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Visions of a Bull Stock Market Are Just a Mirage

Thursday, 28 Apr 2011 01:35 PM

By David Skarica

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This is where the currency game can be tricky.

We have heard how well the markets are doing this year. How stocks are soaring and are in a massive bull market. How the S&P 500 Index is up nearly 8 percent year to date, making it a great first four months of 2011.

However, when you adjust the S&P for inflation and currency measures, the picture isn’t so rosy.

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For example, the euro is up more than 10 percent this year, so when you put the S&P 500 in terms of a European investor, it is down 2.5 percent this year. Compared to the Swiss franc, it is only up 1.03 percent. In Canadian dollar terms, the S&P is only up 2.74 percent.

Compared to the price of oil (an important cost of living), the S&P is down 12.59 percent. Compared to commodity prices, the S&P is up only 0.22 percent. Compared to gold, the S&P is only up 0.30 percent to date.

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Compare this to the German Dax, which is up more than 7 percent year to date, but in U.S. dollar terms, is up nearly 17 percent.

This is the problem with inflating like the Fed has done. Sure, maybe the stock market goes up. But you create inflation and devalue your currency. Therefore, in real terms, nothing is really going up in value.

It’s all an inflationary mirage.

About the Author: David Skarica
David Skarica is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He also writes the Gold Stock Adviser. Discover more by Clicking Here Now.

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