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Turk:  “This week marks the fifth year of the bull market in stocks, Eric.  It is milestone that has been receiving a lot of attention in the mainstream media and rightly so because when viewed against historical norms, five years is a long time for any bull market in stocks.

Because this bull market is long in the tooth, a large number of people are talking about the stock market being at risk of a collapse....

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“In addition to this bull’s old age, they also point to the high valuations in many tech stocks and the soaring prices of hot-stock favorites like Tesla.  Clearly, there is froth in some of these stocks, and froth is often a sign that appears at stock market tops.

But we have to be careful so that we are not misled by these news reports in the mainstream media.  They have a common thread that could be leading many stock investors into making an important mistake.

All of these reports are measuring stock market performance in terms of dollars, and more to the point, by doing so they implicitly assume that the dollar will retain its value.  But what if it doesn’t?  What if the dollar falls off the edge of the cliff?

To restate this question another way, Eric, what if the stock market keeps rising for the simple reason that the dollar collapses?  This question is not farfetched.  It is what happened in places like Weimar Germany, Zimbabwe, and Argentina, when their currencies were being mismanaged and on the road to destruction.

The U.S. Dollar Index broke below 80 last week, which has been widely watched as an important technical level.  This break implies we are now seeing the end of another brief rally in dollar’s multi-decade downtrend trend.  Each of those rallies have proved meaningless because none of them have reversed the dollar’s long-term downtrend.

And it should be noted that the Dollar Index broke this 80 support level even though the Japanese yen - one of the Index components - was very weak, dropping nearly 2% last week.  Had the yen remained steady, the decline in the Dollar Index would have been even worse.

The dollar has been mismanaged for a long time -- nobody can dispute that fact.  So historical stock market metrics priced in dollars are of little use.  All investments should be measured in terms of purchasing power.  We use purchasing power today to make an investment today in the expectation of receiving more purchasing power in the future through dividends and price appreciation of the investment.

Everyone knows how the dollar has lost purchasing power over the years and also how it has been turned into a political device, rather than what it should be used for which is a neutral tool that everyone can use in commerce, free of interference from politicians and central planners.

Again, the 5-year old bull market in stocks is among the longest on record.  The length of this bull market makes it an outlier, but we have to ask ourselves, why it is an outlier?  Real bull markets in stocks arise when wealth is being created with solid economic activity.  Do we have that today?  No, for the simple reason that strong economic activity is dependent upon strong employment.  We don’t have that anywhere in the world today.  Less people are working now than at the peak, before the 2008 financial crisis.

Today's stock market is based on easy money being piped into the system by central banks.  This money is inflating asset prices, including stocks, collectibles, and real estate, in parts of the world also seen as safe havens, like London and Singapore.

It has been my long held view that this mismanagement of the dollar can only go so far before the cumulative weight of bad decisions by politicians and central planners causes the dollar to collapse.  That was the theme of my first book, “The Coming Collapse of the Dollar” in 2004, and is now re-examined and re-analyzed in my new book, “The Money Bubble: What To Do Before It Pops (link at bottom).”

Eventually there is a flight from every mismanaged currency.  People lose faith in it and take those steps to protect their purchasing power, and there are several ways to do that.

As mentioned, some are doing that by buying collectibles and real estate as safe havens.  But accumulating gold and silver through regular cost-averaging plans is my favorite method because they are so undervalued.  The precious metals are also safe havens that enable everyone to protect their wealth by holding liquid assets - money - outside the banking system.

But holding certain stocks is also a way to protect wealth from a dollar collapse.  These are stocks of mining companies and other companies that hold significant amounts of wealth producing tangible assets, which brings me back full circle to the stock market and its string of record highs.

To properly judge valuations, stocks should be measured in terms of purchasing power, not dollars or any other currency because their purchasing power is constantly being destroyed.  Also, national currencies have very little if any intrinsic value because of the huge credit bubble on which they are based.  And currencies are backed by nothing but promises.

Too many promises have been made by Western governments and not all of them will be kept.  The worst of the serial promisers is of course the U.S. government.  The U.S. is among the most over-leveraged of the lot, meaning that it will break the most promises.

The bottom line is investors must stay focused on the fundamentals, and not the propaganda they keep hearing in the media.  That means they should own tangibles, and near tangibles such as mining stocks, and stay away from financial assets.”

James Turk: Founder & Chairman of GoldMoney

and the author of “The Money Bubble”

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© 2014 by King World News®. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.  However, linking directly to the blog page is permitted and encouraged.

IMPORTANT - KWN will be releasing interviews all day today.

The audio interviews with Michael Pento, Gerald Celente, Bill Fleckenstein, Egon von Greyerz, Dr. Paul Craig Roberts, Grant Williams, Andrew Huszar, Art Cashin, Rick Rule, David Stockman, John Mauldin and Dr. Marc Faber are available now. Other recent KWN interviews include Jim Grant and Felix Zulauf -- to listen CLICK HERE.

Eric King

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