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So, the markets are in a raging bull mode, and stories abound of +10%
profits for this year. Time to put things into some perspective.
US$ purchasing power, as measured against a basket of commodities:
since Jan 1st 2006: -11.5% (!)
since Jan 1st 2000: -49.2%
annualized: -7.9%pa
From:
http://www.metastocktools.com/#USindex
The US dollar is universally considered an absolute yardstick - most
of the world's wealth is measured against it.
Yet, the mighty US$ is a fiat currency, a paper-based measurement of
wealth with nothing but good faith to back its perceived value. The
US$ is only worth as much as any other promissory note, and its worth
is being continually diluted and devalued as the US Federal Reserve
Bank continues to print more notes at an alarmingly accelerating pace.
The true value of the US$ cannot be measured against other currencies,
as these are also likely to originate from overworked government
printing presses. A true and objective measurement of the US$'s real
value would be its purchasing power at any given time.
The US$ value index above is basically a measurement of the
greenback's (decreasing) purchasing power. The index measure the US$'s
rate of change (RoC) against a small but essential basket of
commodities:
Gold: putting aside temporary fluctuations, it is as close to an
absolute and constant measurement of wealth as can be found. An ounce
of gold took as many working hours to purchase 80 years ago, as it
does today with an average wage.
Oil: currently a most essential source of energy - civilization as we
know it would cease to exist without it.
Wheat: one of the major sources of food for an increasingly hungry
world.
US$ value index: (RoC(US$/Gold)+RoC(US$/Oil)+RoC(US$/Wheat))/3
So, what does the US$ value index mean in real terms?
• Since the start of year 2000, the US$'s purchasing power has halved.
$1,000 saved in Jan 2000, now buys around $500 worth of goods.
• US's real inflation is being massively under-reported, and in
reality is closer to 8%pa.
• The US stock market's true worth is much lower than generally
perceived by the public.
The bottom line is that storing one's wealth in US$ (or any other
paper currency) is a recipe for diminishing returns.
Keep an eye on the US$ value index, for a true measure of the world's
default currency and all that is measured against it.
jose '-)
http://www.metastocktools.com/#USindex
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