Saturday, October 27, 2007


I'm going to talk a little bit about inflation today but I'm going to come at it from a little different angle and try and show you how it affects everyone personally and why you should keep inflation in mind when you make investing decisions.

I'm going to use gasoline as an example because it's the most widely used form of energy but the principles can be applied to anything from food, tuition, housing, health care, you name it.
In 2000 right as the stock market was topping out gasoline would cost you roughly 75 cents to a dollar a gallon. So if you were to cash out one share of the Dow you could purchase 11,750 gallons of gasoline at that time give or take depending on the actual price of gas.
The Dow has been in a strong bull market right? We've been making new highs right? Stocks are a protection against inflation right? WRONG
As of yesterday gasoline was selling for $2.28 per gallon and the Dow was valued at $13,800. Well gosh darn it the Dow that has supposedly been in such an exceptional bull market now only buys 6,052 gallons of gasoline. Don't even get me started on how well the Nasdaq has done during this same period. Now if you were or are in bonds during this time you are getting eaten alive by inflation. Investors tend to view bonds as guaranteed but that only works if the government behind those bonds isn't destroying it's currency. (Ours is by the way)
During times like these investors must be invested in "REAL STUFF". Gold, silver, oil, wheat, soybeans, copper, you get the point. The government can print as many dollars as they want for free but they can't print a barrel of oil or an oz. of gold or a field of wheat.