Happy Days Are Gone Again

February 5, 2013 06:58

Even in a Depression our stock market could go to 20,000 if the dollar continues to be debauched.



By Monty Pelerin


The joy of Friday’s Dow close over 14,000 should be taken with a grain of salt and huge amounts of caution. Peter Schiff can always be counted on to rain on Washington’s parades and also Wall Street’s.

Here is Mr. Schiff’s take on why you should not be impressed with Dow 14,000 and why you should be concerned:

The media excitement at the beginning of the month was focused on the Dow surpassing 14,000 for the first time since 2007, less than 200 points shy of its record of 14,164 set on Oct. 9th of that year. Few notice that when priced in gold, the Dow has actually fallen from 19 ounces to 8 ounces over that same time period. It seems a dollar just ain’t what it used to be.

As Bernanke moves deeper into his Zimbabwe stance, dollar comparisons over different time periods become increasingly meaningless. Do not be fooled by nominal dollars. To the right is an image of a $100 Trillion Zimbabwe note that is virtually worthless. The dollar is nowhere near this point — yet! — but it is certainly headed in that direction.

If gold were a perfect measure of the purchasing power of the dollar (it isn’t, but it is likely better than the manipulated government statistics that purport to be), then all this rejoicing would be happening when the stock market is still down 58%.

With Bernanke continuing to print, the Dow may reach 20,000 soon. But what will that mean in real terms? Even in a Depression our stock market could go to 20,000 if the dollar continues to be debauched. At that level, it might only buy one ounce of gold. This is not a prediction, merely a caution regarding using numeraires that have no intrinsic value to measure the value of real things.


“Monty Pelerin” is a pseudonym derived from The Mont Pelerin Society. The writer has no connection with the Society (other than coincidence of philosophy). Nothing said by me should be considered to be representative of the views of the Mont Pelerin Society or any of its members. “Monty Pelerin”  blogs at Monty Pelerin’s World


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