Dear Friends;

Consider that we are now deeply entrenched in an era in which governments and particularly monetary authorities are resorting more and more to disinformation and in many cases, outright deception, to foster the illusion that their strategy of printing money has once again cured the ills that threatened to bring down the global economy and send us all into poverty and misery.

The man on the street is told by these hucksters that the proof of their wisdom in guiding the ship of global finance across the seas of commerce is the rising equity markets. “Stock markets are forward looking”, we are assured by these shameless barkers, “and they are anticipating what we have foreseen, namely, a return to abundance and happier times”.

A quick glance at the Dow combined with a plethora of soothing words from the financial media hacks, and the public is tempted to doubt what his or her own eyes and experience tells them is really the case.

Regardless, take a look at the following chart whenever you begin to entertain doubts about your own analysis of the perilous winds and waves that are lurking ahead. The ratio of the Dow Jones Industrial Average to an ounce of gold is the benchmark, the touchstone, against which all gains in the Dow may be compared to a store of value to determine how “real” or substantive those gains might actually be. It is a simple but effective method of cutting through the clutter and noise created by the snake oil salesmen of our time.

The Dow may be rising but its rise is a subterfuge, an illusion, a cup of water that vanishes into the ether before it can bring comfort and relief to a thirsty, longing soul. The Dow Jones/Gold ratio is now below the level of 10 – the last time outside of 2009 that it was trading at this level was FIFTEEN YEARS AGO. Another way of saying this is that paper is losing value against the ancient metal of kings and has been doing so in a trending fashion since 1999 or for ten years.

In attempting to employ a technical analysis methodology on this chart I have some doubts whether a ratio chart of this nature would yield an accurate outcome. Still the exercise might well be a worthwhile one due to the fact that history tends to repeat itself and financial history in particular.

During the decade of the 80’s, the ratio ranged from approximately 1.5 to a high near 7.5, with a tighter range between 3 and 6 more common over most of those years. In the 90’s, it hit a low near 6.5 in the early part of the decade, and then soared to an unsustainable peak near 44.

Between 1992 and 1994, the ratio moved back up in favor of the Dow every time it neared the level of 9. We could thus call that a support level from a technical perspective. In plain terms – investors favorite equities over bullion at those levels.

It cracked that level (9) early this year when it fell as low as 7 before the Dow took off on its head-spinning, liquidity induced, big bank stock led rally. Based on that alone, I would say that if this ratio falls through the level of 9 once again, it will continue to decline back to levels seen during the decade of the 80’s with the ratio reverting back to its affinity to move between 3 and 6.

It could do this in a number of ways. For example, gold could shoot to $1,500 while the Dow moves down to 9,000. Or, gold could move to $2,000 while the Dow shot up to 12,000 as inflationary pressures saw money chase equity prices higher. In the event of a deflationary paper equity collapse, the Dow could drop to 6,000 while Gold hovered around $1,000.

Regardless, the point is that the TREND in the ratio is decidedly DOWN and no amount of monetary-official chicanery and spin by feckless political leaders can do anything to alter that sobering reality. This is the hard reality that the debauchery of the U S Dollar has wrought and the future that the carry trade has in store for the US.

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