US stocks have lost more than US$1 trillion in value in the last three weeks – an amount equal to about 8% of annual GDP. Goldman Sachs (NYSE:GS) – the alpha business of Wall Street – has lost 20% of its value.
Of course, no Markets and Money reader should have lost serious money. We have urged readers to avoid US stocks generally (there are exceptions…many of them) ever since the market peaked out early in 2000. Not that we knew what direction stocks would take (we were surprised to see the Dow later going up)…we just saw nothing to be gained by speculating on stocks when they are coming off a record high.
In March of 2000 the S&P stood at 1539. Last week, it was barely 1450. Plus, consumer price inflation has steadily eaten away at dollar values. While you might have cashed in US$200,000 worth of S&P shares to buy a decent house in 2000; today, you’d need US$400,000 worth. And while you might have gotten a gallon of gasoline for US$1 in 2000…now, you’ll pay US$3. Just taking the government’s CPI at its word, the dollar has lost about 20% of its value since 2000…which means, your S&P portfolio is down about 25% in real terms.
You would have been much better off in gold; it’s up 150% over the same period.
“There is nothing safer than gold because it does not have counterparty risk,” says our friend James Turk.
“In other words, gold is not reliant upon some government promise to maintain the value of the currency they manage. Nor is gold reliant upon a bank promise claiming that your dollars or other national currency are not at risk.”
But owning gold is boring. Owning gold is like going to a World Series game and hoping for rain. You are on the sidelines…out of it…a nullifier…a hopelessly old-fashioned fuddy-duddy.
Of course, there are times to go with fashions…and times to go against them. Our guess is that this is one of those eras when being a contrarian pays off.
Markets and Money