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Archive for October 19th, 2010

Why 30% gains in Western stock markets will become meaningless in the future

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by J. S. Kim
Posted originally October 14th, 2010

WITH DECEPTION IN THE MAINSTREAM FINANCIAL MEDIA REACHING NEW HEIGHTS regarding the recent rallies in Western stock markets, it’s time to shed some light on this matter. The first rule of building wealth is that your gains have to outpace the rate at which Central Bankers depreciate the currency in which your asset is denominated. Otherwise you end up with more money in you account but no better standard of living. For example, if your investment adviser tells you that his or her goal for you this year is 8% returns, if Central Bankers have depreciated your currency by 15% this year, then fulfilling his/her goal actually results in a 8.2% destruction of your wealth, exclusive of tax consequences .

Even though every investment veteran, sans the most naïve of the naïve, understands that the US stock market has been rigged higher for the past two years solely through free market interference by politicians and Wall Street elements, what if these rigging games continue and the Central Banking/government cartel successfully rigs the DJIA and the S&P 500 higher by another 30%? Those still naively invested in the broad US stock markets should be ecstatic because of the fact that their accounts now hold 30% more paper money, right? Wrong. In 2007, the Zimbabwe Industrial Index soared 545% and at one point, on a 12-month rolling period, was up more than 12,000%! However, Central Bankers in Zimbabwe would probably not care to reveal that the unemployment rate during this stock market “boom” was also an astounding 80%.

But this is the trick that Central Bankers use to fool those that don’t understand how the monetary system works. Central Bankers can actually rig the stock markets to return a greater absolute amount of dollars (or Euros, or Yen, or Pound Sterling or Yuan) and a significant positive return in nominal terms, that in actuality, may contribute nothing to or may even decrease your REAL net worth.

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Inflation Unplugged

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by Phil at Phil’s Stock World

The dollar is making new lows.

AS I’VE BEEN SAYING ALL WEEK(S) THAT IS THE STORY THAT IS DRIVING THE MARKET. Still people interview me and ask me how high I think the markets can go which is kind of silly because, as I keep trying to explain, the markets aren’t going anywhere, the only variable is the currency they are priced in. Why do people not get this? Why do financial writers not get this? Why do TA guys not get this? Why does nobody talk about this in the MSM?

Sure they talk about the weak Dollar or the strong Yen (but rarely the strong Pound or Euro, because it is contrary to the average viewer’s vision of America and we don’t want to upset the viewers, do we?) but who ever shows you a simple and obvious chart of the S&P or any other index priced in a foreign currency? How hard is this to understand?

I still see chart guys running out on CNBC telling us their TA tells them we can go to the moon. Sure, we can go to the moon. Price your stocks in Hungarian Forints and suddenly the S&P is at 240,000 – all we have to do is ignore the fact that the currency has changed – JUST LIKE WE DO WITH THE DOLLAR – and we are rich, Rich, RICH!

Yes, that would be ridiculous. Almost as ridiculous as a bunch of grown men, who make a living analyzing the markets, acting as if the underlying value of the currency we are pricing things in doesn’t matter. Do you know what the world’s hottest market was in 2007?  Zimbabwe!  That sucker would gain 500-1000% in a single day – invest over there and you made money hand over fist. Howard Stern had a game called “Who Wants to be a Turkish Millionaire” and he would give away a Million Turkish Lira and the joke was how excited the contestants were and how much they would be willing to humiliate themselves for what they did not realize was about $6.

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