WEST LONDON, ENGLAND – Greetings from London…
It’s time for our weekly mailbag edition, where I answer the latest questions you’ve sent in.
But, above all, we got so many letters this week about our decision to buy my mother’s house in London.
Below, I answer your questions about the logistical side of things – like how we’ll sell six figures worth of gold to buy the house… as well as the emotional side of things – including whether we’re making a hasty decision.
Lots of ground to cover, so let’s get right to it…
Reader comment: I am looking at the Dow-to-Gold ratio chart you posted. I’m not sure how you are so certain that it is heading downwards. To me, it looks very much like we are in an uptrend that commenced in 2012.
I should point out that I am a convinced precious metals bull, and most of my investments are in precious metals miners and bullion products. However, your chart does not prove a down trend in the Dow-to-Gold ratio, which is a little worrying for me.
My theory is that the Dow-to-Gold ratio is cyclical. When I look at the chart going back 100 years, I see three clear rotations, or waves.
These waves are driven by stock market valuations.
When stocks are cheap… as they were in 1933 and 1980… you get the best returns from owning stocks. When stocks are expensive… as they were in 1929, 1966, and 2000… you get the best returns from owning gold.
It’s that simple.
Right now, stocks are expensive, which suggests that we’ll make higher returns from waiting on the sidelines in gold while stocks fall back to cheap again.
It’s possible that there is no cycle, the crowd sentiment doesn’t swing between extremes every generation or so, and stocks have reached a new, permanent higher level of valuation.
In this case, we’ll miss out on better returns from the stock market than from gold. We’ll see.
But as I watch the debt pile up… and the money-printing… and the cold war gathering steam with China – it all points to lower stock market valuations in the future… and higher gold prices.
Reader question: I am wondering if we might be heading for a continued mega boom in all assets, and that shares will rally more strongly than gold. The feds’ money-printing and zero interest rate policy could account for this if it were to happen.
My main reason for holding precious metals is not because of the Dow-to-Gold ratio, but because I believe we are heading towards very high levels of inflation and very high levels of default in various asset classes. It is inflation and default that I wish to be safeguarded from.
Equities do not do well in inflation.
The reason equities have done so well over the past year is because the market has not been frightened by inflation yet. Instead, it’s been comforted by the end of the pandemic, and all the stimulus that’s come from Washington, D.C.
Life is about to get much more complicated for equity investors, I think… unless somehow the feds can keep stimulating without arousing inflation…
Reader question: Regarding your postcard on the Dow-to-Gold ratio, I have a question: If the Federal Reserve truly is the market and it’s the Fed’s actions that are responsible for the countertrend rebound illustrated in your chart, since the Fed is holding their course, what catalyst is there for the trend to resume?
Either a reduction in stimulus or a stubborn rise in consumer inflation.
I think the Fed is trapped now. It has to keep expanding its balance sheet to finance the federal government, but inflation is rising fast.
If I’m right, inflation will not be temporary. When the stock market figures this out, gold will rise and the stock market will fall…
Reader question: Last week’s column says. “Meanwhile, gold and silver are 62% and 415% below their inflation-adjusted highs of 1980.” What exactly do you mean by that 415% number?
In January 1980, gold hit $850 and silver hit $49.45. But the dollar was worth more in 1980.
So what I’m saying is, to reach those highs again, in terms of today’s watered-down dollars, gold would have to rise by 62% and silver would have to rise by 415%.
Reader question: You have mentioned you hold equities in gold, commodities, tankers, etc. What percentages of your portfolio represent these equities?
This is a great question. The ideal portfolio I’m aiming for today would be something like 75% gold and silver, 15% steel (shipping stocks), and 10% dollars.
As for the specific breakdown of my gold and silver portfolio, that’s something I’ve answered in more detail for my Tom’s Portfolio subscribers.
In fact, I put together an entire asset allocation model for my subscribers to follow – as well as the specific gold and shipping stocks I recommend buying today.
Out of respect for my Tom’s Portfolio subscribers, I can’t disclose that in full here. But, if you’re not paid-up yet, you can learn more about how to get access to that today, right here.
Reader question: Since you recommend hard assets as many others do, do you think some REITs [real estate investment trusts], like apartments or warehousing, can be considered a safe haven and “hard enough asset” as an investment?
Yes, but only if they were cheap and not vulnerable to rising interest rates or crashing property values. I worry that some REITs are just proxies for bonds these days and trade according to their yield not their book value.
Reader comment: Repeatedly, you have told us to be patient with gold, maybe 10 years or more. Yet, when it comes to the house you scurry into buying it. Why the difference?
I disagree with those who say keep it, and with those who say sell it. Can we say emotions? You are casting aside a well-considered plan for an emotionally hasty one.
My suggestion: Live there a year, then without the stress of making a decision, come to a decision. Surely, your brother would let you rent his half of the house for a period of time. Besides, he would benefit because the value of the dwelling should increase. Just saying.
I’m thinking along the same lines as you. I’ve learned that when you don’t know what to do, the best thing is usually to do nothing.
That said, we have to buy it if we’re going to stay in it past August. So that’s what we’re going to do. We’ll buy it so we can stay put.
As for what we’ll do beyond that, maybe we’ll make a decision next year.
Reader question: If you decide to sell a six-figure sum of gold bullion then what is the best method?
I am not sure yet… but this is something I’m probably going to have to do in the next three months in order to buy out my brother’s share of this house.
I say “probably” because I’m going to do everything I can to avoid selling any physical gold. I really want to hold onto that gold, more than anything else we own, because I think it’s going to free us financially.
Reader question: I think you have to look at the political climate in England and ask yourself if you want your kids to grow up in an atmosphere of COVID-19 fear, lockdowns, coerced vaccinations, masking, a communist government, loss of your God-given rights, etc.
I know all that “stuff” is pulling at your heartstrings and you are probably tired of traveling, but I think you could not have picked a worse spot unless you picked Canada, Australia, or New Zealand… where police are brutalizing citizens, churches are closed, pastors are getting locked up for preaching, the media is printing lies and propaganda, vaccines are being pushed on people, etc.
The psychological damage done to kids is horrendous. Think about your future but more importantly your children’s future. The best part of the past can live in your mind.
England isn’t perfect. Like you, I do not admire the government here. But the biggest issue, for me, is how expensive it is, and the opportunity cost we’re paying to live here.
For example, we could sell this house, take the capital, and go live in Mexico, Argentina, Senegal, or Thailand, and never have to worry about money again. We’d be set for life. So living in Britain seems like a bit of a “splurge” or indulgence.
Then again, we can always sell up and move next year. And in the meantime, I can come to terms with my mother’s death and gently say goodbye to a place that’s very special to me.
As for the kids, they love it here so far. I’m not worried about that…
Reader question: Have you considered buying your house with gold from your brother instead of selling it? That way you will avoid the fees involved with selling it (and Jo will benefit from its appreciation).
Should you choose to sell it, would you share the process with us (i.e., what premium one could expect to pay and any other considerations)?
My brother Jo has said that he will accept some gold in payment for his share of this house. I hope he does, because I want to avoid selling the gold back to a dealer if possible, because of transaction fees.
We’ll see. Whatever happens, I’m going to share the story with you in these Postcards.
Reader comment: You want to invest in gold because it is a store of value that is likely to retain its value, unlike money in the bank or under a mattress.
The collectible items your mum left to you fall into the same category. That row house does, too. Both are likely to increase in value more as time goes by (although in the case of the house, there is likely to be a need to spend lots of money to fight the Law of Entropy).
Trading gold for such things seems to be a wash; you might make more in one or the other, but both real estate and collectibles seem likely to do well.
My favorite stores of value are hard currencies that are cheap. I think these are the safest places to store wealth. Gold is top of the list.
I’d also include antique furniture as a cheap hard currency.
Take my mother’s writing desk, for example (I shared a picture of it here). It’s 250 years old. Yet the auctioneer said it might be worth $300. Is there any way for this desk to fall further in price from $300? I don’t think so.
So I’d say antique furniture like this writing desk will be a great store of value. (The only downside, for a nomad family like ours, is that it’s so heavy and bulky.)
I also see the stock of beaten-down oil tankers as cheap hard currency. That’s why, as I’ve written before in these Postcards, we’ve allocated 15% of our portfolio to oil tankers and other shipping stocks.
But I don’t see real estate in the same light. It seems inflated to me… and I can easily imagine a situation where it falls in value.
Reader question: I would encourage you to think about two related things, both related to the inheritance you leave for your own three kids.
First, as you have just experienced, needing to split an inheritance with the government, plus one sibling, can be quite a strain for any individual who wants to buy his brother out. It is a much bigger problem for several children.
Second, give thought to how you can pass your wealth on to your kids some day, without ruining either the family bond or any individual kid – inheritances ruin many families with arguments, and many individuals with money they aren’t mature enough to handle.
Think about ways to enable your wealth to be a blessing to every one of your kids when you and your wife both go into eternity. It’s great to see how you and she both love your kids so much.
One way Kate and I are doing this is through life insurance.
We’ve set up Dusty and Miles with whole-life insurance policies. (The life insurance company wouldn’t insure Penny as they had some concerns about her health when we applied.)
Their premiums are cheap because they’re children. As they get older, they’ll be able to borrow from these policies if they need capital. And they’ll also have a tax-free way to pass on wealth to their heirs if they should want to…
By the way, you’ll often hear me refer to these whole-life policies as “Income for Life.” They’re one of the world’s most powerful wealth-building accounts. Yet most people still don’t know about them.
If you’re a Tom’s Portfolio subscriber, you can access my Income for Life video course right here to learn more. If you’re not a paid-up subscriber yet, but are interested in getting access, follow this link.
Reader question: While I appreciate your desire to keep your mother’s home, are you not buying at or near the top of the London real estate market?
Yes, this is exactly what I fear.
The London real estate market is very hot right now – a seller’s market. There’s a ton of pent-up demand and almost no supply.
If this were purely an investment decision, I’d be selling – not buying – the house right now.
Reader comment: You will find what to write about even if you stay in one place. You kept our attention the whole winter, telling how many inches of snow were in Driggs daily. Keep writing. I and many others love reading.
Haha. Thank you for this very kind message.
And that’s all we have time for today! As always, please keep writing us at [email protected].
I can’t give personalized investment advice, but I’ll answer as many of your questions as I can in future Friday mailbag editions.
– Tom Dyson