How to Speculate your Way to Success
Everybody Forced to Speculate?
According to an interview with Doug Casey, “Everybody is going to be almost forced to be a speculator to try to stay in the same place. Speculating means capitalizing on politically caused distortions in the marketplace.” ~editorHow to Speculate your Way to Success
Source: JT Long of The Gold Report (4/20/12)
So far, 2012 has been a banner year for the stock market, which recently closed the books on its best first quarter in 14 years. But Casey Research Chairman Doug Casey insists that time is running out on the ticking time bombs. Next week when Casey Research’s spring summit gets underway, Casey will open the first general session addressing the question of whether the inevitable is now imminent. In another exclusive interview with The Gold Report, Casey tells us that he foresees extreme volatility “as the titanic forces of inflation and deflation fight with each other” and a forced shift to speculation to either protect or build wealth.
The Gold Report: You told us about two ticking time bombs last September, Doug—the trillions of dollars owned outside the U.S. that could be dumped if the holders lose confidence, and the trillions of dollars in the U.S. created to paper over the 2008 liquidity crisis. It’s been six months since then. Have we averted the disaster or are we closer than ever? Continue reading
Inflation Adjusted Stock Prices
Adjusted Stock Price
Financial advisors will often tell us of the steady increases available only through the stock market and present us with beautiful charts showing the relentless march of the the stockmarket ever higher and to the right. But what about inflation? How does the stock market perform when inflation is taken into consideration? After we take the loss of purchasing power into account have all the gains disappeared?
When adjusting stock prices for inflation we typically use the US Bureau of Labor Statistics Consumer Price Index CPI-U. Prices are then calculated in “real” dollars. That means that the price is adjusted so that we can see what it would have cost if prices were what they are today. Today’s chart is courtesy of our friends at “Chart of the Day” and shows the inflation adjusted stock price using the DOW as the reference. The DOW however has a built in upward bias because it is not made up of the same stocks as it was in 1925. As stocks fall out of favor they are replaced by better performing ones. A better indicator of the overall market is the entire NYSE. In our Inflation Adjusted New York Stock Exchange you can see the trend for the overall stock market. ~ Tim McMahon, editor
Inflation Adjusted DOW
For some long-term perspective, today’s chart illustrates the Dow adjusted for inflation since 1925. There are several points of interest. For one, when adjusted for inflation, the bear market that concluded in the early 1980s was almost as severe as the one that concluded in the early 1930s. Also, the inflation-adjusted Dow is up 159% since its 1929 peak and trades 84% above its 1966 peak — not that spectacular of a performance considering the time frames involved. It is also interesting to note that the Dow is up 98% from its March 9, 2009 low which is actually slightly more than what the inflation-adjusted Dow gained from its 1966 peak to today. Continue reading
Inflation Adjusted Gold vs Stocks vs Bonds
Recently our good friends at Casey research published the following chart comparing the inflation adjusted returns of Gold compared to stocks and bonds for the period 1971 through the present. From this chart we can see that as bonds fell during the late 1970′s gold rose equivalently and stocks were basically flat. During the 1980′s bonds rose and gold fell while while stocks rose slightly. During the 1990′s stocks rose sharply gold fell and Bonds were volatile but basically flat to slightly up. During the 2000′s gold was up sharply, stocks were volatile and bonds were pretty flat. Continue reading
Is There a Correlation Between Inflation and the Stock Market
When inflation is high and commodity prices are rising on what seems like an almost daily basis, have you ever wondered how that might affect the price of stocks?
Recently I received the following question:
In the years leading up to the great depression and the great recession, the DJIA nearly quadrupled.
My question is… what the cost of living did in these time periods and if there is a correlation between the stock market and the cost of living?
John Kelsch
John,
Great question! You would think that if all commodities are going up stocks would probably go up as well, since companies produce commodities. But that isn’t always the case. Often high inflation can actually squeeze profit margins and cause companies to lose money or barely break even. So lets look specifically at the correlation between stock prices and the inflation rate.
First let’s look at the average inflation rate for the entire decade and the average annual rate of return in the stock market. In this case we will use the S&P 500 since it provides a fairly broad-based reference for the stock market.
In the following chart we can see Continue reading
The Top 10 Market Myths Exposed
The Market Myths Exposed eBook sets the record straight
Not knowing the truth can be hazardous in just about any type of situation, but especially when it comes to your financial future.
To help you decipher market truth from myth, Elliott Wave International put together Market Myths Exposed, a free 33-page eBook that takes the 10 most dangerous investment myths head on and exposes the truth about each in a way every investor can understand. Originally published in 2009, it’s still just as valuable as ever. Get your free eBook here.
Here are the first two myths from Market Myths Exposed: Continue reading
Markets Fear Deflation
The best way to know the future is to survey millions of people and analyze their responses. That is exactly what the market does every day. And even better Mr. Market knows not only what people say they believe but where they are putting their money as well. In the following article Chris Ciovacco, the Chief Investment Officer for Ciovacco Capital Management shows us how the markets view the current possibility of deflation. Chris has an amazingly simple chart that shows us exactly what the market is thinking right now. That chart is the ratio of Treasuries to Treasury Inflation-Protected Securities (TIPS). Currently the ratio is indicating a deflationary bias in the market. When you think about it, if people fear inflation they will pay a premium for Inflation protection but as the fear of inflation decreases the premium decreases as well. Interestingly, deflation is bearish for the stock market. As Robert Prechter has been telling us for a while the only thing valuable in a true deflation is cash. Everything else decreases in value as we saw in 2008. ~Tim McMahon, editor
As we noted on November 1, a rally back toward 1,250 is well within bear market bounds. How we rally (volume, conviction, etc.) will tell us quite a bit about the odds of a more lasting upside move in stocks. We also outlined in a recent video reasons why the improvement in market breadth does not necessarily lean toward bullish outcomes. We are open to higher highs in stocks and the onset of a new bull market, we just do not have the evidence in hand to support those outcomes at this time.
We reviewed leading ETFs from several angles last night, including volume. The interest in Treasuries (TLT) and TIPS (TIP) was high in Tuesday’s session, with Treasuries getting a slight nod over TIPS. We will be watching the relative performance of TLT and TIP after today’s Fed announcement.
When the ratio of Treasuries to TIPS is rising it points to (a) little concern about inflation, and (b) increasing concerns about deflation. The chart below shows what the TLT:TIP ratio looks like during a bull market in deflation fears and a bear market in stocks.
In the following chart from November 21, 2008 we see an extreme example of rising deflationary expectations. When TLT:TIP is bullish, it tends to be bearish for stocks and inflation protection assets. The chart below shows what the ratio looked like during a bear market in stocks. The S&P 500 is shown under the bond ratio. Continue reading
What is the Economy Usually Doing When Gold Goes Up?
Stock Market vs. Gold
Why You Should Care About DJIA Priced in Gold
By Vadim Pokhlebkin
The following article is provided courtesy of Elliott Wave International (EWI). For more insights that challenge conventional financial wisdom, download EWI’s free 118-page Independent Investor eBook.
Of the many forward looking market indicators we at EWI employ, one of the most interesting tools (and least discussed in the financial media) is the Dow Jones Industrial Average (DJIA) priced in gold — “the real money,” as EWI’s president Robert Prechter calls it.
We’ve been tracking the Dow/Gold ratio for many years and it has served our subscribers well. It’s not a short-term timing tool, yet in the longer term, as our January 6 Short Term Update put it, “the nominal Dow eventually plays catch up to what is transpiring in the Dow/Gold ratio.” Continue reading
