Headlines abound, the stock market is up 40% from its March lows!!! Let’s all celebrate. Those who spoke badly of Obama, Bernanke, and Geithner have their foots in their mouths, right?

Not even close. These types of misleading headlines are the very weaponry of a financial system that tricks you, lures you, spikes your drink, robs you blind while you’re partying, and then nurses you back to sobriety in the morning by giving you another spiked drink.

Imagine you have $100 in the stock market. You experience a 40% loss. You now have $60. And, abracadabra, the economic rescuers have juiced the market back up 40%. You now have $84. Wait a tick, how exactly do I get back to $100? Well to recover from a 40% loss, you would need a 67% gain. You see, 40% of $60 is much less than 40% of $100, so the initial 40% loss was much larger than the 40% gain that followed. For those whose livelihood involves serious math, this is very obvious. For the rest of us, it should be an “ah ha” moment that exposes the red arrow, green arrow game.

Watching and listening to the financial news networks report about the stock market is like watching a sports game. And it entertains just like a sports game. In the midst of entertaining, it lulls us into watching the red and green arrows. Oh, it’s down today a few points. Hey look, it came back up. It feels very much like watching a basketball team surrender and regain the lead in a basketball game. If they are down by 40 points, and then they score 41 uncontested points, they have the lead and they win the game!

But it doesn’t work the same in percentage points. But just wait, over the long term the losses will be recovered and there will be profit, say the “experts” whose payroll checks are signed by Wall Street. If you buy that line of baloney, you will be further tricked. Because over the long term those losses will be recovered and there will be profits… but only as measured in dollars. If you factor in how over the long term those dollars buy less stuff, you will not find a substantial long-term profit.

Today the Dow closed at $9,320. But the dollar has lost over 96% of its purchasing power since 1913. Take 96% out of today’s Dow price and you get $372. In 1913, the Dow was at about $62. So the Dow Jones Industrial Average grew from $62 to $372 (in constant 1913 dollars) over a period of 96 years. That’s an annualized rate of return of 1.88%.

This bears repeating…

The Dow Jones has returned 1.88% per year for the past 96 years

Can you still get excited about a stock market that’s up 40% since its March lows when it is still a stock market that hasn’t even been able to produce an actual 2.00% return over the long run?

Or even more important questions: Is it worth the risk of losing a big chunk of the money you worked for just to “get some action” in a market that produces less than a 2.00% return over the long run? When you are down, can you wait decades without touching your money just to get back to your break-even point?

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Jeff Nabers is author of 5 STEPS TO FREEDOM: How to Cut Your Dependence on Institutions and Escape Financial Slavery

1. It is poised to bounce back
2. You don’t want to close out losing positions
3. Stocks are cheap right now

…then the simplicity of the following information may shock you.

Last week the earnings of the S&P dropped to $28.75, down from the previous week’s $45.95. A year ago it was at $78.80. Today’s level of earnings is roughly where the S&P 500 was in 1995 at which time the S&P was selling for around $450.  Today it’s selling at $770 which puts it at a P/E (price-to-earnings ratio) of 27. That’s right – a P/E of twenty seven! In a time where every “expert” says stocks are cheap they are 70% more expensive than the last time earnings were this low.

P/E doesn’t necessarily mean much of anything in and of itself. But historically stock market promoters have pointed to P/E as a sales tool. If you’ve paid close attention to P/E in the past, then you probably know what to do when you are holding something that has a P/E of 27 and is in a downward trend. Hint: It starts with an “s”.

Get your head out of the emotional gambler’s game, start learning about investing!

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These charts (above) show you the historical account of pricing for the Dow Jones Industrial Average and the Standard & Poor 500 stock indexes. The following chart (below) is also a historical account of pricing for the Dow Jones Industrial Average. It, on the other hand, shows an entirely different story…

The difference between the two DJIA charts? The latter is priced in gold grams rather than U.S. dollars. Gold has been used by humans as money since the beginning of time, wheras dollars are just worthless pieces of paper. As priced in gold, oil prices, median home prices, and just about every other major asset follows an understandable logic. This is because no matter how many times our population deviates from reality, it is always forced to come back to it. The position of that reality is seen in charts published by www.pricedingold.com.

If you previously weren’t keen to this basic economic understanding, it changes everything.

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