Social Media Stock Value Discovery
As 2012 wrapped up, the Dow Jones Industrial Average squeaked out a last minute win, barely topping gold (by less than a half percent) in nominal terms.
Of course this observation cannot be allowed to stand without a few editorial comments. First, we are measuring only 2012, from beginning to end, so which asset class starts from a more depressed state influences the result. In mid-November, the Dow fell 750 points as markets corrected, prompting further global central bank intervention. On the other hand, gold was initially sold in exchange for cash, dropped $40 a troy ounce, and then quickly recovered, sitting at a higher price than where it started as the sell-off in stocks reached its short-term bottom. Gold’s role as an excellent source of liquidity was further detailed in Gold Moves Result of Algo Sensitivity to Shadow Markets.
Furthermore, the Dow’s year-end lead over gold was in nominal terms. This means we are not “measuring the value of stuff using stuff,” rather we are pricing stocks in dollars, which continually lose value as the currency supply constantly expands. The best way to correct for the loss in purchasing power of the dollar through 2012 would be to refer to the 1980 version of the Consumer Price Index (CPI), before the government assumed you quit eating steak and switched to hamburger. Using the traditional CPI, price inflation sits at around 9% today.Continue Reading →
Equities are in a long-term bear market, and precious metals, a bull market. Add to that scenario an economy in contraction, the EU in recession, China nearly at its credit limit, and Japan’s implosion, and earnings and the economic future look poor.