RANCHO SANTANA, NICARAGUA – A friend of mine owns a house in Rancho Santana.
He’s out of the country at the moment. He said we could use the pool in his absence. So we went for a swim there this afternoon. Here we are…
Left to right: Kate, Dusty, Penny, Miles, and me
Our Second “Global Walkabout”
Greetings from Nicaragua!
Two weeks ago, my family and I packed up our things, left America again, and hit the road with our backpacks.
This will be our second “global walkabout.” Our first one was a two-year trip around the world. That ended at Christmas.
We thought we’d return to America after our trip, settle down, and get back to work. But it didn’t work out like that. We loved the lifestyle too much. So now we’re back on the road…
I’m writing this note to you from a very tasteful and unpretentious development on the Pacific coast called Rancho Santana. While I study the markets and write, the kids do their school work. All the while, we have a vacation by the beach.
We visited 29 countries on four continents over the last two years. And if there’s a nicer place than Rancho Santana on the planet, we haven’t seen it.
As you see from my pictures, it’s paradise here.
Paradise in Nicaragua
The markets were EXTREMELY volatile last week. The only times in my life I’ve seen anything comparable were in 2008, 2001, and 1987.
Many people wrote to me over the weekend looking for reassurance. Especially after gold dropped $60 on Friday.
“Ignore,” I said. “Fake news.”
Gold’s action last week had nothing to do with fundamentals or price discovery, and everything to do with fear and traders’ desperate efforts to raise cash. It doesn’t make any statement about the future.
Focus on the Process
Kate and I have our entire life savings invested in a strategy that rotates between gold and dividend-paying stocks every decade or so.
And even though the Dow-to-Gold ratio fell from 18 to 16 last week – a positive result for our strategy – I found these big moves quite uncomfortable to sit through because I worry about how much money my friends, family, and subscribers might have lost.
The main message I want to convey to you today is: Focus on the long-term process not on the short-term outcome.
What I mean by this is, we have a clearly defined strategy, and we’re going to follow it faithfully because we know it’s sensible.
So I encourage you to:
1) Think beyond “days” and “weeks” and focus on “months” and “years,” and…
2) Ignore movements in the stock market and the gold market and focus on the Dow-to-Gold ratio. It’s a much more “sober” way to gauge what’s actually happening in the world.
Don’t Panic-Sell… Do This Instead
Here’s the chart of the Dow-to-Gold ratio…
It’s clearly and decisively in a bear market. And as I’ve warned many times, once the Dow-to-Gold ratio gets in motion, it tends to stay in motion for YEARS.
Expect it to go below 10 in the next year or two, and below 5 in the next five to 10 years.
In the meantime, let’s grab a bag of popcorn and watch the action from the sidelines, with a sense of indifference to the day-to-day movements. Whatever we do, we won’t lose our “nerve” and start panic-selling.
Besides, as I’ve written before, feds from all over the world are about to introduce the greatest synchronised monetary stimulus package ever seen… including a $5 trillion expansion of the Federal Reserve’s balance sheet. Gold won’t stay down for long.
If you haven’t bought any gold yet, but you’ve been thinking about it, now would be a good time to buy. Same goes for gold stocks.
– Tom Dyson
P.S. It’s worth mentioning that the Dow closed the week down 12%, while gold closed the week down 3.6%. So the losses in gold were still less severe in the face of mass panic than the losses in stocks. It’s more proof that our decision to avoid stocks and buy gold was a sound one.
P.P.S. Like I said, gold’s big move on Friday wasn’t important. But I DO think last week’s decline in the stock market IS important because it could trigger a) a change in social mood from confident to scared, in which case a recession is definitely coming and b) a large policy response.
Reader comment: Wow…. your divorce story! I wish I had the guts to tell people my version of this!
Tom’s response: Sending it was scary and stressful, so your solidarity is really comforting. Thank you!
Reader comment: Your divorce story was a very brave and honest email. Not many people are capable of admitting those feelings to themselves, let alone posting it online. It’s truly commendable and bodes very well for you and your family’s future. Best of luck to you all. Sounds like you’re on a strong and healthy path. I’ve enjoyed reading about your journey but this particular email episode of your family’s saga will stay with me for a long time, no doubt.
Reader comment: I really honor your courage in baring your soul to strangers, but there’s a potential downside (speaking from experience). Does Kate think talking about your divorce is okay? I believe you can help others by putting yourself out there like this, okay, but if it has negative repercussions in your primary relationship, well…
Tom’s response: Kate and I wrote this together. My relationship with my family is really the only thing that matters to me anymore, so you’re spot on to make this observation… but we’re finding the discussion to be healthy for our relationship.
Reader question: I am fascinated by, and envious of, your courage to “wander.” I am curious if you ever feel you are not adequately spending time with and caring for your aging parents, being so far away from them. I don’t recall you ever mentioning Kate’s family. Do either of you have second thoughts due to this concern? My wife and I homeschool and we love to travel, but it would be hard to imagine leaving our families behind. Thanks for inspiring us!
Tom’s response: Great question. Yes, we do feel we aren’t spending enough time with our parents. Both my parents have Parkinson’s Disease. Spending time with them in the future is probably the biggest concern I have right now.
A couple of notes: My mother lives in London. By virtue of our traveling lifestyle, and London being such a travel hub, we spent more time with my mother in the last two years than I’ve EVER spent with her since I was a child. We haven’t seen much of Kate’s parents recently because they love going on vacations on cruise ships and they’ve been traveling a lot in the last two years. We’re going to spend 10 days with them this month, though.
My Dad visited us in Baltimore recently. So actually, we have been able to see our parents quite a lot even though we’ve been traveling. But it’s not enough. And as we talk about our future, we will be keeping them in mind.
Reader comment: What a fantastic view!! I think you’re gonna enjoy this “desk” a lot! As small as my savings are – I put 25% into gold. I feel so good about it. Reading your Postcards and then further educating myself about gold made me feel confident enough to do this. A big step for a widow who has very little. Look forward to your postcard every day! Tell Kate I said “Hi”! Thinking about you 5 and wishing you every happiness!
Reader comment: I’m also following your Dow-to-Gold trading strategy now but I was wondering if the chart you use is available on a free charting site. In terms of an entry and exit strategy, one I personally use is a simple 30 and 50 week moving average trend line. When the trend line crosses over or under price we would wait another three weeks to see if the price spiked back above or below the trend line to avoid over trading in a choppy market, but still captured most of the main trend. Looking forward to your diaries from South America.
Tom’s response: Thanks for the idea. This seems pretty similar to what I suggested yesterday. I use stockcharts.com without a subscription and it works fine. Enter “$indu:$gold” into the symbol box for a chart of the Dow-to-Gold ratio.
Reader question: Interesting article… but it seems to suggest a pretty binary choice (stocks vs. gold). Obviously, there are many other choices to consider, including “hold cash to buy stocks when prices finally drop back down to reality.”
Do you really see logic as simple as stocks vs. gold? And… for a novice investor like myself (and sitting on a pile of cash – eagerly awaiting substantial price drops), what exactly will you be recommending if/when the trend substantiates itself?
I’ve not seen any articles (from any sources) suggesting that investors hold more than 5-10% of their portfolio in gold andSilver. If you agree with that logic, what is one to do with the other 90% of the portfolio? Cash?
Thanks for your consideration of these questions.
Tom’s response: My investment strategy is binary. I do not hold cash, bonds, commodities or anything else… ever. Most of the time I like to hold equity in the great dividend aristocrats – the absolute best long-term investments in the universe – and some of the time I like to sit on the sidelines in gold. (Now is one of the times to be sitting on the sidelines in gold.)
I’m not suggesting you copy me. Mine is an extreme investment strategy… and will go through periods of extreme volatility. Most investors can’t – or don’t want to – deal with that kind of volatility. But I’m comfortable with it.
My hope is, by sharing my example, I will help break the myth of “buy and hold” investing and help investors relying on conventional portfolio advice get away from stocks and bonds in some small way.
Reader comment: I liked the latest postcard adding the 200-day moving average to Dow-to-Gold Ratio. I would like to see a graph with the moving average superimposed over the first chart from 1900 to 2020.
Jim Rickards just wrote a good article about the collusion among the primary dealers to enter massive $200 billion sell orders to crush the price of paper gold. Totally bogus but effective short term. Long term there is no stopping the price of gold with current central banking policies, and they won’t stop until they have to.
My questions: Why do the primary dealers feel the need to manipulate the gold price downward? How does this benefit them? It seems to help countries which are acquiring gold, is that part of the collusion?
Tom’s response: I will create that chart. I’d like to see it, too. Also, I’m going to figure out what would have happened if you’d invested $100 in the strategy in 1900 and kept following it faithfully until today.
As for dealer manipulation of gold, I don’t know much about this. I know it exists because the feds recently charged the J.P. Morgan gold trading desk with a crime, under RICO statutes, normally reserved for organized crime.
I feel like the gold manipulation story isn’t relevant to the long term decline in the Dow-to-Gold ratio.
Reader comment: The ratio is a pretty good indicator for LONG cycles, 10 years plus or minus. If you have a few cycles to wait, it might have potential…
Tom’s response: Disagree. If I’m right about the cycle and I can zig when I need to zig and zag when it’s time to zag, I’ll never have to worry about money again. Just two steps. Gold now. Stocks later. Financial independence for the rest of my life.
Reader comment: The Dow is not very representative of the “market” anymore. It hasn’t been since the 1960 or 1970s, certainly not since the 1980s.
Tom’s response: Disagree. It’s representative enough for our purposes. We could use the S&P 500 instead and we’d get virtually the same result. The variance isn’t big enough for me to care. I find Dow easier to follow.
Reader comment: If I may offer some additional thoughts regarding marriage. What is a “license” if not a permission slip from some “authority” to do something that would otherwise be illegal? For generations families kept their own records of births, deaths, and marriages.
So, when did it become illegal to marry? And what exactly is marriage.? Some words written on some piece of paper the “state” grants? Or, is marriage a deep, spiritual commitment to love one another, forever, unconditionally? If this is so, then, are you not also “married” to your children?
For what this is worth, I believe you and yours are already living this principle. Perhaps, this idea of a “ceremony” may work for you (if you think you need it). Sit quietly together in a circle holding hands. Ask your Creator to preside over each other’s commitment to love one another unconditionally… forever.
I know we are all connected (please see da Vinci’s Vitruvian Man). This principle has always been. I am certain the main reason for this experience we call “life” is to understand and live this principle, “Love one another.”
This has nothing to do with any of the world religions, it is simply common sense. In my mind, religions, politics, and cultures cause division/separation/“reasons” for war, etc.)
As I type this, I can’t help but think of the lyrics of John Lennon’s song “IMAGINE.” May we all learn to live as one, in peace. May you and yours continue to be guided and protected…
Tom’s response: Thank you for this deep and thoughtful message. I agree 100%.
Reader comment: I was born and raised in Connecticut. At age 22, I had already spent six years of my life working for the same company and had gone as far as I could. Married, with a child, I woke up one day and KNEW I had to leave… not just the company but the state. I did not know where I was going, what I was going to do, or how I would provide for our family. I needed to explore and go into the “unknown.” I needed to live life. I needed life to be an adventure. I later realized “change” was/is my catalyst for growth.
About 30 years later I was back in Connecticut for a visit. My younger sister took me aside and confessed she had been angry with me for decades. I asked if I had done something to her in our childhood. She said, “No, I was angry with you because you had the courage to leave and I did not. I finally realized I was angry with myself.” From my point of view, I was just living my life. And this is how I “see” you and your family…. living life!
Tom’s note: Please keep sending your questions and comments to us at [email protected]! Kate and I read every note you send us.