November 08, 2010
I've noted numerous times that, when the Fed and other central banks are debasing fiat currencies, the stock market is a terrible indicator of economic health. If one would like further proof of this, Zero Hedge has a post up showing the stock market valued in gold over the past three years. The chart they use is a much more accurate representation of the current state of the US economy than the stock market valued in dollars.
All standard metrics of economic health show a small bounce off the 2009 lows, followed by further slow deterioration. The S&P 500 as priced in gold reflects this extremely well. This concept, of course, is the basis for my current 'wealth preservation' vs. 'investment' fund battle. When fiat currencies are being debased as strongly and rapidly as they currently are, one simply can not use the raw (dollar denominated) stock market data as indicative of anything other than currency devaluation.
The Fed has made it clear that they are going to turn your dollar-denominated savings into trash, but the stock market is the wrong place to move those dollars. The ZH post, and associated graph, demonstrate this quite clearly.
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