An old friend came to our office in London yesterday.
‘I don’t know if you realise it,’ he said, or words to that effect, ‘but there’s a real goldmine hidden in your Dow-to-Gold asset-allocation strategy.
‘What it shows — and clearly — is that the bear market that followed the dotcom crash was never completed. Greenspan intervened. [More on that below.]
‘What I’m saying is that the most important trend in finance is the decline in the Dow-to-Gold ratio. Having peaked in 1999 at 41, it began its long walk ‘home’ — to where it always ends up — below 4. That’s the real primary trend.
‘And now, since October 2018, it’s reasserted itself. [Gold, relative to stocks, has been going up.] We’re looking at the biggest, nastiest, rudest correction in our lifetimes. It’s happening right now. And no one notices. And guess what? It’s tradable.’
In other words, we can make money on it.
‘We’ may not include your editor. He will stick with the trade…in its simplest form.
When the Dow stocks are valued at more than 15 ounces of gold, he will sell them and buy gold. When the Dow stocks are valued at less than five ounces of gold, he will sell gold and buy stocks.
In between, he will sit tight and await developments…as he has been doing since 1996, when the Dow-to-Gold ratio rose above 15 and he sold out of stocks.
Trump train
But our friend Tom’s strategy is designed to make money — a lot of it. Your editor only hopes not to lose money. Which brings us back to the dear reader’s suggestion that we’ve been toying with for the last couple of days:
Why not get onboard the Trump train? As a capitalist, shouldn’t we give readers what they want? And wouldn’t we make more money if we did so?
Trump, many believe, is the Messiah. He will wipe away every tear. Mourning, crying, and pain will be no more. He will deliver us from evil, they think. Failing to have faith in Him is almost a sin…and a ticket to Hell.
But wethinks our dear reader mistakes what he wants for what is. Readers can get all the Trump adoration they want at popular news sites, such as Breitbart and FoxNews. They don’t need more from us.
What we all really want, and need, is to knock the scales from our eyes…so that we get a clearer picture of what is going on.
Besides, we’re too old to cater to readers…too rich to need the money…and too contrary to give a damn.
Wrong direction
And as near as we can tell, the Trump train is headed in the wrong direction. And here, we admit a cluster of prejudices.
We don’t like being ordered around by morons; which is to say, we prefer fewer feds, fewer cronies, fewer zombies, fewer Swamp critters, and fewer jackasses telling us what to do.
And we sleep more soundly when people laugh at claptrap rather than use it as a basis for public policy.
Of course, we have nothing against Mr Trump personally. He plays an ignorant, oafish bully on TV. What he is like in person, we don’t know. But Foreign Affairs gives him his due:
‘…showmanship, a buccaneering spirit, and go-for-broke instincts are also among the traits that made America what it is…Trump is a phenomenon…he knows how to command the attention of the highly educated and dominate the news cycle. There is a reason he proved able, in a single election cycle, to vanquish both the entrenched Bush and Clinton dynasties. Trump’s flaws and transgressions are now well documented. Yet he has not perpetrated a catastrophe remotely on the scale of the Iraq war or the global financial crisis.’
Yet.
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Two chances
In the last 20 years, there were probably only a couple of opportunities to stop this Debtball Express.
One of them came in June 2000, says our colleague David Stockman. Then, it was obvious — to Alan Greenspan, as well as others — that the monetary system inspired by Milton Friedman and put in service by Richard Nixon wouldn’t work. Friedman’s system — monetarism — called for controlling the growth of money, keeping it at around 3% per year.
But after 1971, when the final thread between gold and the dollar was severed, America’s real purchasing power came from a new source — credit.
And by the end of the 20th century, Greenspan noticed that the Fed no longer knew what ‘money’ was…and could neither measure it nor control it.
Greenspan, the former goldbug, might have stood up straight before his fellow Fed governors and explained the situation:
‘Uh…guys…this isn’t working. We’ve got to go back to a gold-based system.’
Instead, he let the credit money system erupt, reducing the cost of money/credit from a federal funds rate of 6% to a rate of 1% — the lowest at that point in history.
Credit/money flowed like hot chocolate…much of it into the honeypot money centres — New York and London.
The second, and last, opportunity may have come in 2017, when Donald Trump took the White House.
Of course, it may have been too late already. And perhaps no human being could have withstood the firestorm of outrage coming his way.
It would have meant actually draining the Swamp…undermining the power of the Deep State…and smacking down Wall Street, hard.
All the elite…all the powers-that-be…all the mighty Establishment would have been against him. He’d be lucky to survive.
Great disruptor
But Donald J Trump is a fighter, a disruptor…and he had won the White House by promising to set things right.
He also had Republican majorities in both houses of Congress; he effectively dominated the news cycle, and he had broad support in the Heartland.
What a treat it would have been to see him, in his first State of the Union speech, tell the truth:
‘Obama and the Democrats have made a mess of our economy. The average working guy hasn’t had a raise in 40 years, while the elite have gotten richer. The game has been rigged. I’m going to fix it. It’s going to be rough. It’s going to be painful. But we’ll get through it. And we’ll have a beautiful economy again. MAGA!’
It didn’t happen. Instead, the soggiest part of the Swamp — the military — got more money.
The deficit budget rose three times faster than GDP. The deficit doubled; and federal debt rose by $2 trillion since 2016. And the Deep State got deeper.
Now, like it or not, we are all on the Debtball Express. And with nothing to stop it, it’s picking up speed.
Woohoo!
Regards,
Bill Bonner