The financial world is either risk-on or risk-off… It’s a world that is either expanding with win-win deals or contracting… civilizing… or decivilizing.
It is either making progress… or it has gotten too far ahead of itself and is backtracking.
– Bill Bonner
I left my job nearly two years ago. We sold all our things. Kate and I hit the road with our three kids. We don’t have anywhere to live. And we homeschool the kids.
We left “the matrix” in another important way, too.
When we left America, we drained our bank accounts and retirement accounts of cash, and we converted all our savings into gold and silver.
Why did we do this? We don’t want to be in the system anymore. It’s unbalanced and unstable.
So we’re sitting on the sidelines, in precious metals, until it’s safe to return to the financial system. When it’s finally safe, we’ll sell all our gold and invest in the top dividend-raising stocks.
Our money will stay there – I hope – generating bigger and bigger dividends for the rest of our lives.
How will we know when it’s safe? For that, we follow the Dow-to-Gold ratio…
Our Ultimate Barometer
The Dow-to-Gold ratio tracks the Dow Jones stocks as priced in gold. It tells us the best time to buy gold, and the best time to buy stocks.
And it’s the ultimate barometer of systemic “health.”
If you’ve been reading these Postcards since the beginning, you know our Dow-to-Gold trade is based on a simple premise…
You buy stocks when they are cheap relative to gold. That is, when the Dow-to-Gold ratio is below 5.
Then you sell stocks when they become expensive – when the Dow-to-Gold ratio rises above 15. At that point, you return to gold.
Over the course of the last 100 years, you would have made only six trades. But you would have also handily beaten a “buy-and-hold” approach.
The chart below shows it all…
You can see that the ratio peaked in 1999. Then, it started a countertrend rally from 2011 to 2018. But if you look carefully, you can also see a recent reversal…
I interpret this recent reversal as the Dow-to-Gold’s primary trend reasserting itself, getting back on track, and once again marching back down towards single digits.
This next chart shows the zoom-in of the last two decades or so…
The ratio topped out at 22.36 in October 2018. It’s been falling since… and I speculate it’s about to head much lower.
If you’re looking to preserve and grow your wealth over the next one to two decades, this decline in the Dow-to-Gold ratio is the most important trend in finance…
Of course, if I’m wrong and the Dow-to-Gold ratio isn’t ready to resume its primary trend lower, the market will let us know.
How? By making a new high, rising above 22.36, and invalidating the downtrend. (It’s why I set our “stop loss” at 22.36.)
But I’m willing to bet that’s not going to happen.
The ratio likes to move in big, clear trends. And once it’s in motion, it tends to stay in motion.
Its drop in 2018 implied to me that gold would start outperforming the stock market… possibly for as much as the next five or 10 years.
I immediately drained my bank and retirement accounts and put everything into gold and silver. Then, I started nagging my friends and family to do the same.
Remember, the ratio peaked in October 2018 at 22.36.
My hypothesis is that the Dow-to-Gold ratio is now back on its way down… to a level somewhere below 5. Bill calls this its “rendezvous with destiny.”
I will hold my gold until then, at which point I’ll sell it all and invest the proceeds into the stock market.
Until then, I’m keeping an eye on the Dow-to-Gold ratio. It’s at about 14 as I write.
– Tom Dyson
Praise for Tom as he launches Tom’s Portfolio and introduces his readers to in-depth analyses of both the Dow-to-Gold ratio and oil tanker investments…
Reader comment: I am excited to be a part of your newsletter and investment strategy. I am a 30-plus-year veteran of the industry and have lost total confidence in our economic policies, how the debt and equity markets trade, and the continued abuse of the general investor who has little knowledge of how things actually work.
As I begin to wind down my career, I am spending more time managing my personal portfolio versus running asset management companies. I look forward to your advice and thank you for The Tanker Trade report. I am an entrepreneur who loves unique ideas that go against the crowd. I look forward to sharing many investment successes with you!
Reader comment: Tom, your Emergency Investment Summit was great, and the tanker advice is already paying off. You constantly talk about the banking system, so here are words from the author of the Declaration of Independence and our third president, Thomas Jefferson: “I sincerely believe that banking establishments are more dangerous than standing armies, and that the principle of spending money to be paid by posterity under the name of funding is but swindling futurity on a large scale.” That sums it up quite succinctly.
Reader comment: Tom, read your story and caught your Dow-to-Gold interview with Amber Mason and Bill Bonner a couple times with my wife. We have really enjoyed your journey and can relate to your stories, as we left the RIA industry in the wake of the sub-prime debacle.
We lived in Orange County working with high-net-worth clients, and experienced a similar disillusionment with the industry seeing the manipulation and corruption from the inside. We came to the Gulf Coast to write claims for businesses with economic losses in the wake of the BP Deepwater Horizon settlement after 30 years as an RIA.
When that blew up (cheated by the law firm we worked with) we had to make do after our investments and savings ran out. It’s been an adventure ever since. We follow Bonner, Doug Casey, etc., as the days ahead are going to be tough sailing.
Tom’s note: As always, thanks to everyone who wrote in! Kate and I read every note you send us. Please keep sending us your questions and comments at [email protected].