…As Jeremy Grantham recently said, stocks are in an “epic bubble”. Still most investors ignore this since greed dominates their emotions. If stocks are up 3,900% since 1971, there is no reason why it shouldn’t continue…[In fact, however, investors] should be having sleepless nights knowing that they are about to lose up to 99% of their wealth within the next 5 years!
,,,Gold is up 53x since 1971…If dividends are excluded gold has outperformed the Dow.
With dividends reinvested, though, the Dow has outperformed gold by 3x…but please keep in mind that a stock index doesn’t tell the truth. Unsuccessful or failed companies are continuously taken out of the index and the most successful companies added [see here]. Therefore an index gives a much rosier picture than what really happened.
…Even though gold has yielded an excellent return, it is what happens to the Dow/Gold ratio in the future that determines if investors should stay with stocks or hold gold (this article is a must read). The chart below of the Dow-Gold ratio gives us the answer.
…[As you can see in the above graph,] since 2018, the Dow/Gold downtrend has resumed.
- The indicator at the bottom of the chart is the quarterly MACD which is a very important indication of the long term trend…[and it] turned down in 2019 for the first time since the 1999 top…[which] is a very strong sign that Dow/Gold has now resumed the long term downtrend…
- The initial target is a ratio of 1 to 1 as in 1980 when the Dow was 850 and gold $850. That would involve a 94% fall from here.
- The ratio is very likely to reach the long term downtrend line of 0.5 to 1 by 2025, however, and that would represent a 97% fall against gold.
- Since these kind of moves very often overshoot, we could easily see a Dow/Gold ratio of 0.2 to 1 which would mean a 99% fall of the ratio from today. For confirmation of major overshoots of the green Confidence Band, see extremes in 1929, 1966, 1980 and 1999 in the chart below:
What this would mean is that the nominal price for gold or the Dow is totally irrelevant.
As a stock market investor you should…[realize that] holding stocks could totally wipe out all your financial wealth in real terms by 2025 and that would lead to a highly destructive deflationary depression after a short lived hyperinflationary period as central banks apply the only trick they know – UNLIMITED MONEY PRINTING.
As Jeremy Grantham said, we are now seeing an epic stock market bubble that is about to crash in the next few months….
With the world fast approaching economic paralysis and physical lockdown, it is difficult to see how this can end well. Instead, what is now in front of us can only end badly and most probably VERY BADLY…so what should investors do?…
- sell your stocks
- avoid bonds as the bond market will have the most spectacular crash in the next couple of years as central banks lose control of credit markets and interest rates.
- buy insurance and wealth preservation in the form of physical precious metals (GOLD and SILVER) and some mining stocks. Precious metals will clearly not solve all our problems as the world economy implodes but it is better to hold the only money that has survived in history….
Editor’s Note: The original article by Egon von Greyerz, has been edited ([ ]) and abridged (…) above for the sake of clarity and brevity to ensure a fast and easy read. The authors’ views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor. Also note that this complete paragraph must be included in any re-posting to avoid copyright infringement.
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