A few months ago I posted a chart of the S&P 500 priced in gold that showed that equities were cheaper then (priced in inflation-resistant gold) than they were in March of 2009. Even though gold has had a pullback since then, equities still are below '09 levels. In fact, they're below 1991 levels relative to an ounce of gold as shown below.
This is one of my favorite charts (The S&P 500 priced in oz of gold) because it elegantly displays what has really gone on in our economy over the last two decades. In the late 90s a stock market bubble pushed equity valuations to extremes. Ever since that time, central banks have simply been trying to manipulate the value of our currency to dull the pain of the burst bubble. These actions have manifest themselves in rapidly rising commodity prices as the real value of financial assets has plummeted. The idea that we live in a deflationary environment is absurd. We have been living in a hyper inflationary world for the last 10 years and this has destroyed the value of financial assets. How much longer will this last?
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