CHISWICK, WEST LONDON – Greetings from quarantine in London…
My family and I are a traveling family, trying to educate our children without a home, a community, or roots.
We’ve come to London – my childhood home – because my mother died at Christmas and I was named the executor of her will.
We expect to be here for about three months.
We will sell her things, pay the taxes, scatter her ashes off the coast of Bognor Regis, say our goodbyes, and then hit the road again… probably to Mexico next.
Last Day of Quarantine
Upon arrival, all visitors to the U.K. must do a 10-day quarantine and pass two COVID-19 tests.
We’ve followed all the rules and tomorrow we’ll be free to leave our house. The first place we’ll go? Take the kids to the playground…
For today, we’re still isolating. And getting exercise by running up and down the staircase and doing yoga in the living room…
Miles (11) and Dusty (13) doing yoga in mum’s living room
Most Important Chart in Economics
Meanwhile, turning to the markets, let’s look at the most important chart in economics…
The Dow-to-Gold ratio.
As regular readers know, the Dow-to-Gold ratio shows us the relationship between the stock market (as represented by the Dow Jones index) and gold.
Here it is, going back 120 years…
The first thing the ratio tells us is that there’s a clear cycle in the relationship between stocks and gold.
At times, stocks get cheap compared to gold. You can buy the Dow with only a few ounces of gold. This was the case in 1896, 1932, and 1980.
Other times, gold gets cheap relative to stocks. It takes many ounces of gold to buy the Dow. Examples of this are 1929, 1966, and 1999.
The ratio seems to cycle between these extremes every decade or two. You can see this in the chart above.
The second thing to notice is that extremes in the Dow-to-Gold ratio tend to mark important tops and bottoms in the stock market.
At important bull market tops (like 1999), it takes many ounces of gold to buy the Dow. At important bear market bottoms (like 1980), it takes only a few ounces of gold to buy the Dow.
This makes sense. In bull markets, people don’t want the safety and protection of gold. In bear markets, people flee from stocks and treat gold as a safe haven.
Silent Bear Market
Based on my reading of this chart, the stock market entered a bear market in 1999… And it will remain in a bear market until the Dow can be bought with only a few ounces of gold.
My guess is that will occur at some point in the next 10 years.
Today, one share of the Dow will buy only 19 ounces of gold. That’s down from 42 ounces back in August 1999. In other words, since 1999, the Dow has lost 54% of its value in terms of real money – gold.
Talk about a silent and insidious bear market.
Why is this bear market taking so much longer to play out than previous bear markets? And how can the Dow still be near all-time highs in nominal terms if it’s in a bear market?
The bear market is being prolonged by aggressive intervention from governments and central banks from all around the world.
They have chosen the soft landing approach: to do whatever it takes to prevent the bear market from doing its work… and to prevent the Dow-to-Gold ratio from returning to single digits.
My guess is, in the end, these efforts will all be in vain.
The Dow-to-Gold ratio will return to low single digits (below 5) anyway… And the government policy of “do whatever it takes to avoid recessions and bear markets” will have been completely discredited.
– Tom Dyson
P.S. The financial system is rotten to the core with intervention, manipulation, fake money, fake trades, fake deals, fake news, and robotic trading. I don’t want to participate in this toxic mess.
That’s why, in 2018, I went “all in” on a single trade based on the Dow-to-Gold ratio. I want to sit on the sidelines in this one trade and get on with my life, until it’s safe to return to the financial system. It will take several years to play out, but I have total conviction in this idea. I explain it all in detail in this video presentation…
Kind words from readers for the Dyson family, as they settle Tom’s mom’s affairs in London…
Reader comment: I’ve somehow missed your blogs for some time. It was great to read about you and the family and hope your time in London works well for all of you. I’ve so enjoyed reading about the five of you and your adventures. Keep them coming!
Reader comment: I’m so sorry about your mom. Her home looks lovely. I’m glad to read that you and the family are still doing well. You guys look great! Take good care.
Reader comment: I love your family stories and photos. I loved your recent photo trying to convince Penny to let you do a Covid swab. I cannot express in words how your stories impact my heart. I believe the Lord is using your life to speak and to teach many who would not be reached any other way, including me. Thank you. May God protect and bless all of you forever.
Reader comment: Welcome back to the U.K. You’ve brought some good weather with you. Just in time for the loosening of lockdown restrictions. Thank you!
Meanwhile, one reader is a big fan of Tom and Kate’s “refreshing” view on education…
Reader comment: TOTAL KUDOS to you for your comment, “We hope our children never set foot in an academic institution of any description.” I agree that traditional schooling is a complete waste of time. If the kids have inherited any moxie from you and Kate, along with the basics of economics/investing that they are already learning, they’re going to be just fine. So refreshing to hear!
Tom’s note: As always, thanks for your messages! Please keep writing us at [email protected], and I’ll do my best to answer your questions in a future Friday mailbag edition.