You Are Here!

Remember the last time you were somewhere you expected to know so well and suddenly found yourself lost as to where exactly you are? It’s so frustrating. But then we see it. That big map on the side of the road, in the mall or whatever have you, that so eloquently proclaims “You Are Here!”. At that moment we once again regain our sense of clarity and with it the revival to continue.

As I logged into my brokerage account to make my incremental deep-value long-term minded investments I hesitated. It’s not so important as to why I did but more so that I did at all. Long-term investing should be simple math. Day Traders spend hours setting up their big moves every day, while it’s known that great investors make their decisions based on a few short minutes of thought.

“So where exactly are we?” I asked. We’ve had quite a run recently (of course I am talking to those investing in commodities, with precious metals particularly in mind). Are we do for a sharp pull-back? As you may see from the historical charts gold rallied from 1968-75 then took a breather until late in 78. That’s 3 years that your money would have been far better off earning interest or even better put to work in an undervalued security (its 1975 – there were plenty) with a hefty dividend to go with it.

That’s my final answer. Gold had just broken $85 on the COMEX. Oil was relatively stable at $5-6 a barrel. Oil shocks were unheard of (contrast with today’s premium). Interest Rates were similar to what they are now – under the 5% range – nothing compared to the 20% the market would see in the coming years. The Dow had just gone to all-time highs and was about to plunge 40%, along with corporate earnings.

But most importantly, the only number your really have to watch is the Dow/Gold ratio. Every major bull market started with Dow trading at over 20x the price of gold and then followed by a bear market that cut that ratio to 2 and sometimes to parity. The current ratio is 15.5.

Past and Present
Past history is never a guide for the future but it tells us firstly, what markets are capable of and secondly, what the future will rhyme with. If this is even a similar guide to future performance then it seems plausible to assume that much of the gains made in this commodities bull market will be made in the next two years.

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One Response to “”

  1. an admirer Says:

    I love your writing! Thanks for a gr8 read.

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