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The Stock Market Is Not Going Higher, It Is Going Lower

25 April 2011 13 Comments

The following chart is the S&P 500 over the last couple years. As you can tell, it has had a good run.  The problem here is that you’re pricing the S&P 500 in dollars.  This is what everyone does, so why is that a problem?  Well it wouldn’t be if we weren’t printing billions of them every single day.

The problem is that it is too easy to manipulate stock prices simply by printing more of the currency of which it is priced in.  We could print trillions every day from here on out and get the stock market to 1,000,000 on the Dow, but would that really be a good thing?  Since the printing clouds our judgment of true valuation of the stock market, it is wise to “price” the market in something else.  What else?  Read on…


The below chart prices the S&P 500 in silver.  It tells a different story, no?

Pricing the market in silver shows that the market has been in a steady decline.  In fact, you could go back to the year 2000, and see that the market has been DEFLATING in terms of gold/silver since then.

You can print as much money as you want to boost stock prices, but it also impacts the prices of metals.

The question is… is pricing the market in silver a legitimate way to “price” the market?  Is silver “money”?  Continue reading…

The question is whether or not silver is a good measure of “money.”  Or, is silver a good method of pricing the stock market.  It’s not necessarily ideal, because silver can be manipulated to an extent as well via the commodities markets.  The markets for metals are small and can be very volatile.

With that said, nothing is more manipulated than US dollars right now since we are literally creating them out of thin air (quantitative easing) via Fed policy.  While the price fluctuations of metals can be volatile, at least the supply isn’t easily increased via a printing press, or in the modern Fed world, a stroke of the keyboard.

It is difficult to add to the supply of precious metals.  It requires exploration and digging a mine.  Mine harder than adding a few zeros and pushing enter on the magical Fed keyboard.

Is measuring the S&P 500 in the price of silver the perfect way to determine the value of it?  No.

But, is measuring the S&P 500 in the price of dollars the perfect way to determine the value of it?  No.

So, what’s the answer?  Well, the answer is to look at it in a number of ways and to take everything into account.  Looking at the standard S&P 500 chart is fine as long as you factor in the realities of the US currency today.  Looking at the S&P / silver chart is fine as well as long as you factor in the realities of the silver markets.  Take it all into account.  View the data objectively.

The problem is that most people who follow the market or have an opinion on the market only follow it at a surface level.  They see that the S&P is up 50% over the last few months or whatever and shout, “The market is killing it!” without thinking any deeper than that.  Am I suggesting you only look at the S&P 500 to Silver chart and go out and shout, “The market is tanking!” ??? No, I’m not.  But, the people who look at every angle and formulate their views based on a wider set of evidence are going to make better decisions and understand the market dynamics much better than the masses.  What group would you put yourself in?

All I know is that stocks are getting CHEAPER with regards to the silver I own, and at some point I can buy alot of shares of quality companies by trading my silver for the shares.  Stocks are getting very expensive with the dollars I own and I’m able to buy LESS shares of quality companies.

I’ll let you make up your own mind on whether all this adds up to a positive economic outlook or not.


  • MoneyInThe20s said:

    You seem to be to discuss silver in your posts quite often. I imagine you have a pretty substantial position in silver. What do you think is going to happen to silver after QE2 ends and the Fed stops printing dollars (I hope)? I imagine the dollar will start to rebound and that silver will start to fall. To me, It seems the run up in silver has come too fast.

  • 20smoney said:

    If QE2 ends, yes there should be a dip. I think continual Fed inflationary policies is inevitable however as if rates climb, the country is basically insolvent. As such, i view the end of QE2 as a possible buying opportunity for metals and stocks assuming it plays out as expected (which it rarely does).

    I have large exposure to metals, but I also have a large cash position in my portfolio right now ready for buying opportunities.

    I'm not advising you go all in on silver.

  • Arthur said:


    What are you doing with the money you have trapped in a 401K (if you have one)? I pulled some money out (loan to myself) to buy a rental property, but I still have funds available for withdraw and I haven’t decided to let the market play out or invest it in silver.

    Just curious if you had an opinion.

  • 20smoney said:

    I dont have a 401k, i rolled it into an IRA that i manage myself…. I like certain dividend companies, energy companies, cash, metals (CEF is the most trusted i think).

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