Charting Stocks

Much has been made over the recent stock market rally. The advance from the bottom has, indeed, been historic and has caught many of us by surprise. Though the market was extremely oversold and due for an upward correction, we continue to be  amazed at its strength and longevity.  A closer examination, however, reveals that the stock market advance has been artificial. Much like the “Bull Market” years of 2002-2007, stocks have been advancing as the US dollar declines.

Notice that the market put in a bottom at exactly the same time that the US dollar topped [Chart above].  When the US dollar declines, the price of everything denominated dollars goes up because it takes more dollars to buy them.

One of the reasons (among many) we urged readers to sell stocks back in 2007 was because as the stock market was making new highs in terms of cash, it was making multi year lows when priced in “Things” such as gold, silver, oil or commodities. This sugggested that the market was not driven by economic prosperity, but by devaluing what we use to purchase stocks with – the dollar.

So where are we now? The charts below show that stocks are still in a firm decline when priced in “Real” things. The stock market continues a decade long downtrend when priced in gold, oil, commodities and silver.

The Dow Jones is actually trading at a 15 year low in terms of silver as we speak.

Policy makers are trying  hard to get back to the “Good ole days” of 2007 instead of learning the lessons from them. Abnormally low interest rates, consumer credit, and a declining dollar does not create prosperity.

“Credit is not the life blood of the economy…it is the cancer of our economy.”

- Peter Schiff

Related posts:

1. Oversold US Dollar threatens stock, commodity, bond prices
2. Media Calls a Bottom as Credit Market Calls for Panic (Charts)
3. Is Silver Cheap? These charts suggest it is
4. Dow/Gold Ratio Hits 7; Multi Decade Low
5. US Dollar Losing Steam