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Sunday, July 28, 2013

Dow Breaks 10,000 for the 26th time, gold shines



October 22, 2009 by · Leave a Comment 

Here is another piece of information which investors would never receive on market-pumping outlets like CNBC, and Fox ‘News’: the Dow Jones index has now broken 10,000 on 26 occasions, with the first time being more than a decade ago.

If you think this means that the Dow index has produced a net return of zero for the last ten years, you’re wrong. To begin with, there is no adjustment for inflation in these indices. So, since March of 1999, the Dow has provided a return of zero minus more than ten years of inflation.

Even this overstates the performance of the Dow, since Dow losers are regularly removed from the index and replaced with the latest market-darlings. Thus, the net return on the Dow for the last 10 years would have been a loss of more than 50% (using real inflation numbers).

 

Keep in mind that every financial advisor will tell you that you must invest in equities, since they provide the best long-term return in the market. The fact that these same market-pumpers continue to push their clients into U.S. equities can only be an indication of corruption, gross incompetence, or (more likely) a simple herd-mentality where these market zombies never actually think about what they are buying for their clients.

Don’t assume that this decade of dismal performance is common to all equity markets. To begin with, the stock markets of the BRIC nations like Brazil and China have booked large, real gains – along with many other “emerging market” economies. However, it’s not only the markets of developing economies which have greatly outperformed the U.S. markets.

In previous years, the index of Canada’s premier stock market (the Toronto Stock Exchange) typically traded more than 2,000 points lower than the Dow. For most of the last few years, on the other hand, it has traded 1500 to 2000 points higher than the Dow.

However, my intent in this commentary is not to simply compare one stock index with another. Instead, it provides a perfect opportunity to remind people of the importance of “wealth preservation”. When I first began to seriously research the gold market, I was originally somewhat disappointed to continually here talk about gold’s role in wealth preservation. It’s hardly a compelling “hook” to try to induce people to invest in something where the main selling point is that “you won’t lose any money”.

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