Tom’s Note: Greetings from London! In six days we fly to Miami… pick up a car and a few possessions we left in a small locker in Delray Beach… and drive to Baltimore.
There, I will meet with Bill Bonner, Dan Denning, and Maria Bonaventura (our managing editor) to talk about a new project we’re working on. I can’t give you many details yet, but stay tuned…
In the meantime, I’m taking a break from the Postcards to spend time with my family before we return to the New World.
(My grandmother celebrates her 100th birthday tomorrow, and my entire family is gathering for a week of parties.)
So we’re doing something a little different this week. We’re going to send you the top five essays where I break down what I see happening in the economy in the years ahead… as well as my thesis behind the Dow-to-Gold ratio.
Look for that below, and in your inbox at our usual time (7 p.m. ET) over the next few days.
Talk to you again soon.
Stagflation Ahead: Protect Yourself With Gold and Silver
By Tom Dyson, Editor, Postcards From the Fringe
If you’ve been reading these postcards, you know stock market valuations are in a bear market.
Typically, a “valuations bear market” will include four to six recessions. We’ve already had two since this valuations bear market began in 2000. So two or three more recessions are coming soon.
Remember, a bear market in valuations is not the same thing as a bear market in prices. In a valuations bear market, valuation multiples like the price-to-earnings ratio or price-to-dividend ratio compress. But nominal stock prices don’t necessarily have to fall.
So what does this mean for investors?
Biggest Bubble of All
For one, you should expect to see a lot more recession-related news reports and headlines over the next few years.
Right now, there’s a near-universal belief and confidence in central bank activism. I’d argue that this – faith in the abilities of central bankers to steer economies – is the biggest bubble of them all.
The series of coming recessions will drive central bankers to explore the limits of their tools.
Said another way, we’re in the midst of the greatest financial experiment in all of history.
So another thing you can expect to see more of as we get deeper into the valuations bear market is inflation. Look for more stories and headlines about money printing, credit stimulus, and “bailouts.”
What to Do
The description for the environment we’re entering is “stagflation.” Stagnation combined with inflation.
And the way to position your money for stagflation is by owning gold and silver. It’s the simplest, most straightforward, direct play. So in addition to getting rid of all our things, Kate and I have also converted all our assets to gold and silver.
And the best way to track stagflation – apart from tracking actual stock market valuation metrics – is to watch the Dow-to-Gold ratio.
The ratio peaked at 41 in 1999. It’s currently at 18.6. When the valuations bear market has run its course, it should be below 5.
– Tom Dyson
P.S. At the bottom of the valuations bear market, I expect central bankers and their interventionist policies will have been completely discredited.
P.P.S. No one expects stagflation. It’s probably the most contrarian, most underpriced macroeconomic risk in the markets right now.
Readers turn to life insurance… Tom’s thoughts on real estate… and his (re-)marriage to Kate…
Reader question: When you went all in on gold/silver, did you cash out of your many Income for Life policies (whole life insurance) or keep those intact? I want to understand if you think those still have merit in our current and future financial ecosystem. Love the Postcards series.
Tom’s response: They’ll have to pry my life insurance policies from my cold, stiff fingers. I will never surrender them. The question I’m considering is, should I borrow the cash value and invest it in gold bullion? I haven’t yet, but I’m seriously considering it…
Reader question: It’s fun following your travels and your simple approach to the market. What are your thoughts on real estate? What would you do if you had proceeds from selling a commercial real estate investment? Would you 1031 into a bigger investment, the same size investment or pay the capital gains and eliminate all your debt, saving a small nest egg for the future?
Tom’s response: Hobos don’t buy commercial real estate. So I’d go with the nest egg. My family has no home and no idea what we’re going to do next with our lives. We’re not even married. Commercial real estate represents a commitment and right now, the only commitment I want is a commitment from Kate.
Reader comment: I learned as an airline pilot that travel is the best education for me and my family. I am happy that Kate said YES! An intact nuclear family is the best gift that you can give your children.
Tom’s comment:Thanks for the kind words! Please keep writing us at [email protected]. Kate and I read every note you send in.