This is interesting to me and has a very profound impact on Buy and Hold strategies.

Arithmetic Average of the Years, Dow 30, 1900-2005 = 7.3%

BUT....

Compound Annual Rate of Return, Dow 30, 1900-2005 = 4.9%!

(1900 1/1/00 start=66.08;2005 end 12/31/05= 10,717.50)

Discuss.

RE: Under-reporting of inflation.

I live in a remote part of the world were goods are limited and prices are high so when I travel to the US (usually 4-5 times a year) I shop at place like home depot, walmart, target, etc.

I just returned from my 4th trip to the US and inflation is very real. I can see considerable price appreciation between trips.

The fallacy of the fed fighting inflation is that once business raise prices, they rarely bring them back down, especially when trying to beat record EPS results in a slowing economy.

It will be interesting to see if everyone follows walmart with price cuts. I forsee tighter inventory control, prices drifting higher as well as wages. Not a good combination for business.

The kicker to all this is now that the Democrats control both houses. It is plausible to me that Bush/Rove will intervene in financial markets to make the Democrats look bad. Goldman Sachs activity should speak volumes in the coming months.

MarkM,
There is an excellent article about PE's at www.crestmontresearch.com " The Truth About PE's".
I believe total return for Dow 30 is around 9% for the period mentioned with dividends included.
PE expansion in the current environment seems unlikely with rates very low and inflation IMHO higher.

KRY starting very strong today.
from YHOO message board:
Minister will approve 18 mining concessions in the next few days.

Mibam confirms that private sector mining companies will continue. Only those concessions which have been neglected or otherwise left inactive will be cleaned up.

http://www.eluniversal.com/2006/11/09/ec...

kc-

SP500 avg. return is 10.4% according to Ibbotson (2005) Yearbook.

Hussman says it is 10.7%. Close enough.

Can a buy and hold investor get these returns at these valuations? Grantham= NO. Hussman= NO. Buffett = N0. Best estimate if PEs and earnings stay at these levels is 6.3% according to Buffett; less according to Hussman (5.9%?).

In fact GS has been weak the last couple days while the market was having its rally...

If manipulation did occur...
Then the 'bid' under the market will be removed now and Oil may go back up.

In any case you would expect some Republicans to take some money out as the Dems float some ideas they may not like.

DAYTRADERS OUT OF OUR FORUM! :) WE ARE DISCUSSING *SERIOUS* ISSUES HERE!

ALOHA !!

I agree with cb and kc regarding the "real" rate of inflation, which as Bill also says is under reported. It has to be under-reported ... who would get elected if it wasn't?

I find all this to be a merry-go-round with smoke and mirrors mainly for political gain and for Wall Street bonuses. It's about the greed and power! The elite need to seperate you from your hard-earned money!

I love how this historical statistic of 10% average rate of return on the DOW is always thrown at our faces, especially by brokers. I recall my Morgan Stanley broker back in California even had a chart framed in his office showing this "historical uptrend". Yet most of his clients lost 40% to 80% of their tech portfolios in the NASDAQ crash ... oops!! Come on in ... hey look at that historical return on the Dow ... now buy this tech stock! The point being is that those who were invested in techs in the 2000s and those in the DOW in 1929 lost a significant amount of their principle so that they either never recovered or it took them ten or twenty years to break even again ... which is the point ... you never really break even! You may recover but the money lost in those stock market crashes is money you could have used to pay off debt like your mortgage and credit cards.

It would be even more hilarious if these Wall Street stats were published showing these returns in "real inflation adjusted dollars" that do not "strip out" food and energy! In other words a "real world" rate of return based on actual numbers that mean something! So while the "charted DOW return" shows 7%-9% gain subtract capital gains tax and then the rate of inflation. What is left is your "real world rate of return" ... which is undoubtedly negative at this point in time of the M3...

That said ... what can one do? To avoid risk in the markets you then can gamble in real estate and "flip houses" or you can stick it all in the bank and be happy with 4%-5% interest(which is a guaranteed negative after taxes and inflation)or you can do illegal stuff or become a CEO or a NBA star or you can start up the next Starbucks or you can off rich old Grandpa and Grandma or you can become a Congressman!

With the US government's unbridled "spend and tax and then print more" fiscal policy over the past half century or more there is no more financial safety!

BIG GOVERNMENT = BIG DEBT

We just saw the best example of a political Chinese fire drill you can imagine ... Now its the Democrats turn and ladies and gentlemen that, my friends, is the true definition of "L-U-N-A-C-Y" !!! Keep making the same choices while expecting a different result ...

DEMS = BIG GOVERNMENT
REPS = BIG GOVERNMENT

There ya go ... CHOOSE ONE !!!!

With that I leave you with this link that will actually bring a smile to your face even in the presence of all this very "real" LUNACY!

http://www.theonion.com/content/node/54918

MarkM - AND, the expected returns you site from the gurus are NOMINAL returns, right ? before taxes, right?

Looks like just baked beans on toast for most boomer retirees !

According to Trimtabs as reported by Lisa Epstein in AOL.com :

Domestic Mutual fund inflow :
2000 - 260 B;
2001/2002 - 15 B;
2006 - 25 B (estimated for the year based on YTD);
2006 (Buyback) : 496 B;
Buyback is the "bid" under the market and general public yet to come in ? As usual they are the last to come in ?

JogyP -

Thanks for your posting, but I don't think the item in El Universal says anything new about KRY. Your link didn't work, but I searched and found:

"El viceministro de Minas, Iván Hernández Rojas, afirmó ayer que su despacho está aplicando una limpieza que continuará, pero a cambio promete más concesiones mineras.

"Estamos haciendo una revisión de 24 contratos, se hizo una limpieza porque hay empresas que violaron las normas, no pagaban impuestos o dejaron las minas sin explotar, pero se están dando otros derechos", dijo. "Tengo una lista de 25 solicitudes que estamos revisando y en los próximos días debemos aprobar otras 18 concesiones".

In the context, I read the above as referring to 18 NEW concessions. Remember, the final permit KRY is awaiting is NOT from the Mining Ministry, but the Ministry of Environment! -

I have a Google alert set for KRY appearances in the Venezuelan press, and have a Venezuelan friend (who is a senior ex-government regulator) looking into KRY's situation. Once I learn anything from these sources, I will publish it on this site.

There is a rumor that Central Bank of China indicated clearly that it wants to diversify its large foreign reserve of 1 trillion USD. Gold rally on this news. I have not found the link yet. I will post it if the news is confirmed.
Good luck and happy trading.

Yes, I found it. The governor of the Central Bank of China, Mr. Zhou XiaoChuan said on November 10 (Beijing Time) that China is considering to diversify its foreign reserve and it has clear plan how to do that. It is just the headline. There is no detailed information about what is the plan and how and when China plans to implement the plan.
Good luck

SmallcapFan - thanks for the info, but this story is old news. China, India, Russia etc. are all diversifying out of the $usd and have stated that publicly for a number of years now. The fact that some traders see this as new news may be in fact leading this last run (so good catch!), but the central bank reserve diversification story should be on your pro-gold fundamental list. China needs to increase their gold reserves, simple as that.

Please continue to post!

Thanks g034. I understand that China needs to diversify its reserve, but I did not expect its high level minister would make such a comment in this way. I think, when you have one trillion USD on your pocket, you will want to buy gold as much unnoticed as possible. Even a small drop in USD will result dramatic loss on Chinese's pocket.So why the official stood out today and said something like that to the world, which is only going to increase its cost for the diversification and incur loss to its balance book?
To be noted that this comment was made right after the confirmation of the Democrat's control of houses.So the comment is more like a political message than a statement of financial policy. That is just my guess.

ALOHA !!

Yes g034, that is old news about China and Russia, but what about Germany, Japan and South Korea?

They have a fifteen year contract to buy gold direct from South Africa's GoldFields ... Add those to the mix and at some point the market physical supply(stock)will dry up along with the rapidly dwindling mine supply, making for a powerful squeeze on the shorts ...

Link to article:
http://www.miningweekly.co.za/min/news/today/?show=97246