If you think this means that the Dow index has produced a net return of zero for the last ten years, you're wrong. To begin with, there is no adjustment for inflation in these indices. So, since March of 1999, the Dow has provided a return of zero minus more than ten years of inflation.
Even this overstates the performance of the Dow, since Dow losers are regularly removed from the index and replaced with the latest market-darlings. Thus, the net return on the Dow for the last 10 years would have been a loss of more than 50% (using real inflation numbers).
Keep in mind that every financial advisor will tell you that you must invest in equities, since they provide the best long-term return in the market. The fact that these same market-pumpers continue to push their clients into U.S. equities can only be an indication of corruption, gross incompetence, or (more likely) a simple herd-mentality where these market zombies never actually think about what they are buying for their clients.
Don't assume that this decade of dismal performance is common to all equity markets. To begin with, the stock markets of the BRIC nations like Brazil and China have booked large, real gains - along with many other "emerging market" economies. However, it's not only the markets of developing economies which have greatly outperformed the U.S. markets.
In previous years, the index of Canada's premier stock market (the Toronto Stock Exchange) typically traded more than 2,000 points lower than the Dow. For most of the last few years, on the other hand, it has traded 1500 to 2000 points higher than the Dow.
However, my intent in this commentary is not to simply compare one stock index with another. Instead, it provides a perfect opportunity to remind people of the importance of "wealth preservation". When I first began to seriously research the gold market, I was originally somewhat disappointed to continually here talk about gold's role in wealth preservation. It's hardly a compelling "hook" to try to induce people to invest in something where the main selling point is that "you won't lose any money".
On the other hand, the misguided lemmings who have been plowing their money into U.S. equities for the last ten years would probably wish they had put at least part of that money into something which would have retained its value. And don't make the mistake of thinking "fixed investments" (i.e. bonds) are a viable alternative to precious metals.
True, holding bonds would not have caused the massive losses that investors have reaped from U.S. equities. However, as I point out on a regular basis, all governments lie about inflation. Among the negative implications which this has for investors is that government bonds almost always have nominal returns lower than actual inflation - a guaranteed, annual loss.
Only precious metals offer true down-side protection for wealth. In March of 1999 when the Dow hit 10,000 for the first time, gold was trading at less than $300/oz. Silver was trading at about $4/oz. With gold now at over $1,000/oz and silver at about $18/oz, suddenly "wealth preservation" starts to get sexy.
Indeed, the fact that gold and silver promise investors wealth preservation does not exclude real, positive rates of return. While much of the advance in the price of gold and silver is simply a reflection of the destruction of our currencies by greedy, amoral bankers (who have been destroying paper currencies for 2,000 years), with a soaring global population, and a measly 2%/year growth in the supply of gold and silver, these precious metals are getting more "precious" every year.
In the case of silver, its many industrial uses (typically in tiny quantities) have reduced global stockpiles by an estimated 90% over the last 50 years - according to veteran, silver researcher Ted Butler. Thus, while silver is approximately 17 times as plentiful as gold, as a naturally occurring element in the Earth's crust, all estimates I've seen in recent years put the ratio of above-ground silver to gold at 6:1 or less.
Thus, "wealth preservation" is simply the guarantee which you receive with precious metals that is not available with any other investment. Many U.S. investors have been duped into believing that the over-hyped "TIPS" bonds also offer this guarantee. However, as I pointed out earlier this week (see "Retail sale propaganda pushes Dow toward 10,000"), the U.S. government is intent upon engaging in even larger lies than usual with respect to inflation - since this is the only way in which it can produce a positive number for U.S. GDP.
As I pointed out in that commentary, just before the official collapse of the U.S. economy (i.e. when the government finally admitted the U.S. economy was shrinking), the world was still being ravaged with inflation. At that time, the U.S. government was using a "deflator" of 1% to adjust U.S. GDP. Those foolish enough to buy "TIPS" can be expected to be 'rewarded' with an instrument which provides a nominal return of less than 1/3rd of actual inflation.
I have also pointed out previously that the precious metals market offers much more for investors than just the precious metals, themselves (see "A Novice's Guide to Precious Metals, Part II: the miners") - there are also the companies which produce these commodities. As that previous commentary explains, precious metals miners (and all commodity-producers) provide leverage naturally (i.e. without employing debt/margin) as an inherent part of their business models.
For me, personally, this has made building my own portfolio very simple. For "wealth preservation"(plus a solid real return) I hold real bullion. Then, with the speculative component of my portfolio, I hold precious metals miners, and selected producers of other commodities. This is a portfolio capable of withstanding the worst economic calamities.
True, the shares of commodity-producers can be (and were) crushed in a genuine "economic crisis". However, unlike the Wall Street fraud-factories, these companies generate real wealth, from "hard assets". Thus, only the $10 trillion in hand-outs, loans, and guarantees kept the U.S. financial crime syndicate from completely disintegrating, while only the new, fraudulent accounting rules (see "FASB strong-armed into mark-to-fantasy accounting") allow them to pretend to be profitable.
Conversely, not only were the commodity-producers abandoned, and allowed to bear the full brunt of the recent collapse in markets, they were all ruthlessly shorted - by the same banks which ran and hid behind the 'skirts' of regulators, then begged for help when they were subjected to the same shorting.
Despite this, the performance of the commodity-producers has been every bit of strong as that of the fraudulent banksters - with two important differences. First, most of these companies are still sporting valuations which are much lower (in relation to commodity prices) than just a couple of years earlier. Second, unlike the banksters, these companies are not hiding countless billions in losses on their balance sheets.
Thus, while the shares of Wall Street banks are grossly over-valued - propped up by continued government support, fraudulent accounting, and the endless hype of the U.S. propaganda-machine - the commodity-producers (especially gold and silver miners) are cheap, and looking at spectacular returns in the years ahead.
Previously, I have warned readers to seek accurate inflation data, so that they can independently evaluate the real rate of return of investments. This is more important than ever, especially for American investors. The only way for the U.S. government to delay formal default on its vast, mountains of debt is through allowing the U.S. dollar to move steadily toward its real value: zero.
Over the next decade, we could easily see the Dow move to 20,000 or 30,000, or even 50,000 - because hyperinflation is the most likely scenario for the U.S. economy (with the only alternative being a Soviet Union-styled debt-implosion). When hyperinflation grips the U.S. economy investors could double or triple or quadruple the nominal values of their portfolios in the years ahead - and still lose 80-90% of their capital in real dollars.
Only precious metals promise wealth preservation in such an environment. Today, this invaluable insurance is still cheap. However, the explosion in retail demand for gold and silver, plus the flip-flop of central banks from being huge sellers to net buyers of gold point toward a rapid advance in the prices of gold and silver in the near future.
It is time to stop being a "lemming" following the advice of clueless, financial advisors. The continued recommendation of U.S. equities by these disgraced charlatans shows that these shills can't even operate calculators, let alone provide adequate investment advice.
Jeff Nielson
www.bullionbullscanada.com