Another Anecdote, Another [Far Different] Perspective
By now you might know how I like these silly little anecdotal contrary indicators. I realize that sharp pens could shoot all kinds of holes in the typical lessons or conclusions I draw from these, so here, I'll also offer some much more in-depth data that the anecdote led me towards to see what was happening in the markets. First the anecdote:
I live in a popular winegrowing region of the States that is getting ever-increasing tourist traffic from folks beyond our national shores. More and more Europeans and a fast growing cohort of visitors from Asia. I usually get my gasoline (currently over $3.50 per gallon and many of us know we'll be paying solidly over $4.00/gallon this Summer...yes, that's for the cheap stuff, 87 octane) at the Mobil station here in one of the small towns near me. You know those little trays we all see on the register counter esp. in gas stations full of pennies that say something like, 'leave a penny, take a penny'? Well, more and more this past year or so, I've noticed the 'penny tray' at my Mobil station is often well-stocked with larger denomination coins: Nickels, dimes and even quarters. I've found this intriguing. I've made sure over the months that I've asked each of the folks working the register why this is (at least 4 different employees, all older folks who I trust wouldn't just give me some flippant answer they haven't thought about). Each of them has explained to me where the 'big money' change comes from: "Europeans" they say everytime. Some of the employees have even had conversations with the donors of the change trying to understand why this is common. The common answer--as you can probably guess--is something along the lines of, 'it is not worth holding-onto the coins and trying to remember what they are and how to use them and besides, they aren't really worth much anyways'.
This of course got me only thinking more about the value of our dollar vis-a-vis the Euro, the Pound and other stronger currencies.
Then fellow CAPS player 'dwot' posted recently (on April 18th I think it was, titled 'Now that's inflation' or something to that effect) on a skyrocketing Zimbabwian stock market due to hyperinflation in that Country and how residents are ploughing their money (when they have any) into their domestic stock market as a relative safe-haven to the plummeting purchasing power of their currency. Whether they know it or not, they are still losing purchasing power but nowhere near what they'd lose holding the cash or having it sit in the bank.
Now, don't panic...I'm not going to try to make some outrageous comparison between hyperinflation in Zimbabwe and the very modest inflation we have here and the decline in our dollar. But I do think the phenomenon--both of them above actually--is instructive to us as investors and, frankly, cititzens.
Everyone is all "aflutter" today about the DJIA piercing the 13,000 level for the first time. Nevermind that the S&P500 is still just a bit below it's all-time high of 1527 from seven years ago and that means an investor matching the market performance has made no money in the past seven years. I know, I know, folks out there might say, 'but Gresh, that is before dividends'. To which I would reply, 'yes, and it is also before deflating the value of the money by some accepted Price Inflation index (CPI, CPI-U, PCE, take your pick) and that we know the averaged published inflation data have been higher on average than the dividend yield for the S&P during this period.' But I'd then offer to make this easy and we'll "call it a wash". So we can return to just focusing upon the capital gains (or loses) of the S&P Index, right?
So, the question becomes, how have the US Stock markets done in the eyes of a non US based investor? I didn't work too hard to find the best USD Adjusted S&P data I could find online but I offer one decent write-up below. The guys @ Zeal are usually good for stuff like this and the study below is actually about 2 months old but, I think still very 'fresh' data because, the S&P500 was about 1460 since the study was performed the week before the Feb. 27th mini-correction. Today the S&P closed about 1495, the 1460 level used in this write-up is only about 2.3% below where we're at today. Exchange rates don't move that swiftly so the data are still quite accurate I think. The Dollar Index has pretty much only gone one direction since late Feb. so the relationship has definately not changed for the better these past two months.
Here's a couple highlighted excerpts but for those more interested, you should take the time to read the article and understand the various methodological assumptions used to derive some of the following conclusions:
"Even more depressing, the dollar-adjusted reality is far worse than the flat perception. When the S&P 500 is adjusted by the US Dollar Index starting on the very day the S&P 500 topped in March 2000, it shows that the international purchasing power of the US stock markets was still down 28.4% as of this week! Seven long hard years and US stock investors are actually 28% poorer in their international purchasing power than they were in 2000 when they started. Today the dollar-adjusted SPX is still under 1200."
"But believe it or not, this is certainly not the worst-case scenario. The secular dollar bear started back after the dollar topped in July 2001. The dollar then plunged sharply in 2002 and 2003 and has been gradually grinding lower in a long consolidation since. How would the US stock markets look to investors unfortunate enough to have bought US stocks at the dollar’s secular top, back when the dollar’s prospects looked the brightest? The USDX-adjusted SPX from the dollar’s top is barely edging above 1000 today. This is horrifying, yet it is what US stocks are now worth in international-purchasing-power terms compared to the 1200ish levels the S&P 500 was at back when the dollar topped."
Admitedly, the prose is a tad hyperbolic. But the data are impeccable.
If Americans think this US stock market has yielded them any gains, even as we reach "record highs", they are not taking inflation or the erosion to their purchasing power (that is expressed through international exchange rates) into account. And they proceed at their own fiscal peril...
I have posted elsewhere and in replies to many a CAPS player's post and pitches that the "invisible" effects of an inflated currency are very difficult for most investors to isolate, understand and identify but folks, we're in the midst of it and these trends historically last longer than just 7 years. When one considers all the the global economic imbalances and horrendous condition of the US fiscally, we've likely got a long way to go before this correction re-balances things.
Simply put, a rising stock market isn't always good news. Sure, it is better than not rising or falling but unless you are outperforming on an inflation-adjusted basis over a long period, you are losing ground. We're losing ground ya'll.
And Europeans treating our coins as nothing more than a nuisance now makes even more sense to me.