Archive for March 6th, 2009
Worshiping at the Altar of the Inflationary God
Posted by Preston Poulter in Investing and Financial Doomsday on March 6th, 2009
“Bow down before the one you serve. You’re going to get what you deserve.”
- Trent Reznor
I listen to Peter Schiff’s weekly podcast “Wall Street Unspun.” He said something in a recent edition that stuck with me. He said that his father, Irwin Schiff (who was also a prominent opponent of the inflationary policies of the US Government) denounced the politicians and central bankers of the world in books such as The Biggest Con: How the Government Is Fleecing You
The power of the ability to create money from nothing was marveled at when it was first discovered. Critics were sure that no one would accept Lincoln’s Greenbacks when they were first issued to help pay for the civil war. The notion that people would accept a paper money that had no backing just because the government told them to seemed rather dubious at the time, but the general public did accept them. The possibilities were not lost on the thinkers at the time. If fiat money could be created with a printing press and accepted by the general public, then why not use the printing presses to make us all rich? Read the rest of this entry »
A Market in Search of a Bottom
Posted by Preston Poulter in Investing and Financial Doomsday on March 6th, 2009
The Dow Jones Industrial Average is at 6625 as of this writing. The last time the Dow was trading in this range was 1997. Back then it was on it’s way up. The lowest level it ever reached in 1997 was on April 10 when it closed at 6391. If the Dow falls lower than that, then we’re going back 1996.
Frequent readers of my blog know that I don’t follow the nominal value of the Dow Jones as much as it’s ratio compared to gold. The reason for this is that it the ratio of those two will automatically correct the Dow for inflation without referencing some wonky government statistic that has been worked over by “hedonistic price adjustments” until its lost its usefulness. In terms of the Dow-Gold ratio, the Dow looks far worse because $6625 would go a lot father in 1997 than it would today. The Comex Spot price of gold is in the neighborhood of $930; that would put the ratio of the DJIA to 7.1 ounces of gold. Last time we looked at the Dow-Gold ratio it was a 7.4. Last time it was that low it was the recession of 1991. The ratio is now trading belong its long term average, but it still has plenty of room to fall. People ask me when a good time to look at getting back in to the market is and I say when the Dow is trading at two to three ounces of gold. To paraphrase Dr. Seuss, “When we will get there, I can’t say, but I bet we’ll fall a long, long way.”