As I've mentioned in the past the performance of the U.S. dollar is a bit misleading since its compared to a bunch of very ugly ducklings - namely the Euro.  This morning ECB President Trichet is indicating inflation is a potential concern overseas and the euro has continued its recent rally against the dollar - but again, this is like picking among two bad choices.  [Dec 23, 2010: Is the US Dollar Weak or Not?]  Unfortunately none of the major global currencies are in great condition as almost all developed countries / regions are trashing their currency in a global race to the bottom.  One exception is Germany but since it is embedded within the EU, you cannot benefit from the old 'mark'.

When one compares the U.S. dollar versus items which have no 'obligations' if you will - hard assets in particular, the story is very different.  What has been strange the past few weeks is during a time of consternation the normal safety trade into dollars has not happened - instead, people have moved into precious metals.  This should make you (a) worried and/or (b) peeved as a holder of U.S. dollars - essentially it's a damning indictment.  But when your entire fiscal strategy as a country is print more electronic bills, it is not surprising.

In economic terms we should always look at nominal v real returns.  For example if we print enough dollars we can get to Dow 40,000... or 60,000... or 100,000.  Those who only look at nominal returns would be giddy.  Those who look at real returns, not so much.

So rather than looking at the stock market priced in our trashed fiat currency, every so often I like to look at it priced via a few commodities - today we'll look at it versus the general CRB index (commodities), gold, and then silver.

S&P 500 priced in CRB

S&P 500 priced in gold

S&P 500 priced in silver

As you can see - in 'real' terms versus assets that hold no obligations, the awesome rally in the S&P 500 is not so wonderful.  But since most of the public only focuses on the market priced in dead presidents, they don't realize they are in many cases treading water ... if not worse.

On the positive side, the S&P 500 has rebounded priced in Canadian and Australian dollars (two far more fiscally conservative countries) versus the last time we checked.