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Stocks Are At New Highs... But We're All Poorer For It

Phoenix Capital Research's picture




 

 

Stocks hit a new high in the Dow yesterday. CNBC cheered and Fed economists everywhere patted each other on the back.

 

The unfortunate reality for this “success” is that it only works in nominal terms. A DOW at 14,296 vs. a DOW at 13,000 only means something if the rise in price occurs against low inflation. If inflation was 10% during the time period that this rise occurred, then you’ve not generated any actual wealth. At best you’ve maintained your purchasing power.

 

On that note, unfortunately for the Fed, real inflation in the US is nearly 10% today. Indeed, if you look at the economy the primary costs for consumers (food, energy, housing and healthcare) have been increasing dramatically.

 

FOOD-The severe drought that swept through much of the U.S. last year is continuing into 2013, threatening to cripple economic growth while forcing consumers to pay higher food prices.

 

"The drought will have a significant impact on prices, especially beef, pork and chicken," said Ernie Gross, an economic professor at Creighton University and who studies farming issues.

 

"Forecasts are for a four percent (price) increase in food this year, but I think that's on the low side if the drought continues," Gross said. "Food prices will likely be going up much more than the forecast."

 

http://www.cnbc.com/id/100372886/Drought_Still_Plagues_US_Food_Prices_039Going_Up039

 

ENERGY-After sending consumers into sticker shock the past month, how much more can gasoline prices climb?

 

Another 20 to 50 cents a gallon — a level that could propel the cost of gasoline, now $3.77 a gallon, to all-time highs, some experts say.

 

Gasoline prices typically climb from February to Memorial Day on expectations of rising consumption and costlier summer-blend gas. But so far this year, prices are surging sooner and faster than ever before — up 47 cents since mid-January.

 

Consumers in some metropolitan areas, such as Southern California, are already paying nearly $5.20 a gallon, up more than 75 cents since December lows.

 

http://www.usatoday.com/story/money/nation/2013/02/19/2013-gasoline-prices-could-flirt-with-all-time-highs/1930681/

 

HOUSING-Home prices closed out 2012 with the biggest annual gain in more than six years while sales of new homes spiked in January, the latest sign that the long-suffering housing market was on the mend, data showed on Tuesday.

 

American consumers, meanwhile, grew more optimistic in February even as payroll taxes rose and about $85 billion worth of government spending cuts were due to take effect on March 1.

 

"The numbers are all pretty strong. It's a significant rise in confidence and a strong rise in new homes sales -- there is not really much to argue in those numbers," said David Sloan, an economist at 4Cast Ltd in New York.

 

http://www.reuters.com/article/2013/02/26/us-usa-economy-newhomes-idUSBRE91P0JF20130226

 

HEALTHCARE-Rapidly rising health insurance premiums and higher cost-sharing continue to strain the budgets of U.S. working families and employers. Analysis of state trends in private employer-based health insurance from 2003 to 2011 reveals that premiums for family coverage increased 62 percent across states—rising far faster than income for middle- and low-income families.

 

http://www.commonwealthfund.org/Publications/Issue-Briefs/2012/Dec/State-Trends-in-Premiums-and-Deductibles.aspx

 

A secondary issue to the rise in stock pries pertains to dividends. A little known fact is that dividends account for 60% of stocks gains historically… going back to 1900.

 

U.S. equities returned 6 percent a year on average since 1900, inflation-adjusted data compiled by the London Business School and Credit Suisse Group AG show. Take away dividends and the annual gain drops to 1.7 percent, compared with 2.1 percent for long-term Treasury bonds, according to the data.

 

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a0lVup_0DDwI

 

Take away dividends, and stocks underperform even Treasuries. And inflation east away at dividends too. If a company pays you $1.00 last year, and then pays you $1.05 this year and inflation is over 5%, you’re not making more money. And if you use this new dividend to buy more overpriced stock which is rallying on the back of a falling Dollar… you’re not getting any richer… at all.

 

Checkmate, Fed. You’re spending over $100 million per day to create a grand illusion. Stocks are hitting new all time highs, but none of us are any richer for it.

This concludes this article. If you’d like more information on inflation and protecting yourself from it, we feature a FREE Special Report detailing the threat of inflation as well as two investments that will explode higher as it seeps throughout the financial system. You can pick up a FREE copy of this report at:

 

http://gainspainscapital.com/gpc-inflation/

 

Best Regards,

Graham Summers

 

PS. We also On that note, feature a FREE report concerning the threat of a European Banking Collapse. It’s called What Europe’s Collapse Means For You and it explains exactly how the coming Crisis will unfold as well as which investment (both direct and backdoor) you can make to profit from it.

This report is 100% FREE. You can pick up a copy today at:

http://gainspainscapital.com/eu-report/

 

 

 

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Thu, 03/07/2013 - 14:01 | 3309236 otto skorzeny
otto skorzeny's picture

there will be a drought until we get alot of rain and then there are floods-then they'll use that as an excuse for high grain prices. no mention of Ben Shalom printing joobux and herding a world awash in liquidity into anything just to show some gains.

Thu, 03/07/2013 - 13:45 | 3309192 MGA_1
MGA_1's picture

The world's going to end.. wait... market's at an all time high... what do I write about now?

Thu, 03/07/2013 - 13:37 | 3309165 Jack Sheet
Jack Sheet's picture

You could LOSE EVERYTHING unless you SUBSCRIBE to my newsletter. NOW!!

Thu, 03/07/2013 - 13:05 | 3309068 slightlyskeptical
slightlyskeptical's picture

Ignoring dividends to make your point makes verything you say appear disgenuos. By doing so you are no better than the Fed omitting food and gas from inflation. Just calling it like it is.

 

Thu, 03/07/2013 - 14:03 | 3309249 otto skorzeny
otto skorzeny's picture

tell that to dividend chasers that herded into Petrobras-until they just yanked the dividend and the stock keeps tumbling-how's that 5% div chase look now?

Thu, 03/07/2013 - 13:09 | 3309078 SheepDog-One
SheepDog-One's picture

'Dividends' makes up for $118 million/hour new debt to pump stawks? 

I wouldn't bet on it.

Thu, 03/07/2013 - 13:01 | 3309052 digitlman
digitlman's picture

Well, no shit?

Thu, 03/07/2013 - 12:47 | 3308997 God Bless The V...
God Bless The Virtuous's picture

You know, this is all spot on and it is harder than all get out to stay true to your convictions.

I cant bring myself to move to the dark side and get behind Bernanke and his progressive "Free Market"killing American dream perversion and go long!

I am about to say FUCK YOU one more time and then close all my shorts and WAIT!

Wait for the waterfall and then go short for the final pay - off!

This is a putrid, cesspool running illegitimate dynamic that I hope Bernanke / Yellen are proud of, because they are impotent and now THEY FUCKIN KNOW IT!

There is no other explanation for this total daily gross intervention into this foul smelling market!

Never again will I in my life time tout our once "Free Market System",

R.I.P. capitalism, Bernanke fuckin killed it all by himself, rot in hell you scumbag!

Thu, 03/07/2013 - 12:43 | 3308978 SheepDog-One
SheepDog-One's picture

'Purchasing power'...yea the 70% Borrow and Consume economic model is now dead, even Wal*Mart is whining. Buy black market/second hand, and 'consume' far less if you want to affect the machine everyone complains about so much that's the only way to do it.

Thu, 03/07/2013 - 12:39 | 3308964 SheepDog-One
SheepDog-One's picture

Around $135,000 debt per taxpayer just to get stocks to rise, and you say we're poorer for it? NAH! Can't be!

Thu, 03/07/2013 - 12:22 | 3308884 The Reich
The Reich's picture

How do you know What Europe’s Collapse Means For  me?

Thu, 03/07/2013 - 12:18 | 3308865 el Gallinazo
el Gallinazo's picture

Stocks Are At New Highs... But We're All Poorer For It"

No we are not all poorer for it, just most of us.  This article shows a fundamental misunderstanding of the Fed's motivations for what it does.

Thu, 03/07/2013 - 13:19 | 3309110 Shizzmoney
Shizzmoney's picture

Exactly.  U.S. household net worth rose $1.7 trillion in 4Q 2012.....the problem is, 90% of us just didn't see it.

The Fed doesn't care about the trickle down effect.  All they care about is if those in the top 5% tier get theirs, at ANY cost.

Thu, 03/07/2013 - 12:21 | 3308877 medium giraffe
medium giraffe's picture

+1

Unless you're in the special club, central banks are not on your side.  Ever.

Thu, 03/07/2013 - 12:37 | 3308956 Oquities
Oquities's picture

that's right -  that's why jamie dimon is richer than you.  as well as soros/icahn/ackman/blankfein/paulson/blah-blah

Thu, 03/07/2013 - 13:45 | 3309191 Irelevant
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