What's with the stock market?

"It stands to reason that where there's sacrifice, there's someone collecting sacrificial offerings. Where there's service, there's someone being served. The man who speaks to you of sacrifice, speaks of slaves and masters. And intends to be the master."

-Ayn Rand


Welcome to The Golden Sense! There has been a tremendous amount of talk about the stock market. After all, the Dow Jones Industrial Average has hit new highs and has finally surpassed its 2007 peak. The S&P 500 has done the same. The question that is on every one's mind is whether stocks are the best place to put your money or not.

The Dow Jones Industrial Average is often looked at as the leader of the market because it is made up of the 30 largest U.S. corporations. The S&P 500 is considered by professionals as the best representation of the U.S. stock market because of the wide range of companies that comprise it.

The market has been on a fantastic run and has been uncorrected during its long rise from the 2009 low. Keeping that in mind, there are risks in buying an uncorrected advance that is becoming uncomfortably long. The Dow has advanced for over 520 sessions without so much as a 10% correction -- it is overbought and owes much of its upward momentum to the Federal Reserve's money printing scheme, a seemingly unending program to buy $85 billion of bonds every month. The market is in uncharted waters, and we are watching a market rise through a veritable ocean of Federal Reserve notes (dollars) created out of thin air.

"In another century, Charles H. Dow concentrated on dividend yield as the best gauge of stock values. After all, earnings are what your accountant says they are, but dividends are a test of a company's ability to reward its shareholders. Historically it has been noted that stocks were expensive when the dividend yield on the Dow was 3.5% or less. Today Dow's test of values would be considered far too conservative. Earlier this month, the dividend yield on the Dow was 2.46%, while the dividend yield on the much broader S&P Composite was 2.17%. With these statistics we can see that the Dow is not cheap. However, with endless money creation on the horizon, the market will most likely move upwards." Russell

In the economic turmoil of the last five years, a lot has transpired. World markets lost nearly half their value in the panic, but have since recovered - albeit only in nominal value, with inflation taxing the real worth of those gains.

The problem with the stock market is that it isn't moving upward because of improving conditions in the economy, it is moving upward due to the vast amount of freshly printed money entering the economy. The amount of money the Federal Reserve is printing is unprecedented and it is causing stock prices to rise.







The chart shows that the upward movement in the S&P 500. The market moves up every time the Federal Reserve introduces a new round of "quantitative easing" otherwise known as currency debasement (money printing).

The problem with currency debasement is that it deceptively shows increasing profits, rising prices, and expanded spending but in the meantime the value of everything is decreasing.

The upward surge in the stock market of the last few years has  produced profits (unless, of course, you benchmark them against a non-printable asset like gold, in which case stocks and corporate earnings are far below their 2007 peaks).

It is important to gauge the stock market in relation to gold and silver because it allows you to see the price compared to something that consistently holds value. Gold holds its value better than any other asset. Stocks are priced everyday in U.S. dollars. Earnings per share are quoted in U.S. dollars. It stands to reason that if there are more dollars in the system, the price of the S&P 500 will go higher in terms of U.S. dollars.  


The table below shows the average earnings per share and year end price of the S&P 500 in 2007 and 2012. It also shows the price of gold and silver in 2007 and 2012.

Average	2007		2012
Average S&P Earning Per Share	83		102
Average Price of Gold	$695 per ounce		$1668 per ounce
S&P EPS  in Gold	0.12 ounces per share		0.06 ounces per share
Average Price of Silver	$13 per ounce		$31 per ounce
S&P EPS in Silver	6 ounces per share		3 ounces per share
End of Year	2007		Present Day
S&P Price	1468		1550
Price of Gold	$834 per ounce		$1600 per ounce
S&P price in Gold	1.76 ounces		0.97 ounces
Price of Silver	$15 per ounce		$30 per ounce
S&P Price in Silver	98 ounces		52 ounces

 

As you can see the table shows that the S&P 500 earnings per share when priced in gold or silver has declined since 2007. It also shows that the price of the S&P 500 has declined when priced in gold or silver.

This indicates that despite the fact the stock market has been rising for the past five years, it is actually losing value in "real" terms. Basically, this is a deceptive and stealth bear market. Prices are rising but value is eroding under the surface.

I know we do our daily transactions in U.S. dollars, so it is okay to make profits in U.S dollars. It is great if you can make profits in the stock market. The market appears to be firmly in the control of the bulls. This market is intent on going higher. However, if you are a long term investor the market might not be the best place to be. This is tough, especially for retirees who are in search of income. With the bond market yielding negative rates in "real" terms, the stock market is the only place to go. There is no easy answer. However, it is important to understand that even money in the stock market is deceptively eroding in value over the long term.

The tough times are a direct result of the policies that the Federal Reserve and the U.S. Government have undertaken. There is no example in history where debasing a currency doesn't drive the purchasing power down over time. And certainly none where debasing a currency causes it to appreciate over time.

Ben Bernanke, President Obama, and the mindless talking heads in the media might champion this rising market, claiming the United States is back on track and improving.

But it is quite obvious that once you pull back the curtain and look at the numbers, the emperor isn't wearing any pants.


Signing off,

T. Norman



For those with bank accounts in the Mediterranean island of Cyprus, this past week has been a disastrous one. In what is an unprecedented move in the Eurozone, Cyprus imposed a tax on bank accounts as part of an agreement to be bailed out by the European Union.

Technically, the depositors do not lose the money, but would gain shares in banks guaranteed by future natural-gas revenues - not a very good guarantee at all, given how incompetent the Cyprus government has been to date.


For the second time in its history, the U.S. men's national team secured a golden point in a World Cup qualifier at the Estadio Azteca, battling Mexico to a 0-0 tie. This was a good result for the United States. They now have four points from three games and can take confidence from winning against Costa Rica during a snow blizzard in Colorado and then taking a point down in Mexico playing at a dizzying altitude of over 7,000 feet.

Did you hear about the lotto winner that now lives paycheck to paycheck? Before you buy that next Power ball ticket, you might want to talk to Sharon Tirabassi. Nine years ago, the Canadian woman won a $10.5 million lottery jackpot. Today she has zero dollars, a part-time job and struggles to support her nine kids. Tirabassi blew her money in all the predictable ways: gifts for family members, a massive house, extravagant vacations and lining four luxury cars in the driveway. Those cars are all gone. So are her new "friends." Now she takes the bus to work and tries to teach her kids the value of a dollar. "All of that other stuff was fun in the beginning, now it’s like … back to life," she sighed.
















References:

Russell, Richard. 2013 The Dow Theory Letters. La Jolla, Ca.

http://now.msn.com/sharon-tirabassi-broke-after-spending-all-lottery-winnings

A city is the frozen shape of human courage — the courage of those men who thought for the first time of every bolt, rivet and power generator that went to make it. The courage to say, not ‘It seems to me,’ but ‘It is’ — and to stake one’s life on one’s judgment.

Force and mind are opposites; morality ends where a gun begins.

Love is the expression of one’s values, the greatest reward you can earn for the moral qualities you have achieved in your character and person, the emotional price paid by one man for the joy he receives from the virtues of another.

Run for your life from any man who tells you that money is evil. That sentence is the leper’s bell of an approaching looter. So long as men live together on earth and need means to deal with one another — their only substitute, if they abandon money, is the muzzle of a gun.

Romantic art is the fuel and the spark plug of a man’s soul; its task is to set a soul on fire and never let it go out.

From this simplest necessity to the highest religious abstraction, from the wheel to the skyscraper, everything we are and everything we have comes from a single attribute of man — the function of his reasoning mind.

Competition is a by-product of productive work, not its goal. A creative man is motivated by the desire to achieve, not by the desire to beat others.

Man’s unique reward, however, is that while animals survive by adjusting themselves to their background, man survives by adjusting his background to himself. If a drought strikes them, animals perish — man builds irrigation canals; if a flood strikes them, animals perish — man builds dams; if a carnivorous pack attacks them animals perish — man writes the Constitution of the United States. But one does not obtain food, safety or freedom — by instinct.

Just as man can’t exist without his body, so no rights can exist without the right to translate one’s rights into reality — to think, to work and to keep the results — which means: the right of property.

Individual rights are not subject to a public vote; a majority has no right to vote away the rights of a minority; the political function of rights is precisely to protect minorities from oppression by majorities (and the smallest minority on earth is the individual).

Civilization is the progress toward a society of privacy. The savage’s whole existence is public, ruled by the laws of his tribe. Civilization is the process of setting man free from men.

Throughout the centuries there were men who took first steps down new roads armed with nothing but their own vision. Their goals differed, but they all had this in common: that the step was first, the road new, the vision unborrowed, and the response they received — hatred. The great creators — the thinkers, the artists, the scientists, the inventors — stood alone against the men of their time. Every great new thought was opposed. Every great new invention was denounced. The first motor was considered foolish. The airplane was considered impossible. The power loom was considered vicious. Anesthesia was considered sinful. But the men of unborrowed vision went ahead. They fought, they suffered and they paid. But they won.

Accept the fact that the achievement of your happiness is the only moral purpose of your life, and that happiness — not pain or mindless self-indulgence — is the proof of your moral integrity, since it is the proof and the result of your loyalty to the achievement of your values.

Contradictions do not exist. Whenever you think that you are facing a contradiction, check your premises. You will find that one of them is wrong.

Do not ever say that the desire to “do good” by force is a good motive. Neither power-lust nor stupidity are good motives.

Government “help” to business is just as disastrous as government persecution... the only way a government can be of service to national prosperity is by keeping its hands off.

Happiness is that state of consciousness which proceeds from the achievement of one’s values.

Do not let your fire go out, spark by irreplaceable spark, in the hopeless swamps of the approximate, the not-quite, the not-yet, the not-at-all. Do not let the hero in your soul perish, in lonely frustration for the life you deserved, but have never been able to reach. Check your road and the nature of your battle. The world you desired can be won, it exists, it is real, it is possible, it's yours. But to win it requires total dedication and a total break with the world of your past, with the doctrine that man is a sacrificial animal who exists for the pleasure of others. Fight for the value of your person. Fight for the virtue of your pride. Fight for the essence, which is man, for his sovereign rational mind. Fight with the radiant certainty and the absolute rectitude of knowing that yours is the morality of life and yours is the battle for any achievement, any value, any grandeur, any goodness, any joy that has ever existed on this earth.

I swear by my life and my love of it, that I will never live for the sake of another man, nor ask another man to live for mine.

“Rights” are a moral concept — the concept that provides a logical transition from the principles guiding an individual’s actions to the principles guiding his relationship with others — the concept that preserves and protects individual morality in a social context — the link between the moral code of a man and the legal code of a society, between ethics and politics. Individual rights are the means of subordinating society to moral law.

Money demands that you sell, not your weakness to men’s stupidity, but your talent to their reason; it demands that you buy, not the shoddiest they offer, but the best that your money can find. And when men live by trade — with reason, not force, as their final arbiter — it is the best product that wins, the best performance, the man of best judgment and highest ability — and the degree of a man’s productiveness is the degree of his reward. This is the code of existence whose tool and symbol is money. Is this what you consider evil?

Watch money. Money is the barometer of a society’s virtue. When you see that trading is done, not by consent, but by compulsion — when you see that in order to produce, you need to obtain permission from men who produce nothing — when you see that money is flowing to those who deal, not in goods, but in favors — when you see that men get richer by graft and by pull than by work, and your laws don’t protect you against them, but protect them against you — when you see corruption being rewarded and honesty becoming a self-sacrifice — you may know that your society is doomed. Money is so noble a medium that is does not compete with guns and it does not make terms with brutality. It will not permit a country to survive as half-property, half-loot.

Potentially, a government is the most dangerous threat to man’s rights: it holds a legal monopoly on the use of physical force against legally disarmed victims. When unlimited and unrestricted by individual rights, a government is men’s deadliest enemy. It is not as protection against private actions, but against governmental actions that the Bill of Rights was written.

Run for your life from any man who tells you that money is evil. That sentence is the leper’s bell of an approaching looter. So long as men live together on earth and need means to deal with one another — their only substitute, if they abandon money, is the muzzle of a gun.

So you think that money is the root of all evil? ... Have you ever asked what is the root of money? Money is a tool of exchange, which can’t exist unless there are goods produced and men able to produce them. Money is the material shape of the principle that men who wish to deal with one another must deal by trade and give value for value. Money is not the tool of the moochers, who claim your product by tears, or of the looters, who take it from you by force. Money is made possible only by the men who produce. Is this what you consider evil?

The purpose of morality is to teach you, not to suffer and die, but to enjoy yourself and live.

The smallest minority on earth is the individual. Those who deny individual rights, cannot claim to be defenders of minorities.

To say “I love you” one must know first how to say the “I.”

But you say that money is made by the strong at the expense of the weak? What strength do you mean? It is not the strength of guns or muscles. Wealth is the product of man’s capacity to think. Then is money made by the man who invents a motor at the expense of those who did not invent it? Is money made by the intelligent at the expense of the fools? By the able at the expense of the incompetent? By the ambitious at the expense of the lazy? Money is made — before it can be looted or mooched — made by the effort of every honest man, each to the extent of his ability. An honest man is one who knows that he can’t consume more than he has produced.

"It stands to reason that where there is sacrifice, there is someone collecting sacrificial offerings. Where there's service, there's someone being served. The man who speaks to you of sacrifice, speaks of slaves and masters. And intends to be the master." -Ayn Rand

 

 

Welcome to The Golden Sense!

In another century, Charles H. Dow concentrated on dividend yield as the best gauge of stock values. After all, earnings are what your accountant says they are, but dividends are a test of a company's ability to reward is share-holders.

Dow noted that stocks were expensive when the dividend yield on the Dow was 3.5% or less. Today Dow's test of values would be considered far too conservative. As of Friday, the dividend yield on the Dow was 2.46%, while the dividend yield on the much broader S&P Composite was 2.17%.