This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com
Look at this chart of the S&P 500 for the last three years:
Looks pretty good, right? Well, here it is compared to the Euro / Dollar cross:
Meh. New highs it ain’t. What about compared to Crude Oil?
GAH! How about Gold?
Wow.
Now, we can argue how relevant gold is to the world these days as a proxy for money, but it’s the same all over whenever you try to plot stock prices relative to any real asset. In terms of paper assets (like Dollars, Euros or other fiat money) we’re going gangbusters. In terms of real assets (like oil and gold, but pick your favorite), things don’t look as good. This is how I reconcile the recent price rises in stocks with the underlying economic weakness and the potential for a recession. Bernanke’s got the DollarCopter flying high and dropping $$ on the world. I believe that we are seeing depreciating “paper” assets finding their way into real assets: good companies and commodities. The prices for these things quoted in dollars are rising accordingly–more money chasing fewer (or the same amount) of goods. I believe Uncle Miltie said it best:
Inflation is always and everywhere a monetary phenomenon.
–Nobel Economist Milton Friedman
The 2000 stock bubble popped and flowed to become the housing and credit bubble, and is now flowing to real assets everywhere. Private equity and even governments of the world are buying assets hand over fist, though it did slow some during the subprime scare this summer. Where does it stop? Who will be the bagholder? You, the paper-currency wielding slack-jawed proletariat, unless you own some real assets. Buy wisely!
This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com
