This page has been archived and commenting is disabled.
The Great Con of the Recovery: The Stock Wealth Effect
At this
point, I seriously don’t know how anybody in their right mind can be happy that
stocks are rallying. Back in 2009, when the market was staring into the abyss,
it made sense. But now, after seeing the market double from its 2009 lows… is
this really something to be happy about?
Especially
when it’s occurring on the back of the Dollar’s collapse?
In case you
missed it, the Dollar officially this week the US Dollar officially broke below
its 2009 low on its daily close…
And it’s
weekly close…
We now have
only one line of support left (the 2008 low) before the greenback breaks into
uncharted territory, triggering the long-term Head and Shoulders pattern that
everyone is aware of and which forecasts a 50% devaluation in the coming years.
Stepping
back from this, you really can’t help but notice how stupid the whole “stock
wealth effect” ideology is. Setting aside the fact that MOST of the gains
stocks have produced since 2009 are due to US Dollar devaluation, it strikes me
as odd that someone would think they were richer because their stock portfolio
was up… while the cost of just about everything has ALSO gone up tremendously.
Since March
2009, stocks have doubled. However, oil has nearly TRIPLED in price.
In order for
people to actually make money with
stocks, they have to SELL the stocks. Agricultural commodities have nearly
doubled in value too. In fact, the only thing that HASN’T gone up is home
prices and incomes.
So the idea
that you’ve made money by owning
stocks since 2009 is a little hard to swallow as all those paper gains are
eaten up by the higher cost of living.
On top of
this, in order for you to MAKE money with stocks you have to SELL the stocks. So
technically, all the money the “buy and hold” crowd has made going long since
2009 remains paper gains until they cash out. And when they do cash out… they’re
cashing out into… US Dollars… which continue to drop like a stone.
Has the Fed
really succeeded in generating wealth for anyone? Certainly not anyone who
doesn’t work for a big bank. All the Fed’s really done is crank up inflation in
the financial system while telling world investors that the US Dollar is trash
(which further exacerbates the inflation).
Can the Fed
stop this? Not a chance. A Dollar collapse is now guaranteed. The only reason
we haven’t had it already is because the US Dollar priced against a basket of
equally ugly paper currencies (Euros and Yen).
One by one,
these various paper currencies will turn into confetti. The world’s central
banks know only one thing and that’s MONEY PRINTING. The idea that they can
somehow rein in inflation is absolutely laughable.
So if you’re
not preparing for mega-inflation already, you need to start doing so NOW. The
Fed WILL continue to pump money into the system 24/7 and it’s going to result
in the death of the US Dollar.
If you’ve
yet to take steps to prepare your portfolio for the coming inflationary
disaster, our FREE Special Report, The
Inflationary Disaster explains not only why inflation is here now, why the
Fed is powerless to stop it, and three investments that absolutely EXPLODE as a
result of this.
All in all
its 14 pages contain a literal treasure trove of information on how to take
steps to prepare AND profit from what’s to come. And it’s all 100% FREE.
To pick up
your copy today, go to http://www.gainspainscapital.com
and click on FREE REPORTS.
Good
Investing!
Graham
Summers
- advertisements -
As I was wandering the aisles of my local US supermarket today, I could only think how nice it was to be paid in Euros since the cost of nearly everything in USD terms had gone up significantly since my last visit here.
The people who keep saying that all is fine on the inflation front or touting that deflation is the real problem at hand are in la-la land ... I heard one talking head on Fox today saying that the inflation in food & energy was mostly offset by deflation in housing, so on balance no harm no foul ... which is the musing of an idiot since housing is essentially stuff you already have or only need occasionally while food & energy are stuff you need on a regular basis.
The elites are truly out of touch.
actually, the government sponsored and funded effort to control the metals stocks have made their owners wealthier. We have yet to even see a rise comparable to gold 1K, much less 1.5K, the same goes for the majority of silver stocks. if anything, our stocks now represent something like 30-40% more value than the government is permitting them to sell for...
The willing sheep need an excuse to believe, nothing more.
So long as a "respected" talking head quotes impressive figure on how much things are "up since...", they can hold their heads up at the next cocktail party. They care about nothing beyond that.
The nice part of all this for the government is that when you sell your stocks that are worth less in purchasing power you have to pay taxes on the profits!!
True, and don't forget that Mr. Obama is not a friend of the current tax rates for capital gains. He and many other progressives think LT gains should be taxed as ordinary income. Really smart progressives like Krugman tell us the top marginal rates should be set around 65%. A "wealthy" shareholder in CA would hand over 3/4 of their realized gains to various government entities.
It's not confiscation -- it's spreading prosperity!
Leo
Please post your wonderful solar charts. I miss the charts and the hedgies must be up 100x on these investments of the century.
I don't know why this 'rally' continues to get confused with reality.
It's a way to recapitalize the banks without public fury by bypassing the congressional approval that would otherwise be required. It's just a sly way to do it and, to be sure, most people are even cheerleading it as their 401(k) balances grow [without being able to cash them out].
Clearly, there is an end-game to it. Most will be 'surprised' when they are left holding the bag.
Beyond here there be dragons.... and then you sail off the edge of the world.
You silly person, everyone knows that the world is a Mobius strip, you just sail around and around and around....
Luddite.
QE has been great for financial oligarchs and the rich. There is a wealth effect, problem is that it's concentrated in fewer hands. Will it trickle down? A fraction of it will but it won't make a huge difference. This notion that those who invest or speculate in stocks are worse off because oil prices have tripled or the USD has devalued is stupid. I only invest in US stocks (or ADRs), and even after devaluation, I'm up significantly. Institutional funds like pension funds hedge currency risk, so they're up too. Be careful when making grandiose statements like the comment above. All too often, I read stuff on ZH and just shake my head in disbelief. Snazzy titles, shock and awe, but when you actually ANALYZE what's there, just a bunch of nonsense. Sorry, that's the truth, and people a lot smarter than me have come to the same conclusion.
Since virtually everyone is a lot smarter than you, I wouldn't be too confident.
Everything you state is aligned with the post, you just don't see it. You're still stuck on valuing everything in dollars. If you value things in something with some staying power, like silver, you'll see that the oil prices have fallen in recent months, and the stock market has fallen even further.
The smart money here at zero hedge - and there's a lot of it - understood a long while ago the need to diversify across asset classes and the numerous permutations that lie ahead. For yuks, here's my long-term holdings (liquidity holdings are different, which I laid out on another post):
15% Income-Producing U.S. Equities
15% Diversified Foreign Manufacturing Equities
10% Global Materials/Oil & Gas Equities
10% Agricultural Commodities
15% TIPS
15% Mixed Duration Bonds
15% Gold
5% 3x Inverse 20-Year T-Bond
30% gold
30% silver
30% grub
10% guns
Not necessarily in that order. A balanced "portfolio" could include such things as gardens and such but it's tough to quantify those as a percentage.
"I'm up significantly. Institutional funds like pension funds hedge currency risk, so they're up too."
Unrealized gains are not wealth. You can't spend them, and only a reckless fool borrows against them. A paper portfolio does instill a sense of optimism, however unfounded, and allows people to daydream. Perhaps millions of Chinese immigrants wearing solar backpacks will rescue Canada and allow you (and the pension funds) to cash out -- and why not? It's as likely as the U.S. government living within it's means.
Leo you seem to junk everyone. I saw a post your post about Canadian pensions. Why Tyler let you post it, I don't know. Any fund managed by pension funds is usually in danger. The only way they are not in as much danger is when there are at least two times more people in the next generation putting money into that system than the previous generation. This is why US pension funds are failing. Even when there are twice as many people in the next generation putting money into the pension fund, these funds are subject to mis management. Hedges don't prevent future losses. In fact, in a flat market, hedges costs investors money.
Tyler much more often than not talks a lot of sense. I've actually analyzed what he said many times and he's usually right on. What you're saying is not truth and people dumber than you who just read the headlines are about to go to the breadlines.
Tyler probably knows that there is a lot of government paid bloggers invading the web nowdays. They are not always easily spotted. I strongly believe that Leo is one. If he's not, I would like to see him post his stock picks in the US to prove that he's making more money in the US as the Canadian dollar outperforms our dollar. I strongly doubt he is.
Leo, put your picks where your mouth is.
The best way to pictorally demonstrate the scam is to show a 3 year chart of the SP500 then a chart of the SP500 measured in gold.
After a "dead cat" bounce from the March 2009 lows, the large cap stock index has been FLAT, at best. The cruelest part of the scam is that anyone selling these "appreciated" stocks will pay income tax on the "gains," even though they have lost 50% of their buying power. Screwd by TPTB, without being kissed.
Got rope?
What are PM's? As in "I bought some PM's with the $".
Precious Metals; Gold, Silver, Platinum.
There are a number of ways to do so. Exchange Traded Commodities being one. Many here will insist it has to be real physical in your hand coins or bullion.
Gotta be very careful with PM ETFs. Some of them are backed by phantom holdings and could disintegrate.
Physical holding is the best way to ensure value storage. Of my PM holdings, about 40% are physical in my possession, the balance in truly physically-backed ETFs (like SPDR GLD).
Read the prospectus on GLD and see if you are still so sure there is physical backing it.
Don't need to read no stinkin' prospectus -- Cramer says it's all good.
"Many here will insist it has to be real physical in your hand coins or bullion."
Indeed I do! :)
on the back of a possible collapse makes sense, more dollars chasing shares in viable companies while the dollar still is perceived as having some value left. I would need to see how fast the dollar approaches 72 1st. Wow, I just found out that I hope some good change will occur (before not after).......(I feel like a happy little dummy)... Thank You Graham.
The WS Oligarchic facade is now a paper thin hedge to both inflation and USD devaluation...that will deflate. It's inevitable as Benocide and his masters are between a rock and a whirlpool. Most contrarians, as here in ZH, are into PMs as a hedge against deflationary tsunami. So the bottom line is that as the USA has less and less ability to make global power plays, like WW3, on a realistic, sustainable, winnable basis, it'll have to unwind the Ponzi one day or have it unwound by China and BRIC friends at much more harsher terms. Five years from now is the likely MAXIMUM time line. Every step down this road on a basis of DENIAL, aka Benocide's suicidal QE strategy and WS levitation, is just kicking the can to greater depths into the abyss.
The Oligarchy, on all THREE sides of the global pond, USA/EU/JAPAN, feels it can spread the pain over many decades to win back it's western led pre-eminence. To do that the projected growth rate of USA/EU/Japan economies have to be 3%+ for a long period where fiscal discipline will have to be exercised as well! That really is wishful thinking from the current perspective of debt ridden western world without REAL economic growth prospects on the horizon for DM. Wake up call coming...
5, maybe 6 years agreed! I keep telling my friends they won't reconize this country in 5-6 years. They ignore me and write me off as a conspiracy theorist (even though I saw the initial shit-storm coming in 2005).
USa is on the path of self destructing itself.
The payrolls have dropped and the folks with education are finding more and more difficult to find jobs. The destruction which started back in 2000 will be felt for generations. The picture is bleak and above all the clowns in DC are so self absorbed and have said things to get into office and no one questioned them. WTF, the people of the USA are to be blamed for this mess.
We may just have passed peak-job. I guess we'll have to do with less oil, fewer jobs, less i-Crap, and less midriff bulge. That should do it.
more "swing lo, swing sweet chariot", afternoons with a loving woman to hammock away the afternoons!
http://www.youtube.com/watch?v=71zH7EUlUHc&NR=1
ross perot wants folks to write congress... like they havent lol
we are running out of money because we didnt vote for his ass and hes just gloating
thank you for these clips ! you made my day ! ...am sending to my sister, she's just crazy for ROSS & says not electing him was our fatal mistake.
Funny how the folks who tout Romney as a "business oriented" candidate used the same criteria to bash Perot at the time. The businesses that these two guys ran were quite different and, in another respect, varied greatly in the hands-on department. Perot actually ran a day to day enterprise and made it thrive. Romney on the other hand -- oh, never mind. Talk about your empty suits.
I DID vote for Perot.
http://www.youtube.com/watch?v=Rkgx1C_S6ls&feature=related
See anything familiar around the area that he talked about?
I was an elector for Ross Perot. But TPTB could not let him win or even compete fairly, so they had the CIA scare him off by threatening his family during the summer of 1992.
Check the interviews with Chip Tatum (now deceased) for details.
http://www.youtube.com/watch?v=I_6dOsAZfZI
Holy shit. He said it in 1992 and look where we are. its over in the USA.
>>Since March 2009, stocks have doubled. However, oil has nearly TRIPLED in price... So the idea that you’ve made money by owning stocks since 2009 is a little hard to swallow as all those paper gains are eaten up by the higher cost of living. <<
I hate Bernanke's policies as much as the next (sane) guy, but this statement is silly. If you own stocks at all, the chances are they've gone up far more than you spend on gasoline or food. The problem is that most Americans DON'T own stocks.
I suspect most Americans own most their stock in 401k's which means they don't have easy or cheap access to those gains. I cashed one out last year and bought PM's with some of it. The taxes and penalties were terrible but I've made it back. Decided not to play in stocks nowadays as they seem too artificial and due for a big drop.
So, I don't think there is much wealth effect in stocks for most people. When Bernanke and others daydream about how we loved looking at our escalating stock portfolios in the late 90's we also had good jobs on top of that. That makes a nice total wealth effect. Most people I know are unemployed, underemployed or have taken pay cuts. I should disclose I am not friends with any government workers or bankers.
My most successful friends include: One Federal government worker, a Citi bank branch manager, and another friend that develops offshore labor contracts (he makes the most)! All 3 have seen pay raises the last year!
When Bernanke and others daydream about how we loved looking at our escalating stock portfolios in the late 90's we also had good jobs on top of that.
Commodity prices were also falling through much of the 1990's. Take a look at a long-term chart of the CRB Index. A very favorable environment for equity multiple expansion. Quite different from today.
What gains?? If they held in a 401k and have been investing over the past few decades, then they're actually down quite significantly.
A few commentators keep talking about these gains, but the fact is, they simply don't exist for most investors. Dow was 14k a few years ago, today its 12k and change. And the dollar has lost significant purchasing power in commodities.
But the stock market is still at a level significantly below that of 3 years ago, *and* bondholders have enjoyed 15-20% returns in the meantime. Therefore, stock holders have not been made whole by any stretch of the imagination.
Americans that don't own stocks, over the past 3 years, have done significantly better than Americans that were stock owners. Its the civil servants and salaried/bonus'ed bankers that are driving luxury spending -- not stockholders.
>>But the stock market is still at a level significantly below that of 3 years ago...<<
Pitz:
The guy specifically wrote "Since March 2009..."
Yeah well I don't exactly see people running out thinking they're 'rich' because their portfolios are only back to 2008 levels nominally. If anything, most of the 'rich' actually would be hunkering in, using their dividends and cashflow to buy up more of the market at the abnormally low levels.
Now if the Dow went to 25k, then maybe you'd see some stockholders selling and spending. But right now, this 'luxury' market is not being driven by investors, but rather, is being driven by salaried/bonused bankers and public servants.