|
The Equity Rally Rolls On but Investors are Still Buried |
|
|
|
Saturday, 19 September 2009 |
 I’ve just compiled some startling numbers which illustrate how painful this decade has become for many investors. After the collapse of the equity and real estate bubble that has plagued us for the last 10 years, Americans have absorbed a tremendous blow to their wealth. We all know housing is down about 30% from its peak. But I’d like to concentrate on what the equity market has done since December of 1999 in both nominal, dollar and gold terms.
In nominal terms the S&P500 is down “just” 28.6% since the decade
began. But when you ask questions like what how much of my purchasing
power have I lost vs. gold and other currencies, the data become even
scarier.
On December 31st 1999 the S&P closed at 1,469. As of this writing,
it stands at 1,050. Meanwhile, the US dollar has lost 26% of its value
during the same time period. That means the S&P is down nearly 48%
as measured against a basket of foreign currencies.
But only when measuring the performance of the benchmark index against
a proven inflation hedge like gold, do you find the truth about how
difficult the decade really was. The price of gold increased by more
than 233% while the major averages were busy doing their imitation of
Japan’s lost decade. That means if you have kept your money in the
market since the turn of the century, you have lost about 79% of your
purchasing power against gold.
The above data means that even though the S&P 500 is up over 50%
since March, not only is it still way below its nominal price at the
start of 2000. In terms of the dollar and gold, it is dramatically
below what that nominal level portrays.
So don’t be surprised to find that a zero percent Fed Funds rate
continues to drive more people to chase yield and into riskier assets,
which sends the market higher from here. But please remember however
that the steadily increasing rate of inflation caused by the continued
erosion in the value of our dollar will send the averages yet lower in
real terms, even if your statement continues to show an increase.
Source: Michael Pento, Chief Economist, Delta Global Advisors
|
Free Daily Newsletter Subscribe 
Rss
Online - Contact Send us your news
