We know that gold is soaring. And we know the dollar is slumping. But, did you know that year-to-date, while the S&P 500 is up 18 percent — a great showing, no doubt — gold is up even more? The precious metal is up 21 percent. In other words, measured in true, gold-backed purchasing power, stocks have really done nothing this year.This got me to thinking and I did some surfing around this morning to see if I could find a decent gold-denominated S&P 500 index.
The first think I found is that none of the sites I visited have a way to download data into Excel. It was a complete exercise in futility. Yahoo! was the best and I was able to get a decent S&P 500 spreadsheet, but gold was nearly impossible. I finally found a site with annual average gold prices since 1973 and started entering them by hand into my S&P 500 spreadsheet until it dawned on me that gold was not the right way to look at it.
Gold is a rock. You don't really use it for much of anything, at least not in the way we consume oil or wood. It's subject to all kinds of wild swings in prices that don't have anything to do with anything real, but instead are measures of investors' level of anxiety. Instead of measuring things in terms of gold, we should measure in terms of inflation. After all, inflation represents the prices normal humans pay for the things we use, not hobgoblins from the fevered imaginations of gold bugs.
With that in mind, I found this:
After looking at this, I realized that I should have known better than to have taken Larry Kudlow seriously. He's the Republican equivalent of Paul Krugman. Comparing the S&P 500 to gold is an interesting intellectual exercise, but nothing more than that. The truth of the matter is that the S&P 500 has indeed made a very nice recovery this year. His measuring it against gold is just an academic comparison done by a Republican hack who is struggling to find something negative to say about the stock market's recent rise.
As usual, the remainder of Larry's post goes along the standard Republican tracks: "Cut taxes!" There's no serious discussion of what gigantic cuts in benefits will be made, so there's not a shred of fiscal responsibility in his post. After noodling about with all of this, I came to one, simple conclusion.
Man, I wish we'd elected Fred Thompson president.
4 comments:
Cut spending! Cut the size of government should be our rallying cry. I think the tea partyers have got it right by focusing on the growth of debt.
The reason you had so much trouble finding a chart to look at is because the ratio you are looking for is most often expressed as gold to dow. Any good charting package lets you chart the ratio of any equity or index.
I understand your skepticism of Kudlow, and also of using gold as a measure of a dollar's worth.
But perhaps he's on to something in a broader sense -- is it possible that the stock markets are predicting inflation?
Put another way, stocks (or any liquid equity) are generally priced according to where an investor thinks they will be in (say) 6 months. Is inflation being priced in?
Matt, I agree with you. Eventually the mounds and mounds of dollars that we've printed backed by nothing will come back to haunt us.
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