XIXIN LIANJIU YOUTH HOSTEL, XINING – Another town, another bunk bed…
Greetings from Xining, in Western China. We got here by train today after a 16-hour journey from Chengdu. Upon leaving the train, we made our way on foot to our new hostel.
Except it’s not a hostel. It’s Mrs. Wong’s apartment on the 25th floor of a high-rise condo building. She’s put a couple of bunk beds in a bedroom and called it a hostel.
Another town, another bunk bed
Our room costs $28 a night. We’ll stay here three nights… then go somewhere else in China…
The view from Mrs. Wong’s makeshift hostel in Xining
Sixteen months ago, we sold our cars, canceled our cell phone plans, gave away all our furniture, and handed back the keys to our apartments. Then, we left Delray Beach with our three kids and a suitcase in tow.
We had no income, no itinerary, no plan… and we hadn’t done any preparation for the trip.
Oh, and Kate and I barely knew each other. We’d gotten divorced four years before. We’d been living completely separate lives with new partners.
And off we went.
Except for the fact that we’ve fallen in love and we’re going to get married again, not much has changed. We’re still homeless, traveling around the world, living out of a suitcase, and not planning anything…
For example, tomorrow we need to decide if we’re going to go south to Tibet, west toward Tajikistan, or north toward Mongolia.
We’ll see which way the wind is blowing tomorrow…
Bet on Gold
For now, let’s turn over to the markets.
As you know, I believe gold is the place to be right now. Stocks are the place NOT to be. (It’s why I went all in on gold.)
I track this thesis by watching the Dow-to-Gold ratio. (Catch up on that here.)
And I got a few questions from readers about this…
Reader question: You’ve taken such a bold step going all in on gold. What makes you supremely confident that you would put “all your eggs in one basket”? What’s your strategy once you’ve cashed in?
My reading of the fundamentals – debt, Federal Reserve policies, valuations – matched the sentiment in gold (hated, ignored) and stocks (about halfway through a valuations bear market), and suddenly I saw a new decisive downtrend appear in the Dow-to-Gold ratio.
I wouldn’t put “all my eggs” into a single stock or bond. But gold is money. The “eggs in the basket” rule doesn’t apply to gold.
My strategy is to wait for the Dow-to-Gold ratio to hit 5 and then convert all our gold into “dividend aristocrats.” These are companies that have long track records of raising their dividends every year.
Reader question: Your argument for gold is persuasive, and although I am familiar with the Dow-to-Gold ratio, your graph is the first where I have seen it presented in that fashion.
As we are talking about three variables in the end – gold, Dow, and dollars – for the first two waves, gold and the dollar were fixed, as we were on the gold standard. However, all three float relative to one another during this third wave (including the nadir in the ’70s prior to it). Is the historical baseline 5 ratio prior to 1972 still applicable?
What a great and thoughtful question. I’ve wondered this myself. There’s also the issue that the stock market compounds over time but gold doesn’t. So you’d expect the Dow-to-Gold ratio to trend gradually higher over the years – both its peaks and troughs.
But I’m going to stick to using 5 as my target. I think it’s a conservative target.
I’ll also be watching the Dow’s P/E ratio and Tobin’s Q readings closely, because ultimately this is a market-timing strategy based on the great waves in stock market valuations.
(The P/E, or price-to-earnings, ratio measures how much investors are paying for every $1 of a company’s earnings. Tobin’s Q looks at the combined market value of all the companies on the stock market relative to their replacement costs.)
Reader question: What would be an aggressive bet on your Dow-to-Gold trade? And what would be a conservative bet?
The easiest way is to buy gold and sell index funds and wait for the Dow-to-Gold ratio to hit 5. More aggressive would be adding a short position on the Dow, but I wouldn’t recommend the aggressive idea unless the Dow-to-Gold ratio is above 18.5.
– Tom Dyson
P.S. We met another modern American gypsy today.
Ruth, from California, is 74 years old and 4’10”. She’s traveling the world by herself, living off her Social Security check…
Reader question: Sounds like you are giving your kids a good education. But I’m wondering how well they are learning how to work. How to hold down a job. I’ve always thought the best way to learn how to work was to have a job. You know, actually work. I was wondering, do your kids work for you? Do they do research for your columns? Help write them? Do they do columns for magazines or newspapers? Do YouTube videos? I’ve come to think that the best training for work would be to be raised as a farm kid. You’d be working your tail off from when you were able to walk. But that’s pretty impractical in your case.
Also, are your kids trying to learn a second language? It is often highly recommended. It gives you a much clearer understanding of language and its effect on the mind. I would suggest Mandarin Chinese, because it is so widely used. Also, I’ve heard that possibly the best school books in the world are the Singapore ones. Singapore schools are routinely rated the best or second-best in the world. And they are in both English and Mandarin.
Tom’s response: Thanks for your thoughtful letter. Two things – first, our kids are still a bit young to work. Our eldest is only 11. We’ve had this agreement that we’ll let our kids enjoy their childhoods (up to age 12) without any pressure. Second, we consider this trip around the world as a school field trip or a sabbatical. We’re going to be much more structured about things next year.
Reader comment: I would be honored to host your whole family for dinner while you are in Vancouver.
Reader comment: Sounds like you are having a great time! In 1973-74, I had a business upset and decided to chuck things for awhile. We bought a Winnebago and traveled for a year, going along from RV parks, to beaches, to crazy roads. For the kids, formal schooling was unnecessary, since every day was a new adventure. My wife and I made an agreement at the beginning, that I would do all the driving if she would clean all the fish we caught along the way. We became a very close family, and we remain so today.
Reader comment: APMEX and Provident Metals (occasionally) have gold francs for very little premium. I bought some 20 francs recently for around $8 over spot. This translates to something like $50 or $60 per gold ounce. The francs are collectible, too, like the pre-1933 U.S. coins you mentioned. I think some of the francs I received are nearly 100 years old (can’t remember exact dates, and they are now hidden).
Another good thing about the francs is they aren’t quickly recognized by the average goon. So if someone is looking through your stash, it’s likely they won’t recognize the foreign coins. Love the postcards!!
Reader comment: Blessings from Texas. I absolutely love reading your stories and experiences whilst on the road. I began traveling extensively three years ago after my parents’ deaths and a very painful divorce. It’s just amazing how immersing yourself in being not a traveler but a visitor in a new place allows you to take more than a snapshot of life. It’s something no amount of money can buy. God bless, and stay safe.
Tom’s note: Thanks for all the kind comments. Your notes are an integral part of this project. Keep them coming at [email protected].