The Illusion of the DJIA - Updated

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From January 2 2007 to today October 11 2007 the DJIA is nominally up 12% up. However this is only true for those investors inside the US. Investors in Europe who bought the DJIA have seen gains of only 5%. For investors in Canada and Brazil, the DJIA has dropped 5%. These investors have lost money. Similarly for investors using gold as currency, the DJIA has also dropped 5%.

The graph above shows the actual value of an investment in the DJIA in each currency, and gold.

Nominal DJIA (USD): 12.7%
For investors in Europe: +5.4%
For investors in Canada: -5.3%
For investors in Brazil: -5.4%
Using gold as currency: - 5.3%

The DJIA has nominally gone up only for investors in the US that are fully insulated from the rest of the world. To consider the actual real value, US investors should reduce this by the real rate of inflation (which should include items like food and energy).

Consider also the appreciation of gold in 2007. While the price of an ounce of gold has gone up by 18% in USD and by 11% in Euros in 2007, it has not appreciated at all for those investors in Canada and Brazil:




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This can be attested by any investor in Canada who bought the GLD ETF, it has remained virtually unchanged in 2007 in Canadian dollars:

GLD in USD: +18.7%
GLD in Euros: +11.3%
GLD in CAD: 0.0%
GLD in Real: 0.0%

Adding a core rate of inflation of around 3% (and a real rate much higher) to this picture, investors with funds parked in the GLD ETF have actually lost money.