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Shahla
Money Managing Guru
Joined: 13 Nov 2004
Posts: 3324
Cash Points ££ 126163.28
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 Posted: Fri Feb 16, 2007 1:21 pm Post subject: How the Dow Jones is getting killed - Due to loss of purchas |
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If you think the U.S. stock market is doing okay, I hope you're sitting down. In this issue, I'm going to give you information that will shatter that myth and pin your eyes wide open. And if you're heavily invested in stocks, don't worry. By the end of this article, I'll give you some steps you can take to protect yourself.
Let's start with a chart that I've made for you. It shows the Dow Jones Industrials from January 3, 2000 to February 6 of this year, and it is expressed in terms of the number of ounces of gold that the Dow can purchase.
I'm using gold, because gold is the only true form of money around. But mind you, since gold reflects the value of the greenback, this chart is also reflective of the purchasing power of the Dow in terms of the U.S. dollar.
Let me put this chart into context: On January 3, 2000 the Dow was trading at 11,357. Put another way, if you bought every stock in the Dow back then, you'd have invested $11,357.
That same $11,357 on January 3, 2000 would have also bought you 39.3 ounces of gold.
Now, fast forward to late last week, when I performed this study. On February 6, 2007 the Dow was trading at 12,666.
In pure nominal terms, the Dow has gained 1,309 points since January 2000, or 11.5%. We'll ignore the fact that that's a lousy return over seven years. At least the Dow was up, right?
Hardly! In terms of the Dow's purchasing power, the Dow of February 6 only buys 19.39 ounces of gold. In other words, it's lost 50% of its purchasing power when measured in real money!
Let's Compare the Dow's Performance To Other Everyday Assets
In early 2000, the median home price in the U.S. was $169,000. If you had $1,135,700 invested in the Dow back then, you could have bought 6.72 median-priced homes.
Today, the median price of a home is $221,000. And your $1,135,700 in the Dow is worth $1,266,000. Yet in terms of the number of homes your investment in the Dow will purchase, you can only buy 5.72 homes today ... that's 16% less purchasing power.
And remember, that's just the national median home price. If you live in California, New York, Florida, or New England — your investment in the Dow Jones back in 2000 now buys you 2.5 homes or less. Put another way, the Dow buys you 50% to 70% less in terms of real estate.
The Dow has failed to keep pace with rising energy costs, too. In January 2000, the national average for a gallon of unleaded gas was $1.45. The Dow would have purchased 8,832 gallons back then.
Today, despite its 1,309 point rise, the Dow will only buy 5,556 gallons (based on the national average of $2.30 a gallon). So, the Dow has lost 37% of its purchasing power when it comes to unleaded gas. |
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