Tuesday, July 17, 2007

A Closer Look at the S&P 500

I got an email asking me why all my stocks in the Trading With The Trend section of my site were Canadian. I will try to explain why in this post.

In a nutshell, the reason I post only Canadian stocks is because I feel that the Canadian Dollar is in a bull market, and the US Dollar is in a bear market. I try to pick stocks that are in uptrends, but if the US Dollar is continuously falling, it will negate much of the return. On the other hand, if you pick a stock that is in an uptrend, and the currency that the stock is denominated in is also rising, it will amplify your returns.

Many people, such as financial analysts, say that US stocks are doing great, and there is no need to invest outside the US. They will look at a chart that looks like mine below, and think that things are just fine.

The chart above shows the S&P 500 over the last 10 years. As you can see, it is indeed making new all time highs. So, what's the problem? The problem is that this growth is not real. It's an illusion.

Basically, what is happening in the United States is that the Government is printing massive amounts of money. Some experts say that the amount of money circulating in the US grows by about 14% a year. This money is printed to finance such efforts as the war in Iraq, which has set the US back about 300 billion dollars so far.

All this paper money has to end up some where, and a lot of it has found its way into the stock market. This stock market rally is only being fueled by excess liquidity, and not by anything else.

As a result of the printing presses running none stop night and day, there are more dollars floating around, and this has been the main reason why the US Dollar is in a bear market. It's simple. When supply increases, price decreases. And the US Dollar has been decreasing.

Now, let's look at the same chart as what was shown above, but this time, let's look at it in terms of the Canadian Dollar.

As the above chart shows, the S&P 500 is no where near hitting all time highs. This shows how deceptive it is to think that things are looking just fine in the US. In my opinion, the US Government has been doing a great disservice to Americans by increasing the money supply so irresponsibly, and I feel that it is in the best interest for everyone to diversify out of the ever diluted dollar, and into to something more solid.

The best choice I feel is physical gold and silver ownership. I personally own Silver bullion, and I have never regretted it. Other good candidates would be the Canadian Dollar, the Australian Dollar, or the Swiss Franc, in my opinion.

Anyway, to get back to my original point, this is why I feature Canadian stocks. I hope this made sense. Best of luck.

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