Morgan Stanley Goes Full "Tinfoil": Use Gold As Proxy For The "True Value Of A Dollar"

In a remarkable statement by Morgan Stanley's Michael Wilson, who several weeks ago said that this was it for the market for this year as "January marked the top for sentiment, if not prices, for the year", the chief equity strategist released a report looking at the "great cycle debate" in which he tries to justify his cyclical bearishness by saying he remains a secular bull.

That's not the remarkable part: what was, is how Wilson defined what "real" value is. He needed to do that, in order to differentiate between the nominal and inflation-adjusted value of the S&P to underscore his cyclical vs secular bear market thesis. This is what Wilson said:

While we are calling for a cyclical top in US equity markets this year, we want to be very clear that we also believe we are in the middle of a secular bull market. This is an important distinction because cyclical bear markets that occur within secular bull markets are much less severe affairs. Looking at the last 100 years, we think that it's very clear that there have been three secular bear markets and only two secular bull markets, while we find ourselves in the midst of a third. The dates of the three secular bear markets are 1929-42 (Great Depression), 1967-80 (stagflation) and 2000-11 (secular stagnation). We determine these ranges by looking at the price of the S&P 500 adjusted for inflation and currency depreciation. In other words, what is the real price of the S&P 500 doing.

And this is where Wilson uses a statement near and dear to the heart of every "tinfoil-wearing" gold bug, and Shadow Stats fanatic: ignore the broken CPI (an argument we have made on numerous prior occasions), and instead just use the price gold. Here is Morgan Stanley:

Due to the many criticisms and changing methodologies of the consumer price index as a true measure of inflation, we use the price of gold as a very good proxy of the true value of a dollar over long periods of time.

With that one statement, Morgan Stanley is sure to infuriate the "mandarins" at the Federal Reserve, as it confirms that the best indicator of dollar devaluation is not some artificial, "hedonically-adjusted" price index, but the price of gold itself, which also explains why the Fed is so terrified any time "alternative currencies" such as gold, or bitcoin, soar: it telegraphs that the dollar's value, and purchasing power, is crashing.

It also explains why central banks had to step in - as the SNB so famously did - in September 2011 when gold had risen above $1900 and was threatening to blow out exponentially, putting the fate of the world's reserve currency in jeopardy.

In any case, having decided to use gold instead of CPI as the true indicator of "real" value, or in other words,  dividing the price of an asset by the price of gold to show how it has appreciated/depreciated in real terms over long periods of time, Morgan Stanley then uses gold to find the inflation-adjusted value of the S&P.

The results is presented below:

Exhibit 17 shows this relationship for the S&P 500 going back to the 1920s. Without getting into too much detail around the annotations, we think that this chart does an excellent job of illustrating the length and real price damage levied by the three secular bear markets noted above as well as the persistence of the two long and steady secular bull markets from 1942-66 and 1980-2000. We strongly believe that a third secular bull market began in 2011, not 2009.

Meanwhile, even as Morgan Stanley remains optimistic that the market remains in a secular bull market, it is now confident that a cyclical bear market is upon us:

The next cyclical bear market may have already begun with the topping in valuations and sentiment earlier this year, even though we have not yet made the price highs at the index level.

Why make this distinction? Simple: it allows Morgan Stanley to cover all bases and be both bearish - in a short-term time-frame - and bullish over the longer term, while claiming that the coming bear market will not be as bad as many believe:

We looked at all the cyclical bear markets of the past 100 years, defined as a decline of 20% or more in the nominal price of the S&P 500. From Exhibit 18 , one can see that the worst cyclical bear markets all happened during these secular bear markets while the less damaging ones happened in the secular bull markets. On average, the cyclical bear markets that occurred during secular bull markets were down only 25% whereas cyclical bear markets during secular bear markets were down almost 50%, on average.

Is Morgan Stanley - the bank which for the past few months has been warning that we are now in the late stages of the business cycle - right? The jury is still out, and in a subsequent article we will show what the implications are if the coming bear market is indeed in the context of a secular bull or, far worse, everything that has happened in the past few decades has been one giant secular bear, whose manifestation however was masked by central banks which inflated not one, not two, but three giant asset bubbles this century to delay the inevitable day of reckoning.


Coinista Arnold Sat, 04/14/2018 - 13:42 Permalink

Gold?!?!?!  When are you GoldTards gong to learn?  Your pet rocks have been nothing but money losing heartaches over the past ten years while BitCoin has made us smart people gazillionares.  Now we jet off to Puerto Rico for fun and pleasure with the young, fresh, of legal age, hot women while you stew in your leaky roved hovels staring at your rocks.  BitCoin is the standard.

BUY BITCOIN!!! Losers.

"but muh pet rocks are shiny..."  No, loser.  That isn't making you money.

In reply to by Arnold

Pandelis Helena Bonham-Carter Sat, 04/14/2018 - 14:40 Permalink

tinfoils? how about more like rothchild tools?  sell is all to them. the joke is on them now with china lead digital world.

those guys are stuck with the gold stolen through the centuries and now that everything is turning digital they see they are on the losing side ... yeah well, the joke is on them now.  good luck with all that gold and crimes committed to steal it all from all those countries which expelled them.... karma.

i would expect to see goldman and all the rest come to make the case now, yeah well.

In reply to by Helena Bonham-Carter

glenlloyd BigCumulusClouds Sat, 04/14/2018 - 23:21 Permalink

I think it's interesting that all the alleged specialists / analysts never seem to want to admit that the Fed intervention has anything to do with why the market is up.

You can't pretend that easy money or the Fed's boot on the neck of interest rates doesn't have an effect on the market, yet they all pretend like the market goes up all by itself.

Further, you can't expect that the unwind of all this will have anything but bad consequences for the market and for the people who are in it.

And finally, in the long run you can't just continue to create credit backed by nothing. Every dollar of new credit draws it's value from the money already in circulation. This is really the definition of dilution, we will suffer when this puppy takes a shit.

In reply to by BigCumulusClouds

Enrabard Helena Bonham-Carter Mon, 04/16/2018 - 12:43 Permalink

You forget - there is only one bitcoin with limited supply any lost BTC are lost forever...

All these altcoins are growing publicity, usage and importance for bitcoin itself. This is called network effect.

Some of these altcoins are robust startups which will bring us new fb, apple or so, in future. Most will fail as startups tend to do.

So yeah... bitcoin is as gold but there is much less bitcoin than gold and you won't find anymore of it like gold. And you don't have manipulated comex for bitcoin...



In reply to by Helena Bonham-Carter

weliveinamatrix Coinista Sat, 04/14/2018 - 14:44 Permalink

Personally, I have made money from my silver...I put $250 into litecoin last year and now only have $119.  I wont sell tho, I put in as much as I ws prepared to lose, but who knows, the price could go up again I suppose. I have not lost any money in silver yet. I do remember when Silver hit close to 50 dollars not too long ago..I will always say the same thing, dont invest anymore than you are willing to lose, and keep diversified..The "dollar has dropped from 101 to 89 this last year.  Stocks would have been a good investment I suppose. Bitcoin if you got in early...For me and most others, silver/gold is more of an insurance policy.

In reply to by Coinista

Michigander weliveinamatrix Sat, 04/14/2018 - 15:37 Permalink

Timing is everything. Just like those that bought at peak crypto, people that bought during the parabolic phase of silver are still licking their wounds and unfortunately, those wounds may never heal. I bought monster boxes of silver and 20, 19, 18, 17, and 16. I'm still underwater and don't care. Cryptos have been the money maker for me as I got in very early. Took out enough late late last year when bitcoin was 16,800 to pay off my mortgage and to pay the taxes. I'm playing completely on the houses money now.

In reply to by weliveinamatrix

webmatex weliveinamatrix Sat, 04/14/2018 - 16:31 Permalink

I bought Silver about 15 years ago and whilst it hasnt moved as much as i would have liked, it's still worth more than i bought it for, still gives better return than a "savings account", and it not trapped "in the bank".

And - it ALL MINE!

Its pretty sweet stuff really - even if i bought at 48 to 1 and now its 80 to 1.

Silvers day is closer than ever.

Dont wait 15 years buy now, its the last chance.

In reply to by weliveinamatrix

ZIRPdiggler Coinista Sat, 04/14/2018 - 21:32 Permalink

I'd agree, as someone who trades alts and BTC, except for the fact that 2018 has proven in abundance, that the big institutional players now own the entire crypto-currency phenomenon. The manipulation this year has been so overt.  We saw a massive truncation of the bitcoin bull cycle, aided by the corporate media propaganda FUD machine.  The FUD was well-timed with (choreographed?) massive Dec-Feb BTC dumps, courtesy of the Mt. Gox trustee moron, who decided to unload $105 million worth of BTC during this time frame.  The real criminal element about that decision was the fact that Kraken and other exchanges, who have dark pool trading, offered this idiot the opportunity to sell without affecting the market price of BTC. ALso, let's not forget that the Internal Robbery Service aided and abetted in drowning the little guy with their opaque clarity with regard to their treatment of crypto capital gains.  One should always assume that the IRS will apply the most draconian treatment to any extra income and gains.  Judging from the social media sites, it would seem that some retail traders did not take this disposition. 

In reply to by Coinista

DaveClark5 Four Star Sat, 04/14/2018 - 22:20 Permalink

Over population has caused down zoning to keep the nation from becoming one big suburb.  The result is expensive land.  But I watched my woodsy neighborhood in the 60's - with our 2.5 acre lots, turn into wall to wall houses because of no down zoning.   I watched the population go from 200 million to 320 million in just my adult lifetime.   Do any of you really want the US to become India?  Why is this topic a taboo?

In reply to by Four Star

silverer Michigander Sat, 04/14/2018 - 20:06 Permalink

Silver price is about the same as it was at the end of Dec. 2017. To me, with inflation at 8 to 13%, depending on where you are in the US, it's simply proof they have control of the metals price to reflect the "true" (cough, cough) value of the dollar. Meanwhile store prices climb and climb. China and Russia just have pile up a bit more before they put their big order in at Comex and demand physical delivery, which can't happen. That's when all hell breaks loose.

In reply to by Michigander

Bobbyrib Scrot Sat, 04/14/2018 - 15:05 Permalink

When STHF people are not going to be transferring cryptos as a medium of exchange, it will be precious metals. When the dollar crashes as both PM holders and cryptos agree it will, the infrastructure of this country will go with the dollar. You think people in Venezuela have a constant stream of electricity? You know the electricity you will need to exchange cryptocurrencies? At that time cryptos might be joining the dollar in the crypt.

In reply to by Scrot

Ink Pusher Bobbyrib Sat, 04/14/2018 - 22:09 Permalink

Thank You !

Like I have always said;

"The Ones That Control The Flow Of Electricity,Control ALL Digital Realms."

*Not to mention... unforeseen and unlimited, possible and or plausible 

EMP or CME scenarios.


If it was designed and built by man, it shall inevitably fail. 

Man did not create Gold.

In reply to by Bobbyrib

VangelV valerie24 Sat, 04/14/2018 - 15:06 Permalink

You might be missing something Valerie.  Morgan is the largest holder of silver bullion in the market right now and we are looking at a short position that can never be made good if there is a demand for delivery.  Morgan will BENEFIT from an increase in the price of gold that takes silver along for the ride and is positioned to be the last bank standing if there is a crisis that matches the previous one.  

In reply to by valerie24

valerie24 VangelV Sat, 04/14/2018 - 15:15 Permalink

You mean JP Morgan right? Not Morgan Stanley.

No clue why (if true) JP Morgan is holding a hoard of silver.

What I do know is that the banks will benefit and be ahead of the curve no matter what happens with gold and silver.

As for Bitcoin, I'd say to all the zillionaires - good luck

In reply to by VangelV

Ink Pusher valerie24 Sat, 04/14/2018 - 22:17 Permalink

JPM is gobbling up all the Silver they can, and yes it's true .

The objective is to be "ahead of the curve" since all of the paper markets have indeed started to burn. Starting with sub-prime auto and now slowly moving up the line to mortgages. When there's a perfect storm brewing,metals is simply the place to be. Full Spectrum from Copper to Platinum 2018-2019

*The yields might not be immense but the risks get lower with every missile that flies...

In reply to by valerie24

yvhmer valerie24 Sun, 04/15/2018 - 06:11 Permalink

hahaha, indeed. Because that is used to determine the value of the $.

So .... a price for paper contracts, which can be, I should say, are, settled in paper currency, determines the price of the $ .... hahaha, you cannot make this stuff up ...

And the price difference for the real thing and paper in Shanghai, is not really that much: 4,5 $ or 3,65€. About the same as 2 years ago. Q: will the introduction and growth of the PYG (Petro-Yuan-Gold) market have a detrimental effect on the paper price of gold?


In reply to by valerie24

ken1990 Sat, 04/14/2018 - 12:52 Permalink

In the news

This robot that plays basketball can challenge you:

Man Kills Himself And His Children Because His Wife Enjoyed Masturbating:


Airport staff member get punished for being too handsome:

Girlfriend saves her lover’s life by cutting his throat:

Woman dies after husband uses mortar bomb as sex toy:

Father Joins Son To Rape His Young Daughter:


Consuelo Sat, 04/14/2018 - 12:59 Permalink

"While we are calling for a cyclical top in US equity markets this year, we want to be very clear that we also believe we are in the middle of a secular bull market."


Nothing like handing it to you on a silver platter...

Consuelo Sat, 04/14/2018 - 13:05 Permalink

"It also explains why central banks had to step in - as the SNB so famously did - in September 2011 when gold had risen above $1900 and was threatening to blow out exponentially, putting the fate of the world's reserve currency in jeopardy."


That was when global trade had no alternative but the $USD, and thus highly successful was the coordinated central bank chicanery.   And today?   Tomorrow...?

Aircraft carrier strike groups roaming about the China closet and masturbatory missile strikes are a good indicator.