Why 30% gains in Western stock markets will become meaningless in the future
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.
So let’s put this into pictures. Below I’ve reproduced three charts for you. The returns of the S&P 500 priced in the fake monopoly money of US dollars since its bottom on March 6, 2009 and the returns of the S&P 500 priced in what I consider to be the only two REAL forms of money today, gold and silver. When priced in US dollars, the gains of the S&P 500 are an enormous 76.68% since March 6, 2009. Not so fast though. Price the gains of the S&P 500 in gold and more than 55% of those gains disappear. Against gold, the S&P500, despite the daily rigging games of the government/banker cartel, has only managed to rise 21.64% since March 6, 2009. Price the gains of the S&P 500 against silver, and not only does every single percent of the 76.68% gains disappears, but it actually astonishingly loses 1.8%.
The moral of the story? Beware of Central Bankers bearing big bags of paper money as gifts. It’s not the amount of money you own that counts or your nominal returns that matter. Every investor should be fixated upon only REAL returns (adjusted for REAL inflation, not official government inflation rates which are never correct) and the purchasing power of their money, not how much of it they have.