Bill Gross recently called the stock market rally and profits a money illusion created by QE2 and

inflation.
I am sympathetic to that view. But seeing through such an illusion is difficult from the inside. So I will
return to an example I have used before, Venezuela. Below is a 5 year weekly candle chart of IBVC
index which is the Venezuelan stock market index. Measured in its home currency this was one of the
top performing markets in the world since early 2009. A citizen of Venezuela can thank the charming Mr.
Chavez for such a booming market.

But this apparent prosperity is an illusion as it does not represent real growth of capital, only the
repricing of existing assets in terms of the depreciated local currency. Measured by any other currency
the IBVC has been a disastrously poor investment . examples follow.
Priced in other currencies or assets ( gold for instance ) the IBVC has been terrible and the gains are not
real. This is true of gains in other assets too. For those items like savings accounts that cannot or have
not appreciated the result is massive losses of relative value hidden by this money illusion. That is how
politicians steal the wealth of the working classes.

And that is what Bill Gross is talking about. That is what is happening in the US . The dollar has had 95%
of its value stripped away since the Federal Reserve was formed and the process is accelerating.
These numbers are not nearly as bad as for Venezuela because the US has had the advantage of being
the world’s reserve currency which has sheltered the dollar value historically. But that historical
advantage is being eroded along with the credibility of US governance under the self=serving mendacity
of politicians in Washington. One must see through the illusion to have any chance of preserving the
value of one’s savings and earnings from the predation of Congress.