Thursday, May 3, 2007

Portfolio Check-up

So the markets are doing well and you've found yourself able to open your quarterly brokerage statements these past few years and actually look at the figures without cringing. But let's take a look at the yardstick that you are using as you absorb and digest the seemingly successful appreciation of your invested sweat and toil.

Notwithstanding the confiscation of large portions of your income and other gains at the point of a gun (individual income taxes--"home of the free,"---yeah!), you might want to look beyond the massaged Bureau of Labor and Statistics numbers to take a true measure "the other tax;" inflation. Why would the BLS tell you the truth about inflation with their benign-looking CPI index when this entity is an agency of a government which must make provisions for cost of living allowance increases for federal workers, social security and other government retirement program recipients as well as making variable payments to holders of inflation protected (TIPS) U.S. bonds? Not only that, the inflation figures they publish exclude food and energy! Try asking the check out girl at your grocer for the "core rate of inflation" prices the next time you pay for your food. By the way, inflation has never, until recent history, been an out-in-the-open state of affairs and in the past, the "coin clipping" was done so only covertly. As a matter of fact, the devaluation of money at the time of the birth of the United States, was punishable by death! [1] Yet today, participants in this economy, although many are unsure why, have come to accept this state of affairs and frantically chase yields. Let's make one thing perfectly clear, inflation is defined as the increase in the money supply, and rising prices are the result. Interestingly, WIKIPEDIA tells us that this was the old definition. Really?

Today, the debasement of money is in your face and don't think for a minute that the Federal Reserve is charged with "fighting inflation." The Federal Reserve is the sole creator of inflation. If a nation, civilization or world for that matter, expects to continue to function properly without the inevitable major disturbances in the economic state of affairs, stable medium(s) of exchange must preceed such expectations. So much today for "fair weights and measures."

Without having to get blurry-eyed staring at statistics and figures, let's see if we can take a quick glance at a few charts so that we can get an idea of the slow destruction of your livelihood. By the way, don't blame the US government. That visible entity hasn't run the show for quite a good while now and most Americans continue to vote for the controlled political selectees paraded before them, while viable candidates are buried and not allowed the stage for open national debates.[2] Worse, there is little knowledge of the fact that the US Central Bank, the Federal Reserve, IS NOT a public agency of the US Government. The real deal is that the oligarchs run the show, and they'll keep pushing until you push back. When will you have had enough? Ever wonder where the robber-barron families of old have disappeared to? That's just it, they no longer make appearances, but they still very much run the show.

Now, to the point of all of this as we take a look at the DOW Jones Industrial average as a measure of the U.S economy as well as the standard of many investment portfolios, against REAL (tangible) things and not to some floating, imaginary intrinsically worthless medium of exchange which is the U.S. "Dollar." [3]

Let's take a look at the DOW as measured in U.S. "Dollars," then, as measured in items that directly illustrate why the rate of inflation is , in reality, approaching double-digits. Click on the charts, if you wish to expand them.

Sorry to tell you this, but you are not getting richer. If anyone is, it is the corporate bosses and the "made men" in politics who are doing so and doing so quite well. The irony of it all is that the media will try to convince you that capitalism is a failure in attempting to have you beg for a more level playing field. If and when the public demand more regulation and socialism because things are so "unfair," the top dogs WILL NOT take a hit, trust me. Never have, never will, as they are the script writers of the grand "coincidences" that we call history. Who was it who said that those who believe they are free make the best slaves?

By the time most begin to figure out what's going on, gold will be in the four figures. By the time most become convinced, they'll be buying hard assets as those run wild to a blow-off top and soon thereafter seek a lower equilibrium. That is the madness of human nature and thus the markets. Check out, The Bull Market in Things, if you get a chance.

[1] See Section 19 of the COINAGE ACT OF 1792 for the penalty for debasing the coinage.

[2] Have you heard of Congressman Ron Paul? According to the latest MSNBC poll on line, he leads the Republican Party yet barely a peep from the press about him. Why? Perhaps because he happens to believe in liberty and the Constitution.

[3] A silver coin of the United States containing 371.25 grains of silver and 41.25 grains of alloy, that is, having a total weight of 412.5 grains. See: COINAGE ACT OF 1792 .