FORT COLLINS, COLORADO – The sovereign nation-states have taken on too much debt. And now, thanks to the first of several recessions I see coming down the pipe this decade, they can’t service their debt loads.
My core thesis is that we’re entering a sovereign bond crisis.
World governments must now collectively debase their currencies in order to reduce the burden of their debts… just as Britain did after WW1 and the U.S. did after WW2.
I call this a “global synchronized currency devaluation.” I think it’ll be accompanied by a decade of stagflation (economic stagnation plus inflation).
The crisis will cause a multi-year bear market in stock and bond prices… but it’ll only be visible in terms of gold. (Because they’ll prop up the nominal prices of stocks and bonds with printed currency and devalued currency.)
I think the Dow Jones is about to fall more than 60%, in terms of gold… (That would give us a Dow-to-Gold ratio below 5. It’s at 14 now.)
Below, I’ll show you three charts that explain this hypothesis. But first…
Greetings from Fort Collins, Colorado…
My family and I are modern American gypsies. We have no home and no roots. We just drift around the world, living out of a suitcase, homeschooling our three kids wherever we rest for the night.
We’re currently spending a year in America, our “home” country, traveling by road, sleeping in a tent, and “road schooling” our kids.
Today we entered Rocky Mountain National Park, and we drove over the continental divide on Trail Ridge Road.
We’re in Fort Collins, visiting our old friend and colleague, Dan Denning. Trail Ridge Road is the highest paved through-road in the USA.
We were so high, we were above the tree line and there were patches of snow around us. Here we are…
With Kate and the kids in Trail Ridge Road, Colorado
Met up with Bonner-Denning Letter coauthor Dan Denning
Miles and Dusty
Exploring the Rocky Mountain National Park
Our Dow-to-Gold Thesis
Back to the hypothesis I mentioned earlier…
As regular readers know, the Dow-to-Gold ratio tracks the Dow Jones stock index against the price of gold.
In the fall of 2018, the ratio started falling again… for the first time in seven years.
Once the Dow-to-Gold ratio gets in motion, it tends to stay in motion. So its drop implied to me that gold would start outperforming the stock market… possibly for as much as the next five or 10 years.
I drained my bank and retirement accounts and put everything into gold and silver.
Now, as I mentioned, my hypothesis is that the Dow-to-Gold ratio is on its way down to a level somewhere below 5.
And because of the wave of central bank stimulus unleashed by the coronavirus, this is happening much faster than I expected. That brings us to the three charts I mentioned…
Three Charts That Support Our Hypothesis
The first thing to know is this: If a government wants to spend more money than it receives in income, it must borrow money.
It borrows money by issuing bonds to investors and other governments. But what if it needs to borrow more money than investors are willing to lend?
Either interest rates must rise, to encourage more investors to part with their savings… or governments must print money and use central bank balance sheets to buy the bonds they can’t push on investors.
Take a look at this first chart below.
It shows the “net” of central bank buying for the rest of 2020. In other words, it’s the amount of debt the world’s private institutions and savers must absorb from each of the world’s major governments…
A negative amount shows private investors will be asked to absorb newly issued government bonds. A positive amount shows the central bank is buying more debt (bonds) than the government is issuing.
Take the U.S. for example. The Treasury must sell $719 billion in debt to private, non-central bank investors over the rest of this year. If it can’t, the central bank must buy more of the government debt, or interest rates will rise.
The Global Synchronized Currency Devaluation
Is Just Getting Started
As I pointed out on Friday, the currency market will be the relief valve where economic losses and inflation are accounted for.
That’s what I mean by a “global synchronized currency devaluation.”
That brings us to the second chart. Here, we see the global synchronized currency devaluation in one chart…
It shows gold’s rise in terms of 17 major currencies over the last five years. This is just the beginning of this trend…
Why is this just the beginning?
Because the global synchronized currency devaluation won’t end until sovereign debt issuers around the world – but especially the U.S. – have reduced the real, inflation-adjusted weight of their debts.
The last time the U.S. used inflation to fix its poor financial position (after WW2), it took 35 years.
A Boon for Our Dow-to-Gold Trade
Finally, take a look at the third chart. It’s of the Dow-to-Gold ratio, which shows the performance of the Dow in gold terms…
As I mentioned above, my hypothesis is that the Dow-to-Gold ratio is on its way below 5. It’s at 14 right now.
If I’m right, that means we’ll see a 64% collapse in the Dow from here – at a minimum – in gold terms.
Put another way, gold will continue to outperform stocks (in gold terms) until the ratio falls below 5. I’ll keep holding my gold until then.
– Tom Dyson
P.S. I created an entire trade to take advantage of this setup. I invested nearly $1 million of my own money into this strategy. And I put together a model portfolio to give you the chance to profit from it, too…
Since May, my recommendations are up as much as 77%… 79%… even 159%. But this is just the beginning. I explain why in this special video briefing – and show you how to get access to the 11 gold stock names I recommend today…
One reader suggests Tom is jaded by America’s history…
Reader comment: Tom, it appears from your commentary you are pretty jaded when it comes to America in general, or any sense of patriotism, and one has to wonder why you’re zig-zagging across America at all?
If you depend on Wikipedia, or other biased views on history, you’re just being indoctrinated – and not even getting the truth. It is like one who seeks affirmation of what one already believes and doesn’t seek opinions or information other than that.
It is interesting to watch your travels – they are like a butterfly who merely flitters around, but never lands – and is very good at being critical, but never stays around long enough to assume responsibility for any outcome, and is teaching your children to do the same.
Meanwhile, the reader who recognized Tom in Casper last week writes in…
Reader comment: Tom and family – It was great to meet you on your travels while you were camping on Casper Mountain in Wyoming. Seeing and meeting you there was as big a surprise to me as to you. Both our kids got married in Wyoming and we now have five grandchildren and four great-grandchildren. Our two grandchildren with the four greats were visiting family in Casper this week, and we drove up from Denver to see them, two of the greats, for the very first time. We took time while in Casper to drive around to places we enjoyed while living there. It was a last-minute decision as we were returning to Casper to make a swing through the campground.
Just after driving by and seeing you and the family at the table by your camper trailer, it clicked that it looked like you, Kate, and your three great children, which is when I backed up and asked if you were Tom Dyson.
I subscribed to the Palm Beach Letter early on when it was basically you and Mark Ford and have appreciated your work ever since. I have been reading your Postcards from their beginning as well. Keep up the good work, continue to enjoy your travels with your family, and stay safe.
Tom’s response: Thanks for stopping by and saying hi. You made our day.
Others ask about mining stocks… and how to find Dow-to-Gold data on their own…
Reader comment: I love reading your Postcards. They are awesome. And what a real-life learning adventure for your family! Hope you stop by Butte, Montana. The area is so rich in mining history. Our family is going to camp at Bannack State Park next week.
I have a question on the mining stocks. I got into some, but some were already higher than your target and you said not to chase them as they will come down. Just wondering, now that gold and silver are breaking out, do you have higher buy in targets in the mining stocks or should I wait?
Tom’s response: I recommended eight gold mining stocks (plus three gold royalty stocks) in Tom’s Portfolio, the premium newsletter I published in May. Two months later, one has more than doubled… three more are up over 65%… and the average return of all eight mining stocks is 61%.
I expect gold will reach much higher prices in terms of U.S. dollars and the stock market over the coming decade. If I’m right about this, many of the stocks I recommended in Tom’s Portfolio will rise 10 times or more.
I would still recommend these junior gold stocks to Tom’s Portfolio readers at current prices, but only as a small part of the overall gold strategy I recommended in my report.
(Paid-up Tom’s Portfolio subscribers can read that 27-page report in full here. I explain why I feel so strongly about gold and give you everything you need to take advantage of it. That includes the contact details of my favorite gold and silver retailers, the ins-and-outs of various ETFs and physical metal funds, and the gold stocks I like best.)
But the time is fast approaching where I cannot continue to recommend betting on a decline in the Dow-to-Gold ratio. It’s moved so far already, the risk/reward is becoming less favorable. So if you haven’t yet, the time to act is now…
Reader comment: I watched the presentation last night for your new offering, Tom’s Portfolio. I have been following you and Bill Bonner for many years. I totally agree with your advice to get all in on gold and silver. I have been accumulating mostly silver and mining stocks for the last five years, as it was much more affordable for my budget.
I hope to soon have enough money to purchase your new program. I am even thinking of liquidating some of my silver to afford your program. I would love to have your direct mentoring on these next years, as we move into this next phase of the destruction of our economy and the increase in the value of precious metals.
Thanks again for that wonderful presentation you gave and introduction to your new program. It is the only financial direction that makes any sense to me. You and Bill have had it right for a long time. I really enjoy your Postcards and financial commentary. In gratitude and deep appreciation.
Tom’s response: You don’t need my advice. It sounds like you’re doing just fine already.
Reader question: Tom, I have greatly enjoyed reading about your family’s travels. Keep it up! I would like to do some analysis on the Dow-to-Gold ratio myself. Can you recommend a source of historical data that I can use to build some of my own databases (spreadsheets in my case) to do this analysis?
Tom’s response: Historical Dow data is easy to find. Any popular finance website has that. For historical gold prices, I go to the London Bullion Market Association (LBMA.org) and use their data.
Reader comment: I have been enjoying your postcard letters and am wondering if you could give folks like me an idea of how to prepare for the next few years in particular. I have a mortgage that is no more than 30% paid off, so my investing/trading is limited. What ideas do you have for folks like me that expect a depression/recession before long, and don’t want to lose our properties? I’m not sure if I should buy some gold or other valuables as I’m able, or if I should focus more on paying off the mortgage first. The mortgage is 5-6x my yearly income.
P.S. If you’re coming through our area, you’re certainly welcome to stop by.
Tom’s response: I can’t give you personal advice, but personally, I hate being in debt and I’d focus on paying off my mortgage before I did any investing. That said, I think there is an argument for using borrowed currency at low interest rates to buy a hard asset that you’d otherwise have to rent.
Still, another dear reader inquires about Tom’s train experiences (you can read all about them here, as it ties into how he met Bill Bonner)… and others weigh in on the Dyson family’s travels…
Reader comment: Love your pictures of the Fisher Building in Detroit where I worked before moving to Atlanta. But reading about your coal train was very interesting. The amounts are staggering. How did the train look from your perspective of “jumping trains”? If I’m ever stuck out west, it sounds like a great way to hop a ride back here to Georgia. So from your train-riding past, notice any good spots to safely ride and be able to nap for the five-day trip? 😊
Tom’s response: I have caught a ride in a loaded coal hopper before. It’s not the most comfortable ride. (I much prefer the bucket of a container double stack car.) The worst aspect is you get absolutely filthy and the coal dust blows on you the entire time the train is in motion, so you can’t open your eyes and look around. But in a pinch, a coal car would work.
Reader comment: I’m familiar with Plant Scherer near Macon, GA. I lived not too far from another coal-powered plant in the northwest corner of GA, Plant Bowen. I recall being stopped by the coal-bearing trains at railroad crossings on their way to the plant. They were a mile long. Wonder if that coal came from the Wyoming mine. Anyway, thanks for sharing your adventures on the road. I’ve been to a number of the places you’re visiting, and it brings back memories.
Reader comment: You should drive up to Custer Battlefield National Park just northwest of Devil’s Tower. There you can read about how the Indians fought and killed Custer and his soldiers, but then the women went around and stripped them and poked out their eyes and ears so they could not see or hear in the next world. This despicable behavior led to the despicable Wounded Knee Massacre soon after.
No one is innocent, and the saddest thing is the reservation system now keeps the American Indians from accessing the American Dream of rising as high as their talent and ambition will allow. The unearned income provided them has destroyed their families and culture, just like the inner-city welfare housing projects have. Other than that life is good, enjoy!
Reader comment: Dear Tom and family I have been following your Postcards for quite a while and was devastated by your reaction to Mount Rushmore. Anyway, I read your Postcards with amazement and awe. Wish I was a little bit younger to do what you are doing. And how I envy those people who recognized your family in the park and stopped to say “Hello”! If ever fate will bring you to Boston, you can camp in my small backyard and I will gladly cook you meals. Keep writing. For some reason I probably missed your Postcards for a couple of weeks and was so glad when they started to appear again in my mailbox. You are an inspiration for all of us, your readers.
Tom’s note: As always, thank you for your messages! Please keep writing us at [email protected].