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The Most Important Chart

29 September 2010 6 Comments

If you understand this chart, you will understand more than 90% of investors out there.  Currently, in the month of September, stocks have rallied for about four weeks.  Of course, most people don’t realize that in terms of real value, stocks are not gaining value, but are losing value.

You’re probably used to looking at charts such as this one:


The above chart is the normal S&P chart that we’re used to looking at.  It shows the performance since April of the S&P 500 index.  It’s the wrong chart.

What’s the right chart?  The right chart is the next one, that shows stock performance in relation to loss of purchasing power, or stocks priced in gold.  Why is this a better chart?  Because stocks can be manipulated by manipulating the dollar.  If the Dow hits 100,000 but the dollar is worth less than a piece of toilet paper, what have we gained?  Nothing.

Again, the next chart is the right chart.  As you can tell it shows a different story.  You must remember to look at this chart when talking about the stock market.

S&P Index Priced in Gold

S&P Index Priced in Gold


  • Felix said:

    Kevin, what's the correlation between the price of gold and other commodities like wheat, coffee, etc? If they have a high correlation, I would agree with your assertions. Do you have any data on that? Thanks.

  • Tolga said:

    New normal will be less valuable paper money, less interest rate, less growth, less inflation but higher commodities, higher stocks, higher unemployment. That does not mean paper money will be toilet paper. This is a designed crisis and every institution is instructed to do whatever needed before all started. Look at the synchronized interventions from BoJ, ECB, FED and other G7, G20 countries.
    Everybody is talking about a bubble. Yes, there is a bubble in inconfidence. But look at who is inconfident about the future and economies.

  • TaJ said:

    The interventions are "synchronized" only in the sense that drowning people clawing over each other to get to the surface may seem, from a certain way of thinking, like they're providing each other support. There's deception aplenty, sure, but conspiracy theories are misplaced.

  • Tolga said:

    We all know that capitalism is generating and will always generate financial crisis. So, why do everyone think that iy is out of control and cannot be fixed by central banks?
    If you know something will happen, you let it happen in controlled way.
    If I thought it was out of control, I would be buying guns instead of gold, as social order will collapse with the global economies.

  • McFarlane said:

    Why is gold the one commodity in the world that's considered to have an objective, constant value? I'm not being accusatory here, I'm legitimately curious. Is it because the supply is close to fixed?

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