I'm going to show everyone what I consider the most important chart in the world. The ratio of gold to the Dow. A little history lesson. This ratio runs in very long cycles. In 2001 it took roughly 42 oz. of gold to purchase one share of the Dow. Even though the stock market has been in a 5 year bull market and is at new all time highs it now only takes about 20 oz. of gold to buy one share of the Dow. The take away is that gold (real stuff) has been vastly outperforming the Dow (paper assets). You would have been vastly better off to have owned gold than stocks over the last 6 years. This cycle normally runs until the ratio gets to or very close to 1:1. It briefly touched 1:1 in 1980. What I'm trying to say is that in inflation adjusted terms the Dow is a long way from making new highs. Does that mean one should short the market? Of course not. It just means we are in a secular period where real stuff is going to tremendously outperform paper assets. BTW you will get this same looking chart if you compare the Dow to oil, copper, nickel, zinc, cotton, soybeans, etc. You get the picture. This is what happens when the fed embarks on a money printing binge trying to inflate away unpayable debts and pay for expensive wars. Now do you see why I buy silver? I don't want the Fed to inflate away my purchasing power.At some point in the future we will see a 1:1 ratio again. I have no idea if that will be at 36,000 or 3,000 but I guarantee we will see it because politicians will always opt for the easy way out. What they never seem to learn is that there is no easy way out.
Posts
