We track 41 of the world's largest indices to try and help us ascertain where the best investment opportunities may be. When you invest in a national market you have to pay in the local fiat currency and when you repatriate your funds there will be another conversion back into your domestic currency. We need a control currency to work out the real gain or loss as for example Venezuela booked a 34.9% stock market gain for 2004 but also booked a 28.3% currency loss so the true gain was actually only 6.6%. We feel that there is only one currency that has stood the test of time and can be used as a control currency and that is GOLD. Fiat's ultimate 100% failure rate somewhat renders it with a credibility problem.
The following table shows the national stock indices for the following countries it is the "TOP 40" or 41! of world stock market performance for 2004! This table shows the raw percentage gains.
As can clearly be seen Slovakia was way out in front with a fine performance of 83.89%. However now we need to add the currency inflator or deflator to the raw data shown above to calculate the real return on your investment.
Slovakia had a fine 2004! And is still in number 1 position, as not only did its stock market perform very well but its currency the Slovakian Koruna was also one of the strongest in the world in 2004 actually appreciating against our control currency GOLD.
The Dow Jones reported a gain of 3.15% however on December 31st 2003 the Dow Jones stood at 10453.92 and one ounce of GOLD cost $414.79 by December 31st 2004 the Dow Jones stood at 10783.01 and one ounce of GOLD cost $437.95.
So your actual gain was 3.15% if you invested in the Dow. However on December 31st 2003 it took 25.20 ounces of GOLD to buy the Dow (10453.92/414.79) by December 31st 2004 it only took 24.62 ounces of GOLD to buy the Dow (10783.01/437.95) although the Dow has increased in numerical value by 3.15% the currency that the Dow is valued in the US Dollar has actually depreciated faster by 5.46% against GOLD throughout this same period giving a true and real rate of return of -2.31%.
If you had invested your money in the top 3 performing indexes Slovakia, Czech Republic or Austria you actually had a currency gain. As there domestic currencies were strong and actually appreciated against GOLD throughout 2004.
Just looking at the headline percentage gain or loss of any worldwide stock index, sector or stock is not enough you need to ascertain how the currency that it is denominated in is performing to calculate your true gain or loss. China was the worst performing stock market index in the world for 2004 which was a big surprise to us, and they also took a currency hit as well, as the Yuan is fixed to the dollar.
You may have a 50% stock market gain, but if you also have a 50% currency loss relative to GOLD you have a real and true gain of ZERO. Put another way you may invest in a stock market that shows a good gain, but what if this gain is valued in monopoly money!
An American citizen may feel that currency gains or losses do not apply as he buys and sells the Dow in US Dollars, WRONG. He also needs to calculate his currency or international purchasing power gain or loss.
Since the Bear market started at the end of 1999 the Dow has fallen from 11497.12 on December 31st 1999 to 10453.92 on December 31 st 2003, 4 years later. So if you invested $11497 in the Dow on December 31 st 1999 it would be worth $10453 on December 31st 2003 for a loss of 9.08%. If on the same day you had invested your $11497 in Gold which then was priced at $288.5 per ounce you could have bought 39.85 ounces of GOLD. On December 31st 2004 your 39.85 ounces of Gold would be worth $17452.30.
Your real loss is $6999 or 40.1%(17452-10453) of which $1044 or 5.98% was your market loss and the remaining $5955 or 34.12% was your currency loss as the Dollar lost international purchasing power relative to the ultimate currency GOLD. Throughout the 1995 to 2000 bull market the situation was reversed you actually had market and currency gains.
Wall Street Bulls are boasting how the Bear has been slain, but was he really? They like to conveniently forget the currency/purchasing power losses. I would state that a TRUE 40% loss in an investment in the Dow Jones 30 Industrial Average throughout this period looks very bearish to me! The situation with the NASDAQ and S&P 500 throughout the same time period was actually far worse than for the Dow. If Gold continues with its bull market and the Dow continues its January 2005 blues the real losses will continue to mount. A sobering thought is that bear markets historically end with a Dow to GOLD ratio of approximately 1 to 1 On December 31st 2003 this ratio was 24.62 which would suggest that the Dow probably has a way to fall and Gold has a way to rise. The burning question is what will rise or fall the most to close this historic ratio.
As the Dollar is the inverse of GOLD it will probably mean that the Bear will continue to give us stock market or currency/purchasing power losses or probably both before his work is complete. This Bear market is clever and deceptive as well as masquerading in different forms. With the GOLD standard any "irrational exuberance" was ultimately met with a punishing stock market Bear as per 1929, the Fed did not have the ability to print, print, and print its way out of a bubble. Now they can and deliberately do! revalue downwards the stock market unit of measure the US Dollar. They are managing the deflation of the stock market bubble by way of currency devaluation. Either way to any astute investor it represents a real and identifiable LOSS. "caveat emptor", stock market investors beware! All that apparently glitters is not GOLD!