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There is no shortage
of commentary in financial newspapers, hemming and hawing over such matters
as GDP growth, or the CPI data, or even the same store sales of major
retailers. The fact of the matter is that all such releases are virtually
worthless since their unit of measure being reported is in a fluctuating
measure that is constantly changing – the US dollar; (or any other
paper currency for that matter). It is akin to weighing yourself on a
bathroom scale but allowing the amount of ounces in a pound to constantly
fluctuate. What good would that kind of data be to anyone? Yet this is
precisely what analysts and commentators debate with constantly in the
financial press and on stock market shows such as CNBC. The same can be said
of technical analysis of stock trends or anything else. Technicians swear by
their charts and the various support and resistance levels as if they are
Bible, meanwhile their measuring unit – the dollar is constantly
changing. This makes the prognosis suggested by the charts meaningless. As an
example, look at some of the major stock averages such as the Dow or the
S&P. While the Dow has made new highs and the S&P has come within
shouting distance of
its 2000 highs, the
story looks completely different if we look at those averages in terms of a
measuring stick that holds its value such as gold. If we were to use gold as
the measuring unit rather than the depreciating dollar, we would see that the
Dow and the S&P are off by over 50%, a bear market event that has not
ended by a long shot.
John Maynard Keynes
certainly had it right when he quoted Lenin saying, “There is no
subtler, no surer means of overturning the existing base of society than to
debauch the currency. The process engages all the hidden forces of economic
law on the side of destruction, and it does it in a manner which not one man
in a million is able to diagnose.” Worldwide money growth is growing
now in excess of 14%. If we consider the economy is growing 6% in real terms
which is probably generous then inflation is in excess of 8%. This can
probably be considered the minimum inflation rate we have been experiencing
recently in the United States as well. For those that wish to review economic
statistics that have not been tortured into admitting whatever the Government
wishes, we recommend: shadowstats.com which is compiled by John Williams. On
this site he shows what the numbers would reveal before all of the
adjustments, substitutions, and manipulations. After reviewing the data it
becomes quite apparent that we have been in a recession for over a year. The
reason so few have any idea that we are in recession is because 99% + of
those looking are relying on inflation estimates that are vastly understated.
As an example, any retailer that has less than 8-10% same store sales is
actually experiencing negative real sales growth unless they can depend on
continually expanding their store base which should be a difficult task in
what is in actuality a recessionary environment.
Getting back to
Keynes’ above quote, he may well have the ratio correct in that very
few see “the hidden forces of economic law on the side of
destruction” which is causing ongoing misallocations of capital. The
retailer that continues to expand its store base while not recognizing the
tide has turned in the economy due to the whitewashed Government statistics
is committing just such a misallocation. Another great example is the recent
homebuilding boom that was stimulated by unhealthy doses of inflation,
particularly easy money to highly credit unworthy speculators. Under normal
credit conditions and realistic measures of the economy the boom would never
have reached the excesses it has which are so vast that it will likely take
many, many years to work off the supply. Under the circumstances of our
present day monetary system it can still not be stated conclusively that
there will be huge declines in home prices in dollar terms, however, it is a
pretty sure bet that home prices will continue down in real terms for many
years and will not keep pace with inflation. Do you think home prices
declined in Weimar Germany where inflation rates reached annual rates of
millions of percent?
The high rates of
money growth worldwide are making it more and more difficult to hide the real
situation with bogus measures and manipulation. More and more people are
beginning to get the sense that something is just not right. There are strong
signs over long periods of time that this process has been going on for a
very long time. Fifty years ago a man could support his family with his
single salary but over time it became necessary for the wife to get a job as
well. Then many people found it necessary to get a second job or do something
on the side to make ends meet. Folks, this is a declining standard of living
and it is far from ending.
We notice issues
being brought up in the financial news today for the first time, that we have
seen for years; so we know that realization is spreading and it will only be
a matter of time before the smarter people discover how to protect
themselves. For those that have tried to remain safe by staying in cash,
currently they can only keep from losing more than 5% of their purchasing
power per year by keeping their money in the bank. This is because if you can
get around 4% in the bank while inflation is really closer to 9%, you are
losing purchasing power of 5% a year. This is a difficult concept for the
average person to come to terms with since as Keynes alludes, very few
understand the confiscatory nature of inflation. Bonds and inflation-adjusted
securities are similarly a poor choice largely due to being short-changed by
the severely underestimated measures of inflation. Once this is understood it
will dawn on a person that he will have to find returns of 8-10% right now
just to keep pace with inflation and the depreciating value of his money. Similarly,
a retailer will have to maintain 8-10% sales growth just to stay even. When
you look at all of the alternatives along with the very high debt levels that
have been run up to overcome these hurdles there are very few investments
that have performed recently to that extent with the hope of maintaining a
similar pace in the future. We clearly have negative real interest rates
today. With such inflation in the system we need to avoid paper investments
which are created at will in favor of real things which at least can not be
created out of thin air. Bringing it down to the very basics gold and silver
have always functioned as money and will be turned to in mass as more and
more understand what is happening to our money system. Buy Gold and Buy
Silver if you want any hope of preserving and creating wealth in the years
ahead.
Richard J. Greene
Managing Partner, Portfolio
Manager
Thunder Capital Management
More articles by the author can be accessed by the
"Research Articles" choice at: www.thundercapital.com
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