Skip to comments.Bright Gold, Dim Economy. Is the stock market up in 'real money' terms?
Posted on 03/17/2011 6:54:10 AM PDT by SeekAndFind
The front page of Section R of the March 14 edition of The Wall Street Journal was devoted to the pros and cons of investing in gold. The section posed the question, Is gold a good investment? It then, of course, presented two different points of view.
One writer, a certified financial planner, answered, Yes. The other author, a chief investment officer, said, No. A better answer to the WSJs question would be, Gold had better not be a good investment, because if it is, we are in for a dismal economy.
Of course, by the time that the WSJ is talking about gold as an investment, you know that were in trouble. From the standpoint of the economy as a whole, gold is not an investment at all. A million dollars invested in U.S. nonresidential fixed assets will yield about $500,000 of annual GDP, $90,000/year in federal revenues, and about five average jobs, while $1 million invested in 703 ounces of gold (at the March 14, 2011 closing price) produces nothing.
People invest in gold because they have given up on investing in jobs and economic growth. Buying gold represents a last-ditch effort to preserve capital in the face of an unstable, weak dollar. Right now, enormous quantities of real resources are being devoted to extracting gold from the earth and then promptly burying it again (in vaults). Relative to actual annual consumptive usage, there is already a greater inventory of gold than there is of any other commodity.
(Excerpt) Read more at blogs.forbes.com ...
The author makes a case for measuring returns in terms of what he calls ---- The Real Dow (the Dow Jones Industrial Average divided by the price of gold).
This provides an indicator of the relative attractiveness of investing in the real economy vs. inflation hedges. When the Real Dow is going up, investors profit from investing in economic growth. When it is going down, they are better off putting their money into gold.
Based on this, we look back at our investments over the decades ....
* In the decade of the 1950s, the Real Dow went up by 205% (to 17.74), and the unemployment rate declined from 6.5% to 5.2%. In the 1960s, the Real Dow advanced by another 20% (to 21.30), and the unemployment rate declined to 3.9%.
* During that dismal decade of the 1970's, the Real Dow crashed, declining by almost 94% (to 1.34). Unemployment rose by almost 62%, to 6.3%.
* Ronald Reagan and Paul Volcker turned things around in the 1980s. The Real Dow rose by 365% (to 6.24), and unemployment fell to 5.4%.
* Economic growth was also a better investment than gold in the 1990s. The Real Dow went up by 518% (to 38.59, which was within 2% of its all time high), and unemployment fell to 4.0%
* Gold (and, for a time, housing) was a better investment than stocks in the 2000s. The Real Dow fell by 76% (to 9.33) in our first decade, and unemployment more than doubled, to 9.7%.
At the end of the day on March 14, 2011, the Real Dow stood at 8.43, down almost 10% since the start of the decade of the 2010s. This does not bode well for the real economy.
Sorry, no good news for you ( with apologies to the Soup Nazi ).
Old guy sigh - Damn, just damn.
I really should subscribe. But I get so lazy because they have their articles on their website ( but not this month’s ).
Indeed we are! You should only buy gold as INSURANCE, not as an investment (unless you are in the bullion business!)
Gold is a good store of value because it has no counter-party risk. It cannot be inflated by idiots at the Fed.
In 1920, one ounce of gold would buy a man a nice suit. In 2011, one ounce of gold will buy a man a nice suit (actually a REALLY nice suit).
Meanwhile, the dollar has lost 95% of its value. In other words, five cents had the buying power of one dollar today.
Paper money has no intrinsic worth, but gold has been a store of value and medium of exchange for 5,000 years.
this is coming from supposed 'financial experts'??
the physical money used to buy the gold does not disappear. it would go on to be used to buy other various things at its ever deflating value. gold is a commodity item. to say buying a commodity produces no economic effect belays a fundamental misunderstanding of how the system works.
I took nearly everything I had in the stock market out and put it into precious metals and rental properties. The metals don't provide any income but they keep increasing in relative value against currency. The rental property provides income that is better than interest in the market right now. When the market tanks the real estate income will look pretty good. There won't be any resale value for a long time but when nobody is buying there is a demand for rental property. Unlike most investments you can raise your rents to reflect inflation.
If it really gets crazy I can always buy groceries with silver coins.
It's getting scary!
I never put much in the stock market, chose precious metals and land (farm and hunting) instead. Still, I wish the dollar would remain worth something like a dime at least. Ain’t gonna happen when you consider the cost of a $20 gold piece or a silver dollar.
“In other words, five cents had the buying power of one dollar today.”
I’ve heard/read countless times on how the dollar has lost it’s value since 1913, but when you put it this way it seems to really drive the point home - for me at least.
I still think gunpowder and split peas are the best investment... not necessarily in that order!
Volunteers have reported that a large number of elderly customers are snapping up hardbacks as cheap fuel for their fires and stoves.
Temperatures this week are forecast to plummet as low as -13ºC in the Scottish Highlands, with the mercury falling to -6ºC in London, -5ºC in Birmingham and -7ºC in Manchester as one of the coldest winters in years continues to bite.
Workers at one charity shop in Swansea, in south Wales, described how the most vulnerable shoppers were seeking out thick books such as encyclopaedias for a few pence because they were cheaper than coal.
One assistant said: Book burning seems terribly wrong but we have to get rid of unsold stock for pennies and some of the pensioners say the books make ideal slow-burning fuel for fires and stoves.
A lot of them buy up large hardback volumes so they can stick them in the fire to last all night.
A 500g book can sell for as little as 5p, while a 20kg bag of coal costs £5.
Since January 2008, gas bills have risen 40 per cent and electricity prices 20 per cent, although people over 60 are entitled to a winter fuel allowance of between £125 and £400.
Jonathan Stearn, energy expert for Consumer Focus, said: If pensioners are taking such desperate measures to heat their homes it is shocking. With low wholesale prices and increasing profit margins, there is clearly room for energy companies to make price cuts immediately.
Ruth Davison, of the National Housing Federation, said: The spiralling cost of energy means heating homes has become a luxury rather than a necessity for many people particularly the elderly, low paid and unemployed.
Actually, WWII nickels (which include silver) are worth nearly $2 today.
Jeez, that is so sad. I could go on a tirade about the wisdom of public utilities and trusting your golden years to a government but I suspect I'd be preaching to the choir.