The 60th Anniversary of Nothing Special

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Gary Christenson - Deviant Investor

2014 is the 60th anniversary of nothing special. A quick review and comparison to 1954 seems appropriate.

In 1954 the Military-Industrial Complex was fighting a cold war with the USSR. Now they are fighting with Russia.

In 1954 the President of the United States played golf regularly. No change here.

In 1954 due to the paranoia and power-politics of Senator Joseph McCarthy and others, it seemed that “there was a communist under every bed.” Now it is terrorists that captivate the national paranoia.

In 1954 there was a great deal of unrest in the Middle East. In 2014 there is a great deal of unrest in the Middle East.

In 1954 the world powers were intimidating the smaller countries to advance their agenda. No change since then.

In 1954 the United States appeared to have the “moral high ground.” That “moral high ground” has slipped away.

In 1954 there were no Americans on Food Stamps. In 2014 there are almost 50,000,000 Americans who receive free food under the SNAP program. This is not progress.

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Some Approximate Numbers

Item 1954 2014 Annual
Increase
The Dow Index 300 16,000 6.9%
US National Debt $0.271 Trillion $17.5 Trillion 7.2%
Average house $17,500 $200,000 4.1%
New car $1,700 $25,000 4.6%
Average rent $85.00 $1,300 4.7%
Movie ticket $0.60 $8.00 4.4%
Gasoline $0.21 $3.50 4.8%
Cigarettes $0.20 $6.00 5.8%
Bread $0.17 $3.50 5.2%
Cup of coffee $0.10 $1.80 4.9%
       
Gold $35.00 $1,350 6.3%
Silver $0.85 $21.00 5.5%

Summary

The value of the dollar has declined over 60 years, so prices for most items have increased. Gold and silver are still a store of value. Politics and government are… well, the same as always.

For the Future

  • Politicians will borrow and spend, the national debt will increase, and more promises will be forthcoming.
  • Deflation is a problem for the industries and governments that depend upon ever increasing prices and ever increasing debt. There are few in power that would benefit from deflation. Expect inflation.
  • The Federal Reserve is committed to “printing dollars,” increasing debt, expanding the money supply, and creating inflation. Expect the Fed to succeed.
  • The gold and silver bears will be disappointed. Both precious metals will go much higher as all currencies weaken.
  • A financial crash will demonstrate that debt-based paper assets can plummet in value. Gold will increasingly be seen as a store of value.
  • Even without a crash, continued inflation in the money supply will demonstrate that debt-based fiat currencies are not a store of value.
  • A hot war in the Middle East, Asia, or Eastern Europe will be expensive. Remember the Vietnam War. The consequences will include more debt, more inflation, and higher prices. Gold prices rose by over a factor of 20 between 1970 and 1980. The cost of living increased substantially during that same decade. It could happen again.
  • Even a cold war or a currency war will be expensive, but less so than a hot war. The consequences of either a hot or cold war will be similar.
  • From Milton Friedman, “Only government can take perfectly good paper, cover it with perfectly good ink and make the combination worthless.”

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Delusions die hard! The delusions regarding the value of paper currency, usefulness of the Fed, government entitlements, the welfare and warfare state, and continual growth are weakening. The ultimate reckoning may be sudden or slow, but it will not be pretty for the unprepared.

Gold and silver will remain valuable and a store of value over the next 60 years. Are you prepared?

GE Christenson
aka Deviant Investor

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4 thoughts on “The 60th Anniversary of Nothing Special

  1. From the table above is seems that during those 60 years investing in the Dow has been more profitable than staying in gold and especially more profitable than silver.

    The comparison is not entirely correct, though. For instance, you’d have to include dividends from the Dow, deduct capital gains taxes from both stocks and gold (assuming that you sell today), account for transaction costs (there were no Dow-tracking ETFs back then, so you had to own a basket of stocks and replace some as the makeup of the index changed) and so on. Ideally, adjust the whole thing for inflation.


    • All correct in my opinion. Survivorship bias is a big factor also. The Dow has changed composition many times – they leave the “good” companies in and delete the “bad” companies. Which means that the Dow of 60 years ago is actually quite different from the Dow of today. This overstates the return on the Dow. Gold, however, is the same.

      But the main point was not which was a better investment over 60 years – but that the dollar has declined in value considerably and so all classes have increased in price.

      Inflation is hard wired into the Federal Reserve and the Congress. Expect more of it.

      GE Christenson
      aka Deviant Investor



    • I think you are correct. But as you said, it was tiny in scope and participation. Now we have SNAP – a somewhat electronic equivalent of bread lines and soup kitchens. Not good.

      Thanks for you comment.

      GE Christenson
      aka Deviant Investor


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