Sunday, July 29, 2012

A View From The Peaks

If a company had invested an amount of (gold) money into the stock market in 1871, and then split that money evenly among all the stock exchanges of the world, the return on that amount of (gold) money is shown by line in the chart above, indexed to January, 2010. Over the past 140 years, there have been six significant peaks.
A – 1929 Stock Market Peak 
B – 1971 The end of the Gold-Backed Dollar 
C – 1989 Japan Stock Market Peak 
D – 1997 East Asian Stock Market Peak 
E – 2001 Dotcom Peak 
F – 2007 Chinese Stock Market Peak
Since the end of the Dotcom bubble, the world stock market has lost about 80% of its value measured in gold. The big question is when and at what level it will bottom out. The fact that both assets are denominated in fiat currency makes the issue more difficult. Will the fiat currency price of the stock market drop, or will the fiat currency price of gold go up?

Notes:
The source of the data on stock market index data came from Yahoo Finance and Irrational Exuberance.
The source of the data on exchange rates and the price of gold came from the Federal Reserve and the Bank of England.
The "major" stock markets researched were Athens, Bombay, Buenos Aires, Busan, Frankfurt, Hong Kong, Jakarta, Kuala Lumpur, London, Mexico City, New York, Osaka, Oslo, Paris, Sao Paolo, Shanghai, Singapore, Stockholm, Sydney, Taipei, Tel Aviv, Toronto, Vienna, Wellington, Zurich.