Middle-Eastern tensions have sent oil prices soaring. Worldwide Central Bank QE programs (money printing) have driven investors out of fiat-based currencies and into hard assets and commodities.
Did owning oil or gold work to protect real wealth since inflation got truly ugly in 1980? The charts shown below tell the story. Today’s constant-dollar price of oil is eerily similar to where it sat about 33 years ago.
Ignore the costs of more than three decades of storage and maintenance. Pretend you would not have capitulated during the horror of holding through almost a 90% draw down in value. Congratulations, at the present elevated quote you are back to about where you started.
Gold Bugs will be quick to say you should have gone with precious metals in order to counter inflation. In fact, the constant-dollar, per-ounce price of gold is also about where it was at the mid-point of its surge to the old nominal peak of $857 during 1980.
Everybody knows that stocks are risky. We have all been told that 2000 to 2010 was the "lost decade" for equities. The big surprise? The Standard & Poors 500 index has surged dramatically since 1980 even without considering any dividend payments or their reinvestment.
Oil and gold provided no income to their owners over those decades. It cost money to hold them. At best, oil and gold went sideways in terms of real inflation adjusted total returns.
Stocks provided steadily increasing dividend streams since 1980. That makes the chart above far understate the total return they provided. As inflation protection, stocks rocked.
Cash and fixed income are likely the worst choice you could make. TIPS (U.S. Treasury-issued inflation protection bonds) can’t work. Their returns are keyed to bogus CPI data that are being intentionally understated by the BLS (Bureau of Labor Statistics).
If you fear paper money, and you should, the best alternative comes from owning shares of quality companies. Corporations providing necessary products and services have pricing power along with the ability to adjust to changing economic conditions. You will get a fighting chance at preserving or expanding true wealth.
Results from the last few decades showed a clear winner in this debate. Expecting the future to contradict history has always been the riskiest bet of all.
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