When thinking about the long term price fluctuations of various assets, I like to use gold as a yardstick. An ounce of gold is not a perfect store of value, always worth “a nice men’s suit” or so many barrels of oil or bushels of wheat, but I find it useful nonetheless, since it does act like money in some respects.

Gold had the most purchasing power in recent times in the 1970s, when inflation destroyed the real values of financial and real estate assets. In 1977 gold averaged about $150, which would buy you at least five square feet of nice Manhattan property (or 15 in the case of Jim Rogers’ UWS townhouse, although the quality of the neighborhood at the time can be seen in Charles Bronson’s Death Wish vigilante movies). Out in the cozy, low-crime suburb of Short Hills, a mid-range house with a big yard would set you back about 1,000 ounces. Using the bubble price of $800 per ounce in 1980, the house would cost about 200 ounces, and one ounce would buy 30-40 square feet of prime Manhattan floor space.

At the top of the ensuing 30 year asset bubble, an ounce would only get you half a square foot of Manhattan if you were lucky, and the Short Hills house would cost about 2,000 ounces.

As for stocks, in the mid to late 1970s the Dow ranged from 2 to 8 ounces. At the top of the bubble in 2000, it cost 40 ounces. Today it costs about 12, which is what it cost early in the analogous year of 1930.  I suspect it is headed back towards the low of 1 that was last seen in 1932 and 1980, if not the sub-ounce levels that were occasionally seen in the 1800s (in an ex post facto approximation of the index).

I also suspect that the rent on a prime 1 bedroom apartment in a city like Singapore, Hong Kong or Zurich will get down to 3 ounces per month or less, as in the 1930s in New York (click here for some adds for rentals from that era). New York 1 bedrooms have already gone from 9 to 4 ounces in about 5 years, and with the decimation of the finance industry and the return of street crime, I suspect they will be at sub-ounce levels again several years from now. New York in the 1930s still had a broad industrial base and relatively low crime (across the boroughs, not just swanky Manhattan), more akin to the other cities mentioned here than itself today.

It’s common practice in parts of Southeast Asia to price real estate in gold (often in taels, a measure equal to 37.5 grams or 1.2 troy ounces), and I suspect that as we enter a period of stress on paper currencies worldwide, more and more people will begin to think of the gold price for various assets.

Keep in mind that as the global asset bubble pops, the early stages should continue to be deflationary. People are going broke for a want of money to pay creditors and bills. The kind of money they are desperate for is whatever will make these headaches go away, and that is the fiat that rules in their country. The ensuing waterfall in asset prices should drag gold down along with everything else, but gold acts like money in deflation, so although it may fall 30-40% against the stronger currencies (Yen, CHF, Euros, dollars), if everything else falls 75-99%, its purchasing power will continue to increase, as it has against most stock and real estate markets since 2000, the true start of this secular bear market.