing for what comes next.
I knew a few years back how futile talking to the intentionally herded was.
My heart is finally admitting I can’t save those that I love, that refuse to save themselves or even acknowledge that bad shit is heading this way. My gramps talked about the same thing leading up to WWII. “Polite” society didn’t talk about the obvious horrors, so nothing could be changed, nor stopped, in the lead up to the war.
History repeats.
Sad to see it. Will be worse to live it. And, if my personal history is to be my guide, those of us that have tried to warn and awaken our F&Fs will be blamed by many. As if talking about reality caused it.
Such is life.
Back then, the goldbugs said the banks were manipulating gold prices downward. What was the real value back then? $800? That would drop the Dow/Gold ratio to 11.
PEs matter, why would anybody pay 30 times future earnings?
Sometimes we get a warm day in December but it doesn’t mean Spring is here. I’m still calling 2015 the trough and we aren’t past new year’s yet.
“Newton (the grand architect of the gold standard)… replied: ‘Gentlemen, in applied mathematics, you must describe your unit.”
[Master of the Mint and inventor of the gold standard] “Sir Isaac Newton was asked by the British Treasury officials and financiers of his day why the monetary pound had to be a fixed quantity of precious metal. Why, indeed, must it consist of precious metal, or have any objective reality? Since paper currency was already accepted, why could not notes be issued without ever being redeemed? The reason they put the question supplies the answer; the government was heavily in debt, and they hoped to find a safe way of being dishonest. But Newton was asked as a mathematician, not a moralist. He replied: ‘Gentlemen, in applied mathematics, you must describe your unit.’ Paper currency cannot be described mathematically as money. A dollar is a certain weight of gold; that is a mathematical description, by measure (weight). Is a piece of paper of certain dimensions (length, breadth, and thickness, or else weight) a dollar? Certainly not. Is a given sized piece of paper a dollar even if numerals and words of a certain size are stamped on it with a given quantity of ink? No.
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“They took Newton’s word for it, possibly conceding that the greatest mathematician of their age might know the primer of his science. But the fact that educated men were ignorant of the first rule by which they carried on their own business, commerce and finance; and the further fact that Newton’s answer has since been forgotten many times, in spite of the disastrous consequences that ensued each time, indicates a very grave problem of civilization.”
from The God of the Machine, by Isabel Paterson, pp. 203-204, with thanks to Dr. Larry Parks for having shared this wonderful literary vignette.
Natural gas under $3 SUCKS!! So does cheaper oil. However, the oil and gas industry being the victim of its own success is pretty normal if you review the history of the industry.
So, neither are unexpected in a world, and an industry, that regularly goes through these cycles. I believe this is my 5th rodeo, including my first, 1986.
And I’m still here.
As far as the gold bull market oh no…I was in on it…but I was also in on the market bull market from the same time I purchased the gold. Guess which one is worth more today?
Johnny
Let me guess. Please!!!!
S&P 500 on January 1, 2000 – 1,469
S&P 500 on December 26, 2014 – 2,089
14 Year Return = 42% + 35% in dividends = 77% total return
Gold price on January 1, 2000 – $283
Gold price on December 26, 2014 – $1,196
14 Year Return = 323% (after a two year bear market)
What do I win Johnny?
Guess who loses the debate again?
I know you’ll rant that I used a market top for stocks and a market bottom for gold, so if I use January 1, 2003 after the stock market fell 40% you get a 160% return on the S&P 500 and ONLY a 215% return for gold. Guess who still wins?
Better luck next time.
February 1980
And this wasn’t a debate, it is simply how I feel about gold based on performance from then, until now. The kids will get it, because it certainly didn’t do me near as much good as those market investments.
You really are an old fart. You sure picked a great time to buy gold. I hope your instincts were better with your shale investments. Did you buy internet stocks in 2000 and a McMansion in 2006?
I prefer the term “distinguished gentleman”. 🙂
It was literally my first investing decision ever, watching the inflation rates, stagflation, the fear of what would happen to the country headed by an apologetic idiot as opposed to a President. I ran into a guy who was stockpiling physical gold. I got in on the deal and then waited for the economic collapse to arrive. Not much different than what some folks have been expecting ever since, expecting in 2008, expecting now. Back then there were nukes and nuclear winter involved, some of these economic gyrations to gin up fear just don’t have near the kick to them.
I have no shale investments, my employment since 1998 hasn’t permitted it. Market tracking funds only, or limited and prearranged investment groups available through work. No market investments permitted, no hedging, no speculation in markets, no day trading, no short term or individual fund maneuvering, none of it.
So no, no internet stocks either. No McMansion. A penchant for traveling perhaps.