A Bear Disguised in the Clothes of a Bull

There can only be two camps of thought when it comes to judging the current state of the stock market: Most analysts and economists believe the Dow Jones Industrial Average has been in a long-term bull market that began in the early 1980s. After all, the world’s most widely followed index continues to move into record territory. (At 13,912, the Dow Jones presently trades only 2.5% away from its record high of 14,279.)

Then there is a very small group of analysts who believe we are really in a bear market, disguised in the clothing of a bull. I fall into this camp.

To a foreign investor, the Dow Jones is a disaster. That’s because, when measured in non-U.S. dollars, the value of the Dow Jones Industrial Average is actually down 25% since 1999 (thanks to a 30% decline in the value of the U.S. dollar against a basket of the most stable world currencies).

Hence, if you were a European and bought one share of the Dow Jones Industrial in 1999/2000, your investment would actually be down 30% eight years later, because the U.S. dollar has fallen substantially against other major world currencies since 1999/2000. The same holds true if you are an investor from Japan, Australia, New Zealand, Canada, anywhere in Europe, even in Brazil. The Dow Jones is down considerably in value when denominated in currencies other than the greenback.

If we take this theory one step further and look at the value of the Dow in real money, the value of the Dow Jones Industrial Average is down 60% over the past eight years! Back in 1999, it would take 43 ounces of gold to buy one share of the Dow Jones Industrial Average. Today, eight years later, it would take 18 ounces of gold to buy that same share.

The bottom line: The Dow Jones Industrial Average has gone up in value only when measured in U.S. dollars since the tech bust of 1999/2000. When valued in other major world currencies, including gold bullion, the Dow Jones Industrial Average has actually crashed over the past eight years.