Stocks: Hold or Sell? What I think.

[Xicano]

In light of the debt ceiling being raised yet again, and the U.S. being down graded. The question arises for people holding onto stocks if whether they should move their investments elsewhere or to just let them ride out the turbulent weather.

Well, I don't claim to be an expert in the field, but, I do have some opinions I'd like to share.



Inflation:

It is my opinion many folks who wonder whether they should move their investments into something else or just let it ride don't seem to be taking into consideration just how inflation effects the markets and their investments. So this is what I want to try and go over and give my opinion on.

Price vs value. In terms of investments, to me price means nothing. Value on the other hand means everything. Let me digress back to the 1970's. Since the end of the Bretton Woods system, I'm sorry, but, the dollar has been nothing but a dirty stinking liar. When priced in terms of value instead of dollar price the DOW (as well as real estate) has actually been crashing since its peak back in 1999 through to 2001 due to inflation. Back in January 2002 the DOW was at approximately 10,020 and compared to today's closing of approximately 11,240 gives us a price increase of almost 12.2%

On the other hand since January 2002 the value of the dollar has fallen almost 39.2% - (see chart below). So even though the DOW has gone up 12%. Due to inflation its actual value has fallen approximately 27%. On top of that of course whenever you do cash out you're going to pay the broker his commission based on dollar price, not in terms of its real value. Also, even though in terms of actual value you've lost, you're going to be charged taxes on the price gains (capital gains) you've made. So inflation can make it look like you're gaining when actually its causing you to lose. And of course if both the price value of DOW and the value of the dollar are going down, then, all the more worse.

This has caused some investors today to switch their investments into gold and silver. Lets examine that. Lets start off again back in January 2002 as I pointed out above the DOW has actually been crashing in terms of value instead of in terms of dollar price. Back in January 2002 gold was approximately $278 an ounce and the DOW was priced at approximately 10,020. Therefore it would cost approximately 36.04 ounces of gold to purchase one share in the DOW. Now today due to inflation and the debasement it causes to our currency, gold is at $1759 an ounce and the DOW is currently priced at approximately 11,240. So now (and again due to inflation) it now only costs approximately 6.39 ounces of gold to purchase one share in the DOW. So due to inflation one can by more than 5½ times more DOW shares with gold then one could back in January 2002.

So in my opinion this is why I consider it important to take inflation into consideration when deciding whether or not to invest in the stock market or in gold and silver. Whenever our government engages in deficit spending, whenever our government borrows the prosperity of tomorrow to spend today. It comes back to haunt us in the form of inflation.

Many people believe that holding onto stock investments for the long term will do well. But this just isn't true in my opinion. In fact I believe its usually not true so long as inflation continues at the rates its been.

So anyway that's my two cents on how I feel about inflation and how I believe it effects the markets.