Recently our good friends at Casey research published the following chart comparing the inflation adjusted Gold returns 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. … [Read more...]
Why (and How) China is Boosting the Price of Gold
The History of Gold Prices (and How We Got Here) To get the full picture of the current price of gold we have to look back nearly 100 years. In the 1800's and early 1900's gold played a key role in international monetary transactions. The gold standard was used to back currencies. Each country determined a fixed exchange rates for its currency, i.e. how many ounces of gold each unit of currency was worth. Trade imbalances (importing more than they exported or vice versa) could rectified via the exchange of gold reserves. A country with a deficit would have to ship gold to the country with an excess. Any country experiencing inflation would lose gold and therefore would have a decrease in … [Read more...]
Gasoline 20 Cents a Gallon?
Many of us aren't old enough to remember Gasoline at 20 cents a gallon. I can remember gas during the 1960's at 29.9 cents a gallon. The last time that gasoline averaged 20 cents a gallon was in 1942. That was during WWII ! But if you know us here at InflationData.com you probably know that we usually talk in inflation adjusted prices. So adjusting for inflation, the price of gas in 1942 would have been $2.78 if you are paying in January 2012 dollars. But that is still a long way away from the average price of Gas in 2011 of $3.48. We track the inflation adjusted price of gasoline based on the annual average price using the Consumer Price Index (CPI) generated by the U.S. Bureau of Labor … [Read more...]
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 … [Read more...]
How Does Inflation Affect You?
When people go the the grocery store and see ever higher prices they know how inflation affects them. But when they are feeling more philosophical they might reason that if all wages and prices increased at the same rate it would all balance out in the end right? Well theoretically yes but in reality it never works that way. Prices of various items all increase at different rates so some people are benefiting while others suffer. Those on fixed incomes suffer the most because the cost of things they are buying increases but their income stays the same. This is where COLA or "Cost Of Living Allowance" comes in it is an adjustment that is made to compensate for the increase in prices due … [Read more...]
Wanna Beat Inflation?
In a recent article entitled Is Gold really a good Inflation Hedge? I showed the history of Gold and how it really was a fear hedge rather than an inflation hedge. Interestingly, I just read an article entitled "Wanna Beat inflation? Forget Commodities!" by newsletter author Dan Ferris. It seems almost like heresy to hear that statement from Dan since he writes commodity and oil-based newsletters. But some of the statistics he presented were very interesting so I thought I would pass them along to you. … [Read more...]
Real Mortgage Rates
What is the Real Mortgage Rate? At InflationData we are constantly talking about "real rates" typically by that we mean the inflation adjusted price. For instance we publish the inflation adjusted price of Oil, the inflation adjusted price of Gold, inflation adjusted stock prices and even the inflation adjusted cost of getting an education. But today when we are talking about Real Mortgage Rates we are not talking simply about the inflation adjusted price of a mortgage. To calculate the real cost of your mortgage you must also take the appreciation of your house into account. So for example if your mortgage rate is 5% but your house appreciates 5% your real mortgage rate is zero. The … [Read more...]
Is a Stock Market Crash Inflationary or Deflationary?
Recently a subscriber asked me the question above, he gave quite correct arguments about how the stock market is "a zero sum game" in other words for every buyer there is a seller, so overall everything should stay in balance. But as I'm sure you know there are at least 3 ways to measure money supply M1, M2 and M3. Each one includes increasingly broad definitions. From just cash equivalents up to including all sorts of time deposits and Government debts. But what they don't include is stock valuations, however if the price of your stocks increases you feel richer and are more likely to spend money from your other accounts because you know if you need the money you can always sell your … [Read more...]
Money Multiplier
What is the Money Multiplier? In a fractional reserve system like we have here in the United States, money is loaned out by banks and by law they are only required to have a fraction of the amount they loan out. For example, they might be required to keep 10% in reserves. In other words, they may have $10 million dollars in deposits but because not everyone will come in to claim their dollars at once the bank may loan out $9 million dollars. But the multiplication doesn't end there. The $9 million will be deposited at another bank and that bank can loan out 90% of that or $8.1 million. And that will be deposited in another bank, who can loan out another 90% and so on. In our article, How … [Read more...]
Velocity of Money
What is the velocity of money? Simply defined, the velocity of money is the turnover in the money supply. A shop owner can measure how fast his inventory is selling by calculating "inventory turnover." To do that, he simply calculates Total Sales ÷ Average Inventory for the period in question. See: Inventory TurnOver for more information. But if you expand the idea of turnover to the entire country, you get the "Velocity of Money". Strictly speaking all the velocity of money tells us is how long people hold onto their money. But from that we can infer their motives and perceptions of the economy in general... The Velocity of Money Calculation To Calculate the Velocity of Money, you … [Read more...]
