Can
you have an increase in your stock portfolio while simultaneously losing
purchasing power?
The answer is yes.
Especially in today's era of unlimited QE (quantitative easing),
loose central bank monetary policies, and worldwide fiat currency debasement.
Here at GoldSilver.com, we don’t compare stocks to
dollars as we know that monetary inflation (QE, QE2, QE3, QE4) gives the
illusion that nominal price increases in stock indexes are the same as
increases in value. This is not always so.
Out of the basket of proprietary indicators we track for
ourselves and our GoldSilver Insiders, the Dow/Silver
Ratio is one of the simplest yet most overlooked measurements we use.
The Dow/Silver Ratio defines the amount of ounces of silver needed to
purchase a single share of the Dow Jones Industrial Average.
The Dow Jones Industrial Average (DJI, often simply
referred to as the Dow) is a price-weighted average and revolving
basket of 30 actively traded blue chip stocks. Although it is not
the best indicator of the overall health of the stock market (The Wilshire
500 and S&P 500 are more diverse), the Dow is the most widely used indicator
of the overall condition of the stock market and thus worth monitoring.
If you own equities, you may have noticed that since
March of 2009, the Dow has seen a substantial rise in its nominal
price. Although the Dow has risen in numerical or nominal price
over the last few years, understand that nominal gains don't necessarily mean
stock investors have increased their overall wealth or real world purchasing
power.
Smart investors understand that with currency debasement
programs like QE, an asset's nominal price can climb even while its overall
value versus other real assets may drop. Point in case ---> Silver
bullion!
If we look at the Dow Jones Industrial Average in ounces
of silver, we see that the Dow has been spiraling downward in value since
2001.
Currently to buy 1 share of the Dow, it takes less than a
mint case of 500 US silver eagle coins!
The chart above illustrates that in a span of roughly 9
years, the Dow dropped from a high of over 2500 oz of silver per share, to a
below 500 oz of silver per share. And we believe the Dow/Silver ratio
is heading much lower in the months and years ahead. Why?
If we look at the big picture of the Dow/Silver ratio
(over the course of the last century - illustrated in the chart below), the
Dow's price averaged around 200-300 ounces of silver per share.
As we witness the current reversion to the historic
average or mean from the highs of the 2001 stock market bubble, we can expect
the Dow/Silver Ratio's momentum to overshoot its historic average to the
downside and get even cheaper when priced in silver.
As this critical ratio sinks, silver's purchasing power
of produtive equities rises, allowing investors to purchase more stock shares
with less ounces of silver.
With significant silver supply constraints, increasing
industrial / investment demand, and today's global investor mindset... today's
Dow/Silver ratio could even fall below the 1980 level when a mere 17 ounces
of silver purchased a single share of the Dow!
As the cycle continues and the Dow/Silver ratio falls in
coming years..... it begs the question... how long do we have until a single
tube of 20 American Silver Eagle coins is
sufficient to purchase a single share of the Dow Jones Industrial
Average?
