Do Stocks Actually MAKE Money?
Posted April 28, 2021
Yesterday I showed you how inflation impacts a stock market.
As a quick review:
- Many emerging market stock markets look as if they’ve been going nowhere for the last 20 years.
- In reality, this is because those stock markets are priced in the U.S. Dollar ($USD) for U.S. investors. And most emerging market currencies have weakened against the $USD during that time period.
- When you price those same Emerging Market stocks in their domestic currencies, they are skyrocketing due to inflation.
Today, I want to turn our attention to the U.S. stock market.
The U.S. stock market is priced in $USD. However, due to the Fed’s money printing and credit creation, the $USD loses purchasing power on a near monthly basis.
What is purchasing power?
Purchasing power is the proverbial “bang for your buck” — how much of something you can buy for a single unit of currency.
In the United States, one dollar today is worth only 4% of what it was worth in 1913. (The year the current Federal Reserve was founded.)
Below is one of the ugliest charts you’ll ever see. They don’t show this chart in school for good reason.
As you can see, the $USD is one of the worst “assets” to own. Indeed, since 2000 alone it has lost over 38% of its purchasing power! And this is the asset we use to price stocks!
An Alternate Perspective
So, what happens when we price stocks in gold, an asset that accounts for inflation and which cannot be devalued by a central bank.
Buckle up, it’s not pretty.
Yes, you are seeing that correctly.
Priced in gold, instead of dollars, the stock market has gone NOWHERE for over 20 years. In fact, stocks are still DOWN 50% from their peak relative to gold in 2000.
So this begs the question… Do stocks even MAKE money?
I’ll answer that question in tomorrow’s issue.
Editor, Money & Crisis