Gold

Why I’m Sticking With Gold

By Tom Dyson, Editor, Postcards From the Fringe

The Ultimate Barometer

The Dow-to-Gold ratio is the ultimate barometer of systemic “health.”

It tracks the 30 Dow Jones stocks, as priced in gold. And it tells us the best time to buy gold… and the best time to buy stocks.

You buy stocks when they are cheap relative to gold. That is, when the Dow-to-Gold ratio is below 5 (when it takes five ounces of gold or less to buy the entire Dow).

You sell stocks when they become expensive – when the Dow-to-Gold ratio rises above 15 (when it takes 15 ounces of gold or more to buy the entire Dow). So you sit in gold until stocks become cheap again (in gold terms).

Over the last 120 years, whenever the system “reset,” the ratio went below 5. Stocks were cheap, relative to gold.

On the flip side, when things were ripping – as they were in the late 1990s, for example – the ratio got as high as 41. Stocks were expensive, relative to gold.

And the thing about this barometer is that once it begins a trend, it tends to stay in that trend for many years.

It’s all in this chart of the Dow-to-Gold ratio from 1900 to 2020…

Notice how well this chart lines up with the valuations chart I showed you earlier. For example, the high in the Dow-to-Gold ratio in 1999 (when it took more than 40 ounces of gold to buy the Dow) mirrors the towering peak in stock valuations… right before the dot-com crash in 2000.

At its most recent high in October 2018, the Dow-to-Gold ratio was just above 22. It’s been falling ever since… a signal that the system is going to break soon. Maybe it’s started to break already?

Since the outbreak of the coronavirus pandemic, the government has gone into hyperdrive trying to “manage” the economy – with more financial engineering, more unsound money, bigger deficits, and more soothing words…

As I write, the Dow-to-Gold ratio is at 13.9. I expect it to fall below 5 – what Bill Bonner calls its “rendezvous with destiny” – in the next five to 10 years.

Until then, we’re sticking with gold.

Buffett Vouches for Indexing

Buffett Vouches for Indexing…Again

On May 2, Berkshire Hathaway held its annual shareholders meeting, but since it was during the coronavirus shutdown, it was live streamed.

Warren Buffett, Chairman of Berkshire, spoke for nearly 4 hours, giving a statement and then answering questions.

At one point, he said he hadn’t changed his will since revealing that most of the wealth he was leaving his wife was to be invested in basic index funds.

Buffett reminded listeners, that few beat the S&P 500 every year and those that do can thank Lady Luck. So putting your money in the indexes was the sensible way to invest.

Should you be an indexer, and if so, which ones should you buy?

5 Index ETFs to Consider

1.       Buffett is usually talking about the S&P 500 when he talks about “indexing.” It gives you a nice cross section of American businesses. Vanguard’s S&P 500 ETF (VOO) has an expense ratio of just 0.03%. It’s considered one of the lowest cost options.

2.       Investors can also consider buying an equal weight S&P 500 ETF. That means every holding is weighted equally, instead of by market cap, where the tech titans tend to be over weighted. Invesco S&P 500 Equal Weight ETF (RSP - Research Report) is an option. But it’s down 18.6% year-to-date versus just 12% for the S&P 500 due to its different weighting.

3.       There are also options outside of the S&P 500 such as the NASDAQ. Invesco QQQ (QQQ - Research Report) is an oldie, but goodie. Inception was in March 1999, during the dotcom boom, and it tracks the NASDAQ 100. But be warned, Microsoft, Apple and Amazon are the three largest holdings and make up about 33% of the portfolio.

4.       Thinking the Dow is the way to go? The SPDR Dow Jones Industrial ETF (DIA - Research Report) invests in the index, which is made up of 30 components. It is price weighted which means the largest component is Apple, as it’s trading with the highest price. It’s 8.5% of the portfolio.

5.       What about the long-time favorite SPDR S&P 500 ETF (SPY - Research Report) ? It has the largest volume and is usually used by those who want to trade the index. It has an expense ratio which is higher than Vanguard’s VOO, at 0.09%.

Is Buffett right that indexes are the way to go?

Find out the answer to that question and what else you need to know about buying the indexes on this week’s podcast.

[In full disclosure, Tracey owns shares of VOO in her personal portfolio.]

5 Stocks Set to Double

Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.