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Let's Talk About the Crash That No One Else Talks About
When the Dow Jones Industrial Average shoots up nearly 400 points in one day, as it did this week on April 1, it hardly seems credible to talk about a market crash. But the truth is that the Dow has been crashing – down 72% – since the top eight years ago. How so? Measure the Dow in terms of the price of gold rather than dollars, and you not only see the steep rise of the Real Dow, you also see its precipitous decline. This is a crash that no one is talking about, which has driven Bob Prechter to call it the "silent crash" In his latest Elliott Wave Theorist, he willingly talks about what no one else wants to talk about and prints the chart to show what he means. Read the excerpt below to find out more about how the Dow in real money has crashed to a new low.
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There is so much to talk about, I hardly know where to start. I could write 20 pages about the debt implosion, the machinations of the Fed and the tragi-comedy that surrounds them. But these topics are all over the Internet, and it’s more useful to be ahead of topics that will mesmerize people later. Conquer the Crash anticipated the things happening now in the credit markets and even the heat that the Fed chairman is taking. The Elliott Wave Theorist has already explained in detail why the ultimate result of the Fed’s moves will be deflation, and no, the recent “surprise” short-term-lending measures do not change that position. Also, you can bet that when investors are focused on one thing, they are either wrong or behind the curve. So let’s talk about things that people are not talking about and some others which they might be discussing heatedly four years from now.
The Dow in Real Money Has Crashed to a New Low
The chart below updates our ongoing Dow/gold chart, the one that shows the trends of the stock market priced in ounces of gold, i.e. real money. The “Year 2000” edition of At the Crest of the Tidal Wave included a long-term bearish forecast for this chart, and unlike our outlook for the nominal Dow, this one has been on track the whole decade. As the chart shows, in recent months the real value of U.S. stock shares has plummeted for the fifth time since 1999, reaching another new low. It is now down a stunning 72 percent in fewer than nine years. Had we been smart enough to short the S&P and go long gold simultaneously to simulate a short sale in real money, we could be retired by now.
Trying to call the nominal Dow, on the other hand, has been a frustrating exercise. One day it will do what the ratio in the chart has been doing. At the moment, our super-aggressive short sale issued at the peak in July 2007 is ahead 250 S&P points. But the market has yet to confirm the final top with a serious price smash, so I am not yet presuming we will keep these gains.
If the nominal Dow had been priced in honest money since its January 2000 top, it would be selling today at 3400. And the bears would have been properly rewarded for having the guts to go against the historically large one-way crowd that was bullish in 1999-2000. Thanks to the Federal Reserve System, however, no one who would normally be succeeding is being rewarded. Bulls think their stocks are holding up, but they are crashing in value. Short sellers should be rich by now, but they aren’t, thanks to the banking system’s raging credit engine, which has allowed leveraged investors to keep nominal stock prices up even as values collapse. Even people who don’t care about the stock market, the poor schlubs who are simply savers, are losing purchasing power with every passing month. So dollar-credit creation from nothing robs from almost everyone. The primary winners in the U.S. fiat-money-monopoly scheme are Congress and the President, who can spend money without collecting it. That’s why they created the Fed in the first place. Bankers also gain, because they have the legal privilege of draining off a percentage of the population’s production every year. Ironically, even these institutions get hurt in the end.
Will this situation change? Will deflation bring the whole house of cards to ruin? I think so, and this March issue of The Elliott Wave Theorist will explain more reasons why.