This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com
Prospectus first alerted me to a chart that illustrated that although the dow may be making new highs, in actuality, it is not as strong as it looks when you account for the declining dollar. Check out his comment when I made this post. Corey expounds on the idea, and its a very interesting read. Is it possible that the rise is because of the declining dollar and inflation? Its definitely a possibility that must be considered.
This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com
May 6th, 2007 at 7:07 pm
I’ve been thinking about a lot. There is a dude that comes up on CNBC every now and then keeps saying that in terms of “real value” the US stock markets and in particular big-caps have been the worst performing asset class.
Last time i saw him he said that the DJIA is worth the same amount of gold today as it was in 1929.
I totally agree with all his numbers but i disagree with the conclusions. He says the equities are in an effective “bear market” and should be avoided.
I say that we live in the USA and earn our money in dollars. if my dollars are going to be worth less in 10 years i would rather be in the one asset class that is “inflating” fast enough to keep up with the true inflation.
If I put $10,000 in the market today and in 7 years i have $20,000 with half the purchasing power then i am fine with that.
Much better than putting my money in the bank and ending up with $11,000 with half the purchasing power of today.
however if the market starts trending down then i am going to short the heck out of it.
May 6th, 2007 at 7:08 pm
Is MGM setting up for a short? your comments!
May 6th, 2007 at 7:49 pm
Born2Code: well said…i should leave the fundamental arguments to others, but i find them interesting…not particulary helpful in my trading, but interesting nonetheless
May 6th, 2007 at 8:55 pm
uhhh… isn’t the point more like: you can hold your money in something _other_ than US dollars, and do better than a US Market index in real value… even if your alternative investment doesn’t appear to rise as fast as the US Markets…
I don’t think anyone ever said equities were underperforming money market bank accounts…
May 6th, 2007 at 9:26 pm
Richard, yes, the point usually is to go out and buy commodities preferably dominated in something other than the US dollar.
my point on the other hand is that i would rather buy into a trend and not an asset class. i personally — as i detailed in an earlier comment to john’s Future’s post — own commodities, foreign equities, currencies and US equities. sooner or later some of the trends i am riding will reverse and after getting hurt a bit i hopefully will switch to short and/or to other up-trends.
i do not know if the big caps party will end before the FXI’s or uranium’s or gold’s or blah, blah.
i’d rather let the market tell me where to be rather than forecast anything based on the falling dollar.
May 7th, 2007 at 1:58 pm
What’s the point of riding a trend, if the asset class is losing value faster than the trend is rising?
May 7th, 2007 at 2:14 pm
@Richard: I think that about my job every day!