Over the past few years, I have warned my subscribers that the Dow Jones Industrials (DJI) — in real terms — had already lost over 80% of its value, when measured from its real, inflation-adjusted high of 14,198 in October 2007.
I also warned on several occasions that … “The U.S. dollar was on the edge of the abyss.”
And that …
“The only way to truly understand the U.S. economy — what’s happening, why, and where it’s headed — is to look at asset prices in terms of gold, the world’s only real form of money.”
In fact, looking at asset values, even the country’s GDP, not just in nominal terms, but against gold — is the only way to “get real” these days.
It is absolutely CRITICAL that you understand that last point, because I believe that concept is the most crucial information you need to know to financially survive and prosper — now and in the years ahead.
And because the dollar is now so close to careening of a cliff, if you don’t understand how its value affects you, you’re almost certain to see your wealth get vaporized.
But the simple fact of the matter is this: Ever since U.S. politicians severed the link between the dollar and gold, the only truly accurate way to analyze any asset price is to consider it in terms of gold.
Before President Nixon dissolved the gold standard in 1971, anything and everything you did in your business, in investing, even in your personal finances — could be converted into or exchanged for physical gold by simply going to your bank and redeeming your dollars for gold.
That’s no longer the case. And that’s also why since 1971, asset values have fluctuated much more wildly than they did before the U.S. went completely off the gold standard.
Don’t get me wrong. The gold standard had to go for a variety of reasons.
For one thing, there was not enough gold in the world back then to support the growth of our economy, yet alone any other. There still isn’t.
For another, the gold standard put central banks and politicians on the wrong path.
Instead of taking appropriate measures to boost their economies when growth was slow or sinking, central banks and politicians engaged in deliberate warfare to protect their nations’ gold, no matter what the cost to the economy or to human life and suffering.
So I understand why we do not have a gold standard today, and further, why putting the world back on a gold standard is not possible.
But that doesn’t mean you can’t have your own gold standard so to speak — as I have often implored you to do, by owning gold in your portfolio!
You must also, as I noted above, absolutely and unequivocally understand that in today’s world, the value of everything is relative!
Consider the Dow Jones Industrials, again, in terms of GOLD — TRUE MONEY, or what I like to call REAL WEALTH.
For instance, suppose you had $10,000 of paper dollars (or digital dollars in your brokerage account) to invest in the DJI at the beginning of 2001 …
At the end of 2001, your original $10,000 investment in the Dow was worth $10,021 — a gain of 0.21%. Meanwhile, that $10,021 would have bought you 38.5 ounces of gold.
At the end of 2002, your original $10k investment in the Dow would have been worth only $8,341.64, a loss of $1,679.36, or 16.78%.
That $8,341.64 meanwhile, would have bought you even less gold, 21.8 ounces, or 43.4% LESS gold.
Put another way, in real terms, the DJI didn’t lose just 16.78%. It lost 43.4%!
Yes, it is true that the Dow had fallen and gold had risen. But that’s my point. The paper dollars that you had invested in the Dow lost more than you realized.
Let’s say that then, despite the loss, you stayed invested in the Dow …
At year-end 2005, you would have been able to buy the equivalent of only 19.5 ounces of gold with your money invested in the Dow …
At year-end 2006, only 15.8 ounces …
At the end of 2007, only 13 ounces …
At the end of 2008, only 10.4 ounces …
At the March 2009 low of 6,440 in the Dow, your investment would buy you only 7.08 ounces of gold.
In other words, against gold, REAL MONEY, your investment in the Dow lost an amazing 81.61% of its purchasing power, falling from 38.5 ounces of gold to only 7.08 ounces!
Pretty amazing, eh?
So where does the Dow stand now, in terms of gold? Today’s Dow buys the equivalent of roughly 8.48 ounces of gold. That means it has snapped back from its low of 7.08 ounces in March 2009, by roughly 19.6%.
But think it through and you’ll notice that …
That’s a heck of a lot less of a gain than the “nominal Dow” shows, which has rallied more than 92.3% from its 6,440 low in March 2009 to its current 12,390 level. Why?
Answer: Because the price of gold has not only gone up, but it’s gone up faster than the Dow has.
So, the “real gain” in the Dow since March 2009 is not 92.3%, but only 19.6%.
Assuming that’s the case, then that would explain why I don’t feel that much richer because of the Dow’s rally over the last three years, right?
You bet it is. Because you see, the value of paper money continues to lose purchasing power. Period.
That’s also why — almost everywhere you turn today — everything costs you more money. Your dollars are deflating, while other asset prices are inflating.
Deflation and inflation are two sides of the same coin. Your money is deflating — but just about everything that you use that money for, is, on the other hand, inflating.
I don’t expect that to change. In fact, if you’ve read my April issue of Real Wealth Report that published this past Friday, you know exactly what I mean.
In the months and years ahead, the purchasing power of your paper money is bound to go down, down and down.
It’s the way Washington wants it. Washington wants to inflate away its debt problems by raising asset prices, artificially, via a dollar devaluation.
I call it a “default on the sly” — because it’s terribly sneaky. It also robs you of your life savings and wealth …
Unless you understand it and take appropriate measures to protect yourself — with your own gold standard.
P.S. Assessing real estate values in terms of gold is another very interesting analysis. At the peak of the housing market in March 2007, the median U.S. home price was $262,600, equivalent to 346.4 ounces of gold.
Today’s median home price is $156,100, or 109.2 ounces of gold. So in terms of nominal values, the U.S. median home price has shed 40.6%. But in terms of real money, gold, the median home price in the U.S. has lost a whopping 68.47% since 2007.
At some point, housing prices will rebound and start to reflate. Just like the stock market is starting to do. But it won’t perform anywhere near as well as many other assets, especially tangible natural resources that the world depends upon and needs to consume on a daily basis.
For more in-depth analysis of how today’s world really works, including all of my recommendations, I encourage you to join Real Wealth Report.
Start with the April issue that just published. It’s an eye-opener. At $99 for one year, a membership costs less than one-fourteenth of an ounce of gold, a bargain in today’s money. Click here now to join.