CHISWICK, WEST LONDON – Welcome to another edition of the Friday mailbag. My family and I are still at my late mother’s home in London, closing her estate, remembering our time together, and preparing to sell her house.
Today, readers continue the homeschool debate… ask for more specifics on my Tom’s Portfolio investment strategy… and wonder about investing in cryptocurrencies.
Let’s jump right into it…
Reader comment: Keep your kids the hell away from formal, organized education if you value their minds and souls. We had three children in public schools and three more in a Catholic private school, which was considered elite.
And guess what? They’re all idiots today because of the brainwashing by the system. And soulless, to boot. About all they learned was how to game the system. Your kids deserve better!
I cheated in my A-level exams at Charterhouse (my boarding school). I found a way to get a peek at my economics exam paper three hours before I took the exam, and I got an easy A.
I didn’t cheat at university, but I did use a clever trick in my final semester to graduate at a much higher level than I deserved. My father reads these Postcards, and as he paid a lot of money for my education, I hope these disclosures don’t offend him.
He sacrificed a lot to give me an elite education and I squandered it terribly… And picked up some bad habits to boot. I wonder if that’s a reason why we decided to homeschool our kids?
Reader question: I am interested in your Dow-to-Gold ratio theory. I’m curious… Is there a specific Dow Jones number that would satisfy your ratio hitting 5? Or a specific price of gold?
We can only guess, but I cannot imagine the Dow ever going below 15,000 again, which implies a gold price of at least $3,000. The most likely scenario, in my opinion (and this is pure speculation!), is that we see something similar to the 1970s. The Dow gets stuck in a trading range over the next 10 years, while inflation grows and gold approaches $10,000 an ounce.
Reader question: When you say you invest in gold and silver in a ratio of four parts gold to one part silver, do you mean in ounces (4 ounces of gold to 1 ounce of silver) or dollar amounts ($4,000 in gold to $1,000 in silver)?
I mean in terms of capital, so $4,000 in gold to $1,000 in silver.
Reader comment: I live in Idaho Falls and have a place with a couple of acres. I would be happy to pick up your car from storage and keep it at my place, free of charge, until Dan can get over and pick it up, if that’s still his plan.
If he isn’t still planning that, and you want to sell it, we could get it in a couple of things like Craigslist and meet with potential buyers, if you’d like. I love the Postcards and have been reading them since you started back with your adventures in jumping trains in Mexico.
Keep up the good work and know that it would be a privilege to help you out if I can.
Thank you for your kind offer. I don’t think we will need your help as the situation is nearly resolved, but may I keep your email address on hand just in case. Also, if you’d like to meet us for an ice cream before we leave Idaho Falls, we’d be delighted to meet you, just for fun!
Reader comment: I do believe when the fiat folly “hits the fan” and the “fat lady begins to sing,” a contagion of massive selling will occur which will impact all assets, including precious metals. Just as a rising tide raises all ships, so are they all lowered when it rolls out.
A real test of faith and fortitude will be to hold on (even buy) when the price of gold or silver “momentarily” collapses as collateral damage caused by the panic selling.
It may take some time (how long?) for precious metals prices to rebound as the hysteria subsides. But when it does, the price will explode to the upside as all the fundamentals that have existed from the get-go will now burst forth in spades. These certainly are not times for the timid.
Well said. A “deflation scare” this is called. And if recent past is any guide, it will quickly be met by an awesome injection of printed money and deficit spending. They will do whatever it takes… Not times for the timid, indeed.
Reader question: In the past, I remember you saying that if the Dow-to-Gold ratio reached a certain level, (I believe it was 24), that was your absolute stop loss and you would sell out of your gold positions.
Today’s Dow-to-Gold ratio closed at 19.48, and has been heading in the “wrong” direction for quite some time. Do you still ascribe to this stop loss policy? If you are stopped out of your gold positions, how will your investment thesis proceed afterward?
The thesis hasn’t changed. It’s only gotten stronger. The stop loss I set is at 22.36, which is where the Dow-to-Gold ratio peaked in October of 2018. But the truth is I’m not going to honor it. If the Dow-to-Gold ratio rises above 22.36, I’ll ignore it. I’m totally committed to gold and other hard currencies while we wait for the valuations bubble to burst in the stock market. It’s the right thing to do.
Reader question: In a recent postcard you wrote: “I just think gold’s time to shine hasn’t arrived yet. That happens when the credit bubble bursts and the Fed isn’t allowed to keep intervening in the market. And that still could be some ways off into the future…”
I am confused; it seems to me that the credit bubble bursting will be very deflationary – which should work against gold. And if the “Fed isn’t allowed to keep intervening in the market,” it seems that real rates will be rising, which should also work against gold. Can you help me understand?
Good question. What are you defining gold’s performance in terms of? In a deflation, gold may fall in terms of cash and the safest bonds, but it will almost certainly appreciate in terms of stocks, corporate bonds, industrial commodities, and commercial real estate… So I actually consider gold to be an excellent deflation hedge, even if its nominal (in dollar terms) price falls.
Reader question: I would like to hear your opinion about the blockchain technology and about investing in crypto. I know that you were one of the earliest investors in bitcoin, however, you sold all of your bitcoin.
Do you think that crypto market is also currently a bubble? If blockchain technology is technology of the future, isn’t it worth to invest in it now? Do you think that regulation of crypto markets that will likely occur in the U.S. might hurt crypto investors?
I do not know the future for crypto, but I suspect they’re about to heavily regulate it. Why? Because the government needs to “block all the exits” before it can properly implement financial repression on savers.
Bitcoin and other cryptos are like secret passages out of the prison. They won’t be tolerated. But even if this wasn’t the case, I still wouldn’t invest in crypto. It’s become far too mainstream. I am mostly attracted to very fringy ideas that are cheap, which bitcoin was when I bought it. Today, bitcoin much more resembles a hot technology stock (with a dubious use case, I should add).
Reader question: I’ve lived in many places around the world and have lived in Portland, Oregon, for the last 20 years. I thought it was getting more conservative, as other folks from other parts of the country were moving in, but then COVID-19… the forest fires set by extremists, the riots held by paid anarchists and the total control from California-based government and governor…
We are going to be moving since I have sold my business and can live where we want. I’m looking at Montana and Wyoming… any suggestions?
I love your letters…
Check out the Bitterroot Valley in Montana, south of Missoula. Even though it’s tucked in between two mountain ranges, by a quirk of geography, it has a very temperate climate all year round…
Reader comment: It seems like time to study fundamentals so that we are ready when the opportunities arrive, with a cool head and an iron hand on the tiller, as Mr. Dines would say! I enjoy reading these!
On one hand, I wish money market interest rates were at 5%, safe income investments paid 12%, and the best companies in the world had single-digit P/E ratios and healthy dividend yields. On the other hand, one day, we’ll look back at these times and call it the greatest stock market bubble in history, and we’ll feel gratitude we got to live through it.
As a speculator, I love the thought that I’m living through the most unbalanced world economy in all of history. It’s really a privilege to behold… And an even bigger privilege to get to husband our capital through it…
Reader comment: In a recent mailbag, a teacher said very few high school relationships are lasting. Maybe it’s just because I grew up in a small town, but I disagree. I am 57. Left my hometown 25 years ago. My best friend still lives there, as do most of my closest friends. Most of them never left. I have a handful of friends I grew up with that I am in regular contact with.
Occasionally, I reconnect with one friend. Always very happy to see each other and it’s like we never missed a day. There are literally dozens more friends like this. At this point, I know what is important and I greatly value these relationships. The relationships aren’t necessarily from school but more from staying in one place for quite a while.
I often think about the guy I saw on TV’s Naked and Afraid. He moved around a lot. Parents were gone. Had no real friends. I felt so bad for him. He desperately wanted some real friends. Made me thank my lucky stars even more that I have some.
I hope one day our children will be able to say what you have just said. So we are working hard on finding a small community where we can put roots down, too.
We’re not panicking yet – but this is our goal. (Our eldest is still only 13 and it’s rare to make lifelong friends before the age of 13. I have quite a few lifelong friends, but I didn’t meet them until I was in my early 20s, for example.)
Reader comment: I understand that you can’t keep your mom’s things, but you can take pictures of them and remember them that way. Digital photos take up no space and modern hard drives can hold tens of thousands of pictures, and still have room for other files.
I was just cleaning out a file cabinet this afternoon and came across a folder with all my dad’s letters that he sent home while he was in the army in WWII. The paper is aging, but I can (and will) take photos of each letter and share them with my siblings and his other descendants. The letters may eventually decay, but the documents and the memories can be forever.
Yes, this is what we will end up doing. In the same vein, videos are great, too. My brother and I realized too late that we don’t have any videos of Mum. What a regret! We have some videos of our kids growing up, which we love, but not enough of them. And I have no videos of my father.
So I must keep reminding myself to take more videos…
And that’s all for this week!
Keep your questions and comments coming at [email protected], and I’ll respond to as many as I can in these Friday mailbag editions.
(I’ll never reveal your name or potentially identifying details if I decide to republish your note.)
– Tom Dyson
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