QUESTION: Mr. Armstrong, I find your unbiased view of gold refreshing. I agree waiting for 35 years is a tad too long. That is half your life if not more waiting for the chance you will be right. Now they are pointing to the Dow/Gold ratio arguing the Dow must crash to 10,000. This honestly seems that whatever they can argue to get people to buy gold they will do. This ratio also means gold would collapse and the Dow would remain where it is. Your point on ratio analysis is very interesting. Is there a way to measure which one is out of kilter?
Thanks for looking out for those who do want to make money for their families.
ANSWER: Yes, you are correct. Ratio analysis of anything is not very helpful. One side of the equation can move drastically and still fulfill the objective. The first Yearly Bullish Reversal on the Dow/Gold Ratio stands at 19.76. We have reached 14.86 at the closing of 2014. If gold fell to retest the 1980 high of $875, reaching that Yearly Bullish Reversal would put the Dow at 17,255. So claiming that the Dow must crash to 10,000 to fulfill some arbitrary target is not really worth much. It’s all just human opinion. The ONLY model that seems to do a good job of sorting out the bullshit from reality in these ratio relationships has been our Energy Models based upon entropy. Here is how that model performed for gold between 1970 and 1990 both in dollars and in Swiss francs. We can easily see sharp spike highs in gold. Now look at the Dow for this same period. We do not see any such sharp peak in Energy during 1980. This model enables us to identify which market is out of line be it over-bought or over-sold. Opinion can be spun either way. It is just worthless.
Here is one of two charts which I was showing back then warning that the US share market was dirt cheap and going to explode. We showed this chart on earnings at seminars and lectures around the globe. Our institutional clients began to pay attention.
This was probably the chart for which I was blamed for starting the takeover boom. The low in terms of book value took place in 1977. My argument was showing clients that HOW could the market be overvalued when you could buy companies, sell their assets, and double your money or more? They blamed me as always for simply having a computer model that monitors everything. They have ALWAYS personalized what I say because when you cannot argue facts, you attack the messenger. Here is the view of gold in dollars and Swiss up to date. We can see the Energy Model did rather well picking even the 2011 high. They have screamed, kicked, yelled, attacked me in every possible way trying to discourage people from listening to me for in their mind, like the government, they seek to force their view on the world by the old fashion censorship. That alone should warn you that whatever they say cannot be trusted. Here is that Energy Model for the Great Depression on the Dow. Again, we see the nice spike high and the sharp drop to negative Energy. Sorry, but to me, facts are facts and opinions are for politicians and bedtime stories. Here is the Dow in dollars and Swiss francs currently. There is no indication that we are looking at a major high where the Dow will collapse. If we make a high with the ECM, sure there will be a correction. But is this the end of the bull market? We have a lot more problems the other side of 2015.75 than traditional fundamental anysis can ever hope to even guess. All of these scenarios are just opinion. They have a common base expectation that a Great Depression can play out only in one way – the stock market must crash. They totally fail to grasp the issue at hand. We are in a Sovereign Debt Crisis – not some speculative bubble in stocks. This crowd has this scenario stuck in their mind and no matter what evidence you show them, they remain fixed in their expectations. They constantly preach the crash as soon as interest rates rise. They have never bothered to verify anything in their theories. The stock market rallied from 1927 into 1929 and interest rates doubled. They still preach the standard plain vanilla that if interest rates rise stocks must fall. They are just hopeless lost in their mind of fixed one-dimensional relationships. In 1927, the central banks agreed at a secret meeting to lower US rates to deflect the capital inflows back to Europe. This is the same stupid theory of negative interest rates assuming money will just move to the highest rate. The G20 now argues against the Fed that they should not raise rates because so many emerging market nations issued dollar debt. Hey – they did that in the 1930s as well. These people totally ignore CONFIDENCE. This crowd further fails to comprehend currency. It was a joke to see them saying that Swiss had to vote to deny selling gold reserves and the Swiss franc would become the strongest currency in the world backed by gold. They hate the dollar perpetually and cannot grasp that a strong currency reduces exports and increases unemployment. A strong franc was precisely what the Swiss tried to prevent with the peg to the Euro.
Our forecast for a strong dollar is NOT BULLISH for the US economy. It does not even pretend there is some robust recovery. The dollar will rise as the economy turns down as it did from 1980 into 1985 and during the Great Depression. This is HOW it turns down. The dollar rose dramatically during the Great Depression and that is the very reason FDR confiscated gold devaluing the dollar pegged to gold from $20.78 to $35. These people are just fixed in their views and they preach nonsense to people costing them a tremendous amount of their life savings. We are in a Sovereign Debt Crisis and what made the Great Depression so bad was NOT the collapse in the Dow, it was the complete wipe out of sovereign bonds. These bonds went off the board. The Investment Bankers sold foreign government bonds to the average person in small denominations. They were listed on the NY market. Today, such bonds are bailed-out because the bankers own them – NOT mom and pops. Let’s just get the facts straight Read Herbert Hoover’s Memoirs for 1931. Galbraith’s book became the seminal work on the Great Depression that I had to read in school. It was nonsense and political propaganda to support a Socialist Agenda. There was no mention of the Sovereign Debt Crisis that wiped out capital formation for that would lay blame on government – OMG!. So it is no wonder why these people keep touting scenarios that are just nonsense that never happened. They have an agenda to sell that has already been predetermined. Hence, all facts must be selected only to support that agenda and ignore the rest of the world